Two stories in the news this week are showing how China’s stranglehold on the global supply chain is loosening at a rapid pace. First was Luxshare, who is purchasing two factories that produce iPhones, will be the first Chinese-owned company to do so. Next was Foxconn announcing that China’s ‘Days as the World’s Factory Are Done’ . Trade wars between the US and China have been a hot topic for the last couple of years. Rising tariffs sent companies scrambling to find cheaper manufacturing options and remain profitable. With the addition of political 1Hong Kong, border conflict with India, concentration camps and technology tensions 2TikTok, Huawei, foreign business with China is becoming an increasing risk.
What will likely happen is a “One Brand, Two Systems” style of manufacturing. If you want to sell in China, you will need to build in China 3Similar to producing in Brazil to avoid import tariffs. If you want to sell anywhere else, you will not be able to build in China. Using the Apple example, iPhones intended for sale in China will have an entire supply chain in China to complete the task. iPhones for any other market will be produced in India or a growing number of areas.
Manufacturing, like investing, favors low risk through diversification. Always ask yourself the following: if a factory were to be shut down, or if an entire country were off limits, what would happen to the supply chain? Does business come to an instant halt? Huge conglomerates have the benefit of volume and can diversify their supply chain through different companies and locations around the world. For smaller companies who don’t have that mass volume, choosing the right company and location is paramount. With the ever-increasing risk, there should be no consideration to use factories in China. If your company is smaller and you are currently manufacturing in China, find a factory in a different country. If you’re in the sourcing phase, don’t consider any Chinese-based factories. What started as proposed tariffs has escalated to outright bans. Small companies cannot absorb the impact of manufacturing disruptions, so avoid the risk.
