Taking the Long View: Why China is Still the Best Option for Offshore Manufacturing

The past two years have been very challenging for global supply chains. Starting with the tariff increases and then the one-two punch of the coronavirus outbreak that first shut down China and then hit the rest of the world hard. If there is one thing that the coronavirus outbreak has made clear, it’s that global supply chains are vulnerable to disruption and companies need to build in resiliency that allow them to respond to and overcome challenges that can’t be anticipated.

While many large multi-national companies have chosen to move or open factories outside of China, many small and mid-size companies have found this simply isn’t an option for them. The network of raw material suppliers necessary to produce most components and finished goods isn’t available in other countries. Additionally, the increase in demand in countries such as Vietnam and Malaysia due to the initial exodus from China caused by the tariffs has driven up labor and raw material costs in those countries and further negated the tariff differences.

China was initially the hardest hit by the coronavirus, but it has since gotten new infections under control while other countries are struggling to contain the outbreak. China has kept its infections stable while global infections have soared. Given the rapid global spread of the coronavirus, it may be a short-sighted strategy for China investors to relocate operations to another country. The spread of the coronavirus is impacting the global economy as a whole, substantially disrupting investors’ internal plans and projections.

One of the critical elements to surviving the past two years and the years to come is the presence of long-term relationships in your supply chain. When external threats such as tariff increases or health emergencies hit, the firms with strong production foundations are best able to survive. In the case of tariffs, that means finding additional cost savings in existing products and trusting your partners to be honest about what share of the increases they can absorb.

In the case of the coronavirus disruptions, the ability to secure production capacity despite labor shortages and extended subcontractor shutdowns is critical. Synrise has spent more than 15 years working in China and building the types of relationships that will allow us to resume shipments weeks or even months ahead of our competitors.

Looking ahead to the rest of 2020 and 2021, the expected economic slowdown will present many firms with the opportunity to revisit their contract manufacturing relationships. Labor costs are likely to fall relative to prior years as production slows down in response to the slower economies. Now is an excellent time to review your partnerships and ensure you are best positioned to recapture and expand your market share when the upturn comes along.