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Global Sourcing Spotlight
By Bob Duke
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Global Sourcing Spotlight: Get Out of China? It’s Quite Complex
There is a lot of uncertainty in the global marketplace, and because of that, I’m often asked to find alternative sources, particularly when companies want to get out of China. Now, I sympathize with that, but when you look at the entire situation, you’ll see it’s not always as simple as it might first appear.
To clarify, I can find alternate sources in different countries, but one thing I cannot do is pull out a miracle of finding sources that can compete with China’s pricing. It’s just not gonna happen right now. In most cases, the alternative prices can be as much as three times the prices of what I’ll get in China, and that makes it completely uncompetitive. So, before you decide on the “anybody but China” strategy, you should consider this pricing dilemma.
With that in mind, here are some of the factors I see because of the current global conditions, particularly between the United States and China.
- Tariffs and trade policies: Ongoing trade disputes and imposition of tariffs by both China and the U.S. can disrupt global supply chains and increase the costs of businesses involved in international trade, which we have already seen.
- Supply chain resilience: Companies are currently re-evaluating their supply chain strategies to reduce the dependence on one country as they look to diversify their sources and mitigate risks.
- Increased costs: As I stated before, there is nothing comparable to Chinese pricing; it’s not even close. So, when we start looking for alternate sources in other countries, we can expect increased costs.
- Global trade alliances: I feel that as the tensions between China and the U.S. increase, we will see re-alignments in global trade alliances between other countries and the U.S. practically impacting trade dynamics and supply chain routes. We are already seeing evidence of this with the U.S. and Vietnam and the U.S. and India.
- Technology export controls: Export controls on critical technologies can affect industries heavily reliant on technology imports from China, such as semiconductors and telecommunications equipment. Speaking of semiconductors, we need to realize that Taiwan produces over 93% of the entire world’s semiconductors, including the most advanced technology semiconductors. In this sense, the tensions between Taiwan and China are more critical and alarming to our industry than practically any other situation at this time.
- Intellectual property concerns: Companies are facing increased scrutiny and potential risks related to intellectual property theft and forced technology transfers when operating in or with China. This has always been a threat, but I’m seeing it now more than ever.
- Alternative sourcing: Companies are exploring alternative countries or regions for sourcing to reduce geopolitical risks associated with China.
- Political and regulatory uncertainty: Geopolitical tensions are leading to uncertainties in international relations and regulatory changes, making long-term planning and investment decisions more challenging.
Of course, the ongoing wars in the Ukraine and the Mideast are adding to the strains of geopolitics and the challenges in global sourcing. So, it’s important to keep a finger on the pulse of the global situation, staying updated on what’s happening in the world and the implications on global sourcing. As always, the exact impact will depend on several factors that could include policies by both the U.S. and China, other wars and skirmishes, and their effect on global economic situations.
All this demonstrates why it’s vitally important for everyone to keep their options open. I am constantly looking for new solutions—not only primary solutions but backups to these solutions and backups to the backups.
The one certainty is constant change, and we must be prepared to find alternative solutions, especially when dealing with the ins and outs of global sourcing. Price is paramount, but it’s not the only factor. When faced with the choice of paying a higher price or shutting down a production line, price becomes less of a factor, and that’s something I see happening in the very near future.
All of this means we must consider every option when looking for solid global sourcing alternatives. It must be a complete and thorough search that involves studying alternatives around the world and being prepared to pivot when something happens. And as we all know when you work in a global environment, stuff always happens.
Bob Duke is president of the Global Sourcing Division at American Standard Circuits.
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