John Scannapieco, chair of the Global Business Team at the law firm of Baker Donelson, explains how the U.S.-China trade war, the coronavirus pandemic and global recession are causing companies to rethink the structure of their supply chains.
Many companies began rethinking their supply chains in response to the U.S.-China trade war. High tariffs and extreme uncertainty prompted them to reconsider their heavily reliance on China as a source of low-cost manufacturing. Other factors include rising wages in Chinese factories, perceived favoritism toward Chinese companies at the expense of U.S. producers, and concerns over technology transfer and intellectual property protection. As a result, manufacturers began some migration of production to other Asian countries such as Vietnam, Thailand, Malaysia, Cambodia and Myanmar. Closer to U.S. markets, they also shifted some operations to Mexico.
The coronavirus pandemic accelerated the trend greatly. The temporary shutdown of factories in China in late 2019 and early 2020 caused huge disruptions in the supply of product to U.S. markets. Producers responded by considering alternative manufacturing sites, although that exercise was to some extent stymied by the pandemic’s impact on virtually every country in the world.
All of which has presented manufacturers with a serious conundrum: if every potential source of production is affected, where can they find reliable sourcing? Their first step, says Scannapieco, should be a “deep dive” into their supply chains to understand the identity and location of key suppliers, including those further up the supply chain. Such an effort can help to uncover problems such as a lack of reliable infrastructure for moving manufactured goods to market. Even those with continuing operations in China have recently found a lack of adequate port and ship capacity to get their goods out of the country, he says.
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