You might think that the recent spate of supply chain disruptions would have caused a stampede of manufacturers out of China, or at least prompted them to diversify sourcing. But that hasn’t been the case.
COVID-19 is just the latest in a long string of disasters and glitches to impact global supply chains, and expose the risk of relying on a single country or manufacturer for product. Diversification of sourcing seems like the obvious strategy for mitigating that risk, but companies aren’t necessarily making a big move in that direction. That’s the conclusion of the latest Southeast Asia Sectoral Cost Index from Flexport, a digital freight forwarder and customs broker. On this episode, we delve into the findings of the report with the help of Flexport chief economist Phil Levy. He lays out the factors that companies consider in deciding whether to shift manufacturing from China to the up-and-coming countries of Southeast Asia, and explains why there’s currently a “decreased tolerance for multi-sourcing” when the cost differential is significant. The idea of diversification “has a certain appeal,” Levy says, “but when you put a price tag on it, there’s less enthusiasm.”
Flexport’s report on “Southeast Asian and Supply Chains.”
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