How rebuild supply chains outside China
There has been a big shift in cross-border supply chains. The shift is creating stiff competition to secure new facilities in neighboring countries and rebuild supply chains outside China, home to a fifth of global manufacturing.
The scramble is driven by the risk of more, and higher, US tariffs on China, and fears that nearby emerging economies can only accommodate new businesses on a first come, first served basis. There is no choice but to as rapidly as possible look to move production away from China.
Re-sourcing and relocation efforts mark an acceleration of an already established trend as China’s economy shifts towards services, consumption and high-tech production. This is one of the biggest sourcing disruptions seen in a generation.
However, any relocation away from China is going to be very slow and uncertain. Shifting production can take years to complete: firms need to secure funding, find the right suppliers, sort out new logistics – all while dealing with new legal and accounting issues in a country they may not know well.
Low tech goods and low value manufacturing would be the quickest to migrate while higher value-added exports in the machinery, transport and IT category would likely take decades to relocate due to high R&D costs and competitive Chinese labor costs.