The trade war between China and the United States has been warming over the past few weeks and got plentiful attention worldwide.
Apparently, China’s manufacturing industry has been affected, based on my recent visits and interview with companies in major manufacturing sites (such as Shenzhen, Dongguan, Suzhou), I get a deeper understanding of their concerns and confusion, meanwhile learned that they are actively studying and formulating strategies to eliminate dependencies to US and meet new challenges. Below changes are happening and will definitely influencing economic trends in the coming months:
Supply chain changes
- Replace US electronics and raw materials (like resin) suppliers and purchase from Japan, Korea, and Europe, unless they are not replaceable in short term;
- Develop more local electronics components suppliers with long-term technical road map;
- Increase the safety stock level;
- Move the factory to inland China to reduce the cost;
- Set up or make joint venture entity in Vietnam, etc. Southeast Asia countries to do simple final assembly or packaging, then ship to US to prevent tariff issues.
- Turn more efforts to Europe, Southeast Asia, Canada, Japan, Korea and other market.
- Develop China domestic sales.
- Decrease US market share ratio in the whole business.
Product development/manufacturing changes
- Develop more ODM products other than act as Electronics/Mechanical parts/Assembly Manufacturing Service provider solely.
- Develop R&D capabilities, apply various patents and increase the market competence.
- Develop more automation manufacturing lines to reduce labor cost and increase quality level.
From what we observe, China manufacturing will remain its competitive edge for a long time, mainly because of mature supply chain, large number of experienced engineers, technicians and automation application.
The trade war may not hit the whole economic badly, but these changes will re-shape the whole Asia supply chain. If you outsource manufacturing from China, we encourage you to talk to your suppliers as soon as possible to understand more about their strategy, risks mitigation action plan and how this will impact your business.