- The majority of sourcing policy when the globalisation movement gained traction was built on the premise that wages and costs in Asia (i.e. China) were significantly lower than local costs.
- But as wages rise, and with the COVID-19 pandemic causing massive disruption in global supply chains, the question must be asked: do businesses need to rethink their sourcing policies?
- In this article, we take a look into the current issues with China sourcing and the alternative sourcing options for small businesses.
Let's face it: sourcing and manufacturing in China has been losing relevance rapidly over the past decade.
I remember having a discussion with a client back in the early 2010s exactly to this effect. The client had preselected a factory for their manufacture and engaged my agency to help in the transition and setup.
My advice to my client (at the risk of losing the engagement contract) was that it was too late in the game to be jumping on the "Made in China" bandwagon; even then China was losing traction as the preferred destination for the manufacture of goods for Western clients.
What Are the Problems with Sourcing Products from China?
One of the largest concerns I have always possessed - aside from the obvious intellectual property (IP) issues - is that wages are rising at an unsustainable rate as the demand for factory workers outstrips supply and those with transferrable and relevant skills are able to demand more and more money.
This is not a statement to say that I am against the rights of factory workers to have better working conditions. In reality, I am a strong proponent of better conditions and saw it as a massive human rights positive when most workers moved away from dormitory accommodation and were able to move to apartments away from the factory without the need to work 10-12 hour days, 7 days a week for a pittance.
However, the majority of sourcing policy when globalisation first became a movement - and many businesses realised they could get (almost) the same product for significantly less money form South East Asia (i.e. China) - was built precisely on the premise that wages and costs were significantly lower than local costs.
Once you remove this from the equation, what are you left with: longer lead times, higher minimum order quantity (MOQ), increased IP risk and no (or negative) price benefit for the privilege. This was rapidly approaching back in 2010 when China was first displaying signs of becoming a victim of their own success.
The Impact of COVID-19 on Global Supply Chains & China Sourcing
Fast forward a decade and we have learnt another powerful lesson thanks to COVID-19: a simple virus can bring many international supply chains to a standstill, especially when the main producer is suspected to be the epicentre of an outbreak.
Suddenly businesses around the globe learnt about the dangers of single sourcing and the history of everyone jumping onto the "Made in China" bandwagon.
The next lesson we learnt is that consumers with little to do in lockdown tend to gossip and find fault in things that they were blindly accepting of when time was less plentiful. So now we can add supply chain risk and rapidly growing consumer dissent to our China sourcing issues.
The final straw in the argument has to be the imposition of anti-dumping tariffs on Australian exports to China (arguably retaliatory to our anti-dumping tariffs imposed on Chinese imports or steel and aluminium products a few years back).
Irrespective of whether these tariffs were antagonistic or retaliatory, the fact remains that they were extensively captured and broadcast by bored media presenters to an equally bored and angry/frustrated Australian population. So now consumer dissent starts to look a lot more like calls to boycott certain goods/brands with the "Made in China" tag.
It is becoming more and more apparent that this whole "Made in China" bandwagon sourcing policy has fallen off the track and is lying burning in a ditch somewhere. As a small business, you are facing higher IP risk with companies looking to recoup increased wage costs or higher defects due to substandard parts used in your products to continue to meet an "agreed" price. Regardless, price increases would have been happening over the past decade (or longer) as pricing agreements lapse or end.
Your supply chain is significantly more unreliable as ships are either sent with significant delays or held at the port waiting for clearance/last-minute duties/tariffs. And now your company faces the growing risk that consumers will gravitate to competitors brands without the "Made in China" tag.
So is the whole "Made in China" scenario still working for you now? What are your options?
What Are the Alternatives to Sourcing Products from China?
China has held pole position as the World's factory for so long that many companies have forgotten that there are multiple manufacturing destinations that have been growing in relevance and proficiency whilst waiting for the inevitable downfall of China's monopoly.
Some of these destinations have been nurtured by sourcing from designers and countries with a strict historical aversion to "Made in China" and the perceived and real risks involved. South Korea and Japan are a couple of example of countries that have fostered other manufacturing destinations to better manage their IP risks.
For many years, however, the role of the "Global Sourcing Professional" was typically to jump onto Alibaba and find a (hopefully) suitable supplier from the millions of companies in Mainland China advertised there. But we are rapidly moving towards a need for true GLOBAL sourcing and establishment capabilities so we can mitigate the ever-growing China risk.
It may also be feasible to re-examine local manufacture in Australia. I understand that some industries are too far gone to be recovered and too long behind what is now current technology to be relevant, but there are still some factories and industries that are more than capable of managing a lot of the work that has been driven to China in the past.
It is simply a case of making a planned and informed decision on your future manufacturing policy and destination and taking action to start realising this new policy.
It sounds a lot better than continuing to ride the "Made in China" bandwagon into oblivion, doesn't it?
Have you been reconsidering your sourcing policy after COVID-19? Share your thoughts in the comments below.
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