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CHINA PLUS ONE STRATEGY

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Walter Hay

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I am in the process of writing a 2021 revision of my sourcing and importing book, but I thought I should post this extract now because it is so important.

With the onset of what became known as the Trade War between China and the USA, followed by the pandemic there has been a growing interest in sourcing from countries other than China. Many view it as essential in order to minimize their risks if their chosen products join the list of those on which much higher tariffs are imposed. Others are looking elsewhere in an effort to speed up delivery of their imports, but there is another major change that should be noted.

In China, increasing production costs due to such factors as removal of incentives, new employment protection laws, heavy enforcement of anti-pollution regulations, rising wages, a growing shortage of cheap labor, and rising foreign exchange rates, have led to what is known as The China Plus One Strategy.

As a result of this new strategy, the sourcing scene has changed dramatically. Many Chinese and Taiwanese companies have set up manufacturing facilities in other low labor cost countries where they are not affected by the growing consumer doubts about the quality of products bearing a Made In China label. This move is primarily about reducing their cost, but it also enables them to avoid the high tariffs being imposed on goods made in China.

Taiwan is also suffering similar cost increases. I recently found a major Taiwan manufacturing company that has set up manufacturing facilities in several other Asian countries. Their motivation is probably primarily to reduce costs, but it will also help diversify their supply logistics.

If you take note of what Chinese manufacturers are doing you will surely realize that you should be doing something similar. You might not want to set up your own manufacturing facilities in other low cost countries, but if that is being done by others, why not take advantage of that and begin sourcing from those places?

Walter
 

Lyinx

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our industry has switched 90%+ from china to other countries over the last two years, often to "sister" companies, which basically follows what you have said, they are moving production out of the country (which also allows bypassing environmental protections acts, high labor, and more.
 

Walter Hay

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This move is primarily about reducing their cost,
When I wrote that, I should have elaborated on why this means that importers whether large or small, should also start sourcing in those other countries. I know that many have, and this is causing pain to Chinese manufacturers.

Cost pressures due to the factors I mentioned have resulted in manufacturers in China increasing their prices. As a result they have been losing a lot of business when their buyers rebel against paying a lot more than what they have come to expect when buying from what they still think of as a low labor cost country.

Those who already have my book have the answer outlined for them with links to sourcing sites in many countries other than China, including a number that I regard as low labor cost ones. They are not all in Asia. I am adding some more in the revision, but you don't need to wait. If you have a developing country in mind and it's not listed in the current edition, just PM me and I will send you a link to a sourcing site specific to that country.

Walter
 

Walter Hay

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China's economy has made a big comeback largely due to their early total lockdown in Wuhan, and their quick control of the epidemic allowing businesses to return to full operations while most countries were still closing down a lot of businesses.

This is not likely to make Chinese suppliers any easier to deal with. In fact I expect they will see themselves as being top dog and negotiations will not be as easy as before.

If Chinese manufacturers feel that they are sitting pretty, that to me is all the more reason to adopt your own PLUS 1 policy, and that probably should not be CHINA PLUS 1.

Consider instead; Argentina, Armenia, Australia, Azerbaijan, Bangladesh, Belarus, Brazil, Bugaria, Cambodia, Canada, Chile, Colombia, Czech Republic, Estonia, Georgia, Germany, Greece, Hungary, India, Israel, Italy, Japan, Malaysia, Mexico, Nepal, Pakistan, Philippines, Poland, Portugal, Romania, Singapore, Slovakia, Slovenia, South Korea, Sri Lanka, Taiwan, Turkey, Ukraine, USA, UK, and Vietnam.

YES! All of those countries have exports to offer. Some have very little, and others will astound you with the range of products they manufacture. If you are keen to source from a country not listed, the good news is that I disclose in my book myown DIY method for finding suppliers in almost every country that is capable of handling exports.

If perhaps you have an excellent relationship with your current supplier in China it might not be a wise move to totally ditch them, but a CHINA PLUS 1 move is worth considering while you can still enjoy the benefits of the good relationship. Existing relationships don't necessarily last forever, although my friendship with my original supplier in Taiwan has lasted since 1987 and we still maintain contact, which is very helpful in keeping me up to date.

Walter

P.S. I have released the 15th edition of my sourcing and importing book. I will post an announcement in the early hours of Monday morning. It is aready mid afternoon on Monday here in Australia, so it's 10.22 pm Sunday in the USA.
 
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Walter Hay

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In a thread which has since been closed @Rivoli wrote:
"What every entrepreneur in the US needs to do asap is look at their supply chain and start looking at other options outside China. I have moved my entire supply chain out and it’s actually cheaper, I can help you do this if you need help."

I am not China bashing. After all, as I wrote in my original post:
In China, increasing production costs due to such factors as removal of incentives, new employment protection laws, heavy enforcement of anti-pollution regulations, rising wages, a growing shortage of cheap labor, and rising foreign exchange rates, have led to what is known as The China Plus One Strategy.

and I pointed out that China and Taiwan are already implementing this strategy. I am simply looking at the international trading scene and offering suggestions on how to get the best results under the present circumstances.

Unless importers in Western countries wake up and change their sourcing strategies just as is being done by China and Taiwan, as well as many really big Western companies, they will be left behind in the race to set up secure supply lines.

Astute entrepreneurs like @Lyinx and @Rivoli have already raced to the front

our industry has switched 90%+ from china to other countries over the last two years, often to "sister" companies, which basically follows what you have said, they are moving production out of the country (which also allows bypassing environmental protections acts, high labor, and more.
but there are others who were forward looking. I have had forum members tell me as much as two years ago that they had taken the advice that I had been publishing for several years and they moved their product sourcing away from China and had found better quality and better prices.

Walter
 

Walter Hay

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Update on China Plus One Strategy.

In a report published by a big Chinese owned inspection company, they say: "China sourcing is bouncing back strongly but is yet to return to pre-C0VlD levels, while alternative sourcing regions such as Vietnam, India and Turkey are experiencing sustained levels of growth."

Although they say China is bouncing back "strongly", it is clear from the tenor of their report that Chinese manufacturers are encountering difficulties. This is evident in an increase in compliance violations and product quality deficiencies. Chinese manufacturers resort to taking shortcuts and lowering material input standards when they see their margins thinning.

Also, many importers report poor communication as a growing problem in buying from China.

India is also benefiting substantially from China's failings, but I expect US and Australian buyers to increase their purchasing from the rapidly growing and increasingly sophisticated Indian manufacturing establishment. South Asia in general is attracting buyers from those countries.

On the other hand European buyers prefer to buy as near to local as possible, so this has brought about a substantial growth in purchases from Turkey, but also from within the EU.

All in all, China's role as the world's manufacturer is not looking promising. Those of my book readers who have taken my advice to source away from China will have already developed relationships with manufacturers in other countries, and those relationship will stand them in good stead as buyers worlwide increasingly join the move away from China.

Walter
P.S. The C0VlD 19 situation and how governments deal with it will continue to be an unpredictable game changer.
 

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