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The China Exodus: Survey Shows Sourcing, Manufacturing Moving Out

The China Exodus: Survey Shows Sourcing, Manufacturing Moving Out

A Gartner Inc. survey of 260 global supply chain leaders in February and March 2020 found that 33 percent had moved sourcing and manufacturing activities out of China or plan to do so in the next two to three years. Survey results show that the COVID-19 pandemic is only one of several disruptions that have put global supply chains under pressure.

“Global supply chains were being disrupted long before COVID-19 emerged,” said Kamala Raman, senior director analyst with the Gartner Supply Chain Practice. “Already in 2018 and 2019, the U.S.-China trade war made supply chain leaders aware of the weaknesses of their globalized supply chains and question the logic of heavily outsourced, concentrated and interdependent networks. As a result, a new focus on network resilience and the idea of more regional manufacturing emerged. But this kind of change comes with a price tag.”

READ: Impact of COVID-19 On The Automotive Manufacturing Supply Chain

READ: Coronavirus Outbreak Reveals the Weakest Links In The Supply Chain

Tariff Costs are the Primary Reason to Move Supply Chains

For decades, China has been the go-to destination for high-quality, low-cost manufacturing, and it has established itself as a key source of supply for almost all major industries including retail and pharmaceutical. However, Gartner research showed that the margin between those companies planning to add jobs in China versus taking them away narrowed sharply in 2019. The primary reason is the increase in tariff costs.

“We have found that tariffs imposed by the U.S. and Chinese governments during the past years have increased supply chain costs by up to 10 percent for more than 40 percent of organizations. For just over one-quarter of respondents, the impact has been even higher,” Raman said. “Popular alternative locations are Vietnam, India, and Mexico.

The second main reason for moving sourcing and manufacturing out of China is that supply chain leaders want to make their networks more resilient.”

READ: Trade War Pushes Apple’s Manufacturing From China To Vietnam

READ: Taiwanese Companies Shift Production To Taoyuan As Trade War Heats Up

Balancing Efficiency and Resilience

Only 21 percent of survey respondents believe that they have a highly resilient network today—meaning that they have good visibility and the agility to shift sourcing, manufacturing and distribution activities around quickly. However, 55 percent expect to have a highly resilient network in the next two to three years—a reaction to disruptions such as Brexit, the trade war and COVID-19.

However, resilience has a price. Fifty-eight percent of respondents agree that more resilience also results in additional structural costs to the network.

“We are at a crossroads in the evaluation of global supply chains that pits just-in-time systems designed to improve operational efficiency against just-in-case plans that emphasize planning and preparing for a range of plausible scenarios,” Raman added. “To find balance, supply chain leaders must engage in risk management to assess their organization’s willingness to take risk onboard and decide how to quantify that risk against other network objectives such as cost effectiveness.”

Moving Closer to the Customer

One-quarter of survey respondents stated that they have already regionalised or localised manufacturing to be closer to demand. Despite the cost of adding more players to the ecosystem and increasing the overall network complexity, regional supply chains can ease delays and shortages in times of disruption—if the model is economically viable.

“Many Western organizations will have to explore new forms of automation on the factory floor to decrease the costs of near- or onshore production. Some also favour a partial option, such as manufacturing in Asia and moving only the final assembly closer to the customer,” Raman concluded.

 

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US Imposes 456 Percent Tariffs On Vietnam Steel

Impact Of The US-China Trade War On Vietnam’s Manufacturing Sector

US-China Trade War Continues To Negatively Impact Global Manufacturing

Trade War Threatens China’s High-Tech Industries

 

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US Imposes 456 Percent Tariffs On Vietnam Steel

US Imposes 456 Percent Tariffs On Vietnam Steel

The US Department Of Commerce has imposed a tariff of up to 456 percent on steel products that are imported from Vietnam, which are manufactured using materials from South Korea and Taiwan. These steel products from South Korea or Taiwan are shipped to Vietnam for minor processing before being exported to US.

Vietnam has benefited from the US-China trade war as companies are shifting production to the country and rerouting goods to Vietnam to avoid tariffs. In fact, Vietnam exports to US has increased over 30 percent in the first five months of 2019 and US is the largest export market for Vietnam.

In light of this, Vietnam’s foreign ministry has urged Vietnamese manufacturers to use domestically sourced materials or materials manufactured in countries where no tariffs are imposed.

 

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IPhone Manufacturer Pegatron To Start Operations In Batam In April

iPhone Manufacturer Pegatron To Start Operations In Batam in April

Taiwan’s electronic manufacturer, Pegatron Corporation will officially start operations in Batam, Riau Islands in April this year, following rental of a manufacturing plant in the designated economic zone. The general manager of Batam’s Batamindo Industrial Park, Mook Sooi Wah, confirmed the company would rent a two-hectare manufacturing plant in the park.

Pegatron, the maker of Apple’s iPhones, is planning to invest up to US$300 million in the long run with an initial investment of US$40 million, as confirmed by Batam Development Industrial Authority (BP Batam) chief Edy Putra Irawadi.

The US-China trade war has driven the company out of China into ASEAN countries, including Indonesia. Furthermore, the company announced a partnership contract with Batam-based listed electronics manufacturer PT Sat Nusapersada in December, for the purpose of assembling various electronic products to be exported in the US.

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Foxconn Considers Operation In Vietnam Amidst US-China Trade Tensions

Foxconn Considers Operation In Vietnam Amidst US-China Trade Tensions

Taiwan’s Foxconn technology group, the world’s biggest electronics contract manufacturer and a key Apple supplier has recently acquired the right to use a property in an industrial park in northern Vietnam. The company is reportedly considering setting up an iPhone manufacturing facility in Vietnam to mitigate the negative impacts of the ongoing US-China trade war.

Vietnam would serve as an additional production base to shelter operations from the trade tension and is one of the preferred locations as compared to India. According to Le Dang Doanh, the former economic adviser of the Vietnamese government, Vietnam has joined multiple trade pacts including the recently-ratified Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) which would allow iPhones to be exported to many member countries with lower tariffs. Following an investment of US$5 billion in Vietnam in 2007, Foxconn could leverage on its existing operations in Vietnam to continue expansion of investments in the country.

However, Vietnam has a low number of supporting business and lower credit ratings as compared to India. Although high iPhone import tariffs due to the ‘Make in India’ policy might deter Foxconn from India, greater labour and English skills could make India a prime location as well.

Taiwanese companies have invested estimated US$31 billion in more than 2,530 projects in Vietnam, making them one of the top 10 investors of Vietnam.

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Jack Ma’s Vision Of New Manufacturing – A Silver Lining To The US-China Trade War?

Jack Ma’s Vision Of New Manufacturing – A Silver Lining To The US-China Trade War?

CHINA: Amid the economic strain that the US-China Trade War has caused, it has also resulted in unique business transformations and immense Chinese technological evolution. An example of which would be Jack Ma, co-founder and executive Chairman of Alibaba Group Holding’s vision of New Manufacturing. A novel concept that utilises the Internet Of Things (IoT), cloud computing , artificial intelligence (AI) and big data to mass create highly customised consumer products in a market that is fast leaning towards personalisation.

Additionally, through the integration of New Manufacturing and New Retail, online and offline retail experiences can be connected to and funneled towards the manufacturing pipeline to ensure that consumer feedback are quickly relayed to manufacturing operations, outputs and inventory stocking. A proposition that Ma predicts will drive the Chinese economy forward and reinforces his statement that “If we use machines and data, to integrate and digitalise, we will change the economy”.

Hence, in the face of rising tariffs from the trade war, Ma’s vision alongside the Chinese government’s “Made in China 2025” industrial master plan aims to reduce the digital gap between China and the West and ultimately, minimise China’s dependecy on imported technologies. A goal that Alibaba is striving towards through strategic partnerships, the establishment of new technology companies as well as acquisitions – as most recently seen by the company’s progress in semiconductor R&D and its production of its own CK902 series of smart chips. A “core technology” that Ma strongly believes should be made locally as China has the largest number of internet users in the world.

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