Founder of Strategic Footprint, which is helping corporations regain their long term by moving away from contract manufacturing overseas.

Companies are leaving China en masse. Gartner’s survey of home chain leaders showed that 33% intend to move at least part of their production out of China to 2023. La list of corporations rethinking their outsourcing strategy includes everyone from Apple and Dell to toymaker Hasbro. a panacea for corporations to expand their production temporarily and economically is much less exciting than before. The question is why?

New to outsourcing in China

The exodus from China illustrates a trend that has been emerging for at least five years. China was once the world’s preferred subcontractor, but this merit has slowly eroded as other countries in Asia and elsewhere have developed competitive production capabilities. they have led corporations to reconsider their appointments with China.

But recently, as the founder of a company that is helping companies move from production to outsourcing abroad, I have observed that a more problematic trend has emerged, at least from an American perspective: Chinese companies seem increasingly willing to prioritize consumers in countries that Beijing sees as strong and predictable trading partners. , which puts U. S. corporations at the back of the group. Trade relations with the United States have gone from cooperative to combative, as many Chinese corporations have rejected or delayed orders from American consumers. From their point of view, their reasoning makes sense. As Paul Ericksen and Eamon McKinney pointed out in a recent industryweek editorial, “the Chinese public wonders why they are helping American production, when it turns out that the US needs to destroy China. “

Tariffs resulting from an ongoing industrial war don’t help the scenario either. Corporations that have outsourced production to China as a component of a cargo measure have noticed that those savings disappear because of emerging market prices. With no transparent end to the industry war in sight, corporations importing goods or subcomponents from China face additional pricing and continued volatility that make profitability elusive or impossible.

Even if price lists are removed, U. S. corporations will still be important at the end of the order chain for some time to come. What business owner wouldn’t prioritize the desires of their maximum fluid consumers?consumers around the world, would you decide on a business spouse whose main characteristic is uncertainty?

The outbreak of the pandemic has only made matters worse; an occasion of this speed and magnitude has subjected the global supply chain to an unprecedented confrontation and has failed this verification in many cases, as evidenced through empty shelves and delays in production, revealing that the chain of origin is much less resilient, agile and adaptable than we thought. As companies continue to face origin chain problems and look for tactics for the next disaster, many are rethinking how they manufacture. no more work.

Medium-sized companies: the hardest blow

In my opinion, some corporations (most) will decide to stay in China because their proprietary groups believe that the benefits outweigh the risks; others, however, will make the decision to leave and notice that the strategy of leaving is not obvious.

Larger corporations have the means to move outsourcing out of China or supplement it with domestic or nearshore production. Equipped with the means for the global in search of opportunities and budgets to spend on offshoring, these corporations can do everything in their power to identify production where it is very advantageous.

However, small and medium-sized enterprises do not have the same advantage. In many cases, they first outsourced production to China, as this streamlined the production path, required less seed capital, and introduced scalability. or the budget to build facilities, outsourcing to a country with a powerful production infrastructure physically available seemed to be the most productive (often the only) way to get a product off the drawing board and market it. it won’t be easy.

Emerging alternatives to China

It is no longer obvious to choose where to outsource production, which is smart and bad. Companies want to think more about where and how to manufacture now that China is no longer the apparent choice. However, there are more viable than ever, some with exclusive benefits.

Countries such as Vietnam, India and Romania have matured their production sectors to the point of competing with China in many ways: medium-sized companies looking for an affordable but professional workforce, complex production facilities and favorable regulatory situations can place them everywhere Having more countries to outsource to encourages those countries to compete for business and , in addition, it allows an agile and geographically varied production strategy that can pivot to places depending on the circumstances.

Depending on the product and the operational process, the most competitive countries for production would possibly be the United States or Mexico. Recent history has shown the price of a smaller and more condensed source chain than a chain that winds through the world. from the same facility or even the same country can make operations more consistent. Consumers also prefer products classified as “Made in America” and will pay a 20% premium in some cases. Relocation or nearshoring is not the right choice for all corporations (and the same goes for leaving China). That said, relocation or nearshoring can help some corporations unlock new opportunities driven by domestic production.

I invite all medium-sized companies that outsource their production in China to assess whether the scenario is sustainable and what they are.

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Founder of Strategic Footprint, which is helping corporations regain their long term by moving away from contract manufacturing overseas. Read doug Donahue’s full text

Founder of Strategic Footprint, which is helping corporations regain their long term by moving away from contract manufacturing overseas. Read Doug Donahue’s full control profile here.