With all of the recent events disrupting global supply chains, the trade war between the U.S. and China might seem like old news. But it remains a concern for importers and exporters, and it’s likely to influence sourcing decisions in the months and years ahead.
The luster of China as a source of low-cost production has been progressively fading. It began happening well before the pandemic, when Chinese factory wages started to climb, and workers became harder to retain. Then came the imposition of import tariffs on Chinese-made imports by then-President Trump, which were kept in place by President Biden. Finally, COVID-19 led to a rolling series of factory shutdowns in China, starving retailers and distributors of product at a time when customer demand was surging.
It would be premature to say that China’s days as a dominant manufacturer of consumer goods for the world are numbered. But there’s been growing interest among manufacturers and brands in shifting at least a portion of production to other countries, especially in Southeast and South Asia, that offer a combination of relatively cheap labor and political stability. Some have even taken steps to source product much closer to U.S. markets, whether Mexico or even domestically.
Adidi Pany, founder and chief executive officer of Qalara, a global wholesale market for artisanal and sustainable consumer goods, describes three major developments that are causing manufacturers to consider a shift away from China: the larger geopolitical situation of tariffs and supply shortages the world round, the need for diversification of sourcing to lessen the risk of supply disruption, and pressure to create more sustainable and responsible supply chains.
That third trend might end up having the greatest impact over the long run. “There’s a massive interest in sustainable materials in the product itself,” says Pany. The reason, he adds, lies in the ready availability of natural materials, such as plant-based fibers, in India and Southeast Asia. Consumers are looking to reduce the amount of plastic in their everyday lives, sparking interest in alternative materials that don’t lend themselves to industrial machine-based manufacturing. Banana fiber, for example, is a delicate material that calls for labor-intensive production. And the growing differential in labor cost between China and other parts of Asia is making the latter region an increasingly attractive place to source sustainable goods.
“Every other week, I get e-mails saying ‘I have suppliers in China, but I’m looking for [others] who can do this,’” Pany says. They’re not necessarily abandoning China altogether, he adds, but are instead seeking a “China plus one” strategy for global sourcing.
Pany names India, Indonesia, Vietnam and Thailand as among the most promising alternatives to China at present. All share a strong agricultural base, while each also specializes in particular types of materials and processes that make them individually attractive.
When it comes to the quest for greener logistics, however, manufacturers and brands aren’t moving the needle by shifting production of U.S.-bound goods from China to Southeast and South Asia. Long hauls by ship or plane, spewing greenhouse gases, are still required to get those goods to market. “From a sheer logistics standpoint,” says Pany, “at the end of the day, distance matters.”
Still, the nature of sustainable production in locations such as South Asia can help to offset the carbon footprint of transportation to a certain degree. The production of goods using local materials and handmade methods tends to consume much less water than heavy industrial processes, Pany says. What’s more, natural materials can be more easily recycled and converted back into base materials.
Today, the push for more responsible supply chains extends well beyond measuring carbon emissions, to include fair labor practices regardless of where the factory is located. Pany says India, for one, has recently experienced a sharp rise in awareness of the need for responsible manufacturing. And with the advent of digital communications and the internet, the data is there to provide the necessary visibility into how factories are treating their workers.
Qalara, for its part, has representatives who monitor working conditions at every factory, workshop and even home where its products are made. “They’re talking to the actual labor force,” Pany says. “Workers are far more informed of their rights today, and demand them.”
In the end, though, the push for more sustainable sourcing depends on the final step in the supply chain: the consumer. Pany says the question of whether consumers today care about buying sustainable products “is a tricky one.” They’re willing to pay a premium for an eco-friendly product, he says, but are less concerned about making sure that goods adhere to certain fair-labor certifications that they don’t fully understand. “They may have heard of fair trade and what it translates to,” he says, “but there’s still a distinction between that and the actual materials.”
For all the hype about supply chain sustainability, however, it remains just one factor in the move away from China as a sole source of manufacturing. In the end, diversification fulfills multiple needs, most notably the de-risking of supply chains in uncertain times.
“All of those factors have converged in a virtuous cycle,” says Pany. “I foresee that to continue to amplify over the next three years.”
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