April 22, 2020

Looking back at 2019 and despite the trade war and the current COVID-19 outbreak crisis, many China experts believe that US and EU manufacturers will not be packing up and leaving China anytime soon.

Diversifying away from China or expanding manufacturing operations in other countries and the U.S. is an option, given the current climate, but certainly companies have to weigh costs, time, and understand that moving the supply chain will carry its own risks and uncertainties.

Despite ongoing financial and operational challenges in their supply chains, very few companies appear to shift operations or sourcing beyond their China strategy, infrastructure, and investment. ​ Sixty-eight percent of companies said they expect China operations to recover from coronavirus-related disruptions within three months, and all respondents believed a return to normal would be complete within 12 months.

Supply chain experts from leading consulting firms have pointed to supply chains that diversified during the trade war as being better prepared to handle coronavirus-related disruptions. It’s interesting to see that industry survey results found 84% of respondents had no plans to move production or operations to another region of China or outside the country due to COVID-19 and 74% said they had no plans to shift sourcing.

China trade experts are saying that China appears moving ahead of the global curve when it comes to restarting the economy following varying levels of lockdown. China appears to be capable of moving their manufacturing base forward in this global pandemic and this is what many executives view as the primary reason why companies are in China in the first place.

Trade and management consulting leaders see many companies adopting a ‘China + 1’ strategy as a way to diversify supply chain risks while continuing to target China market opportunities.

China+1 refers to companies focus on China remaining the primary manufacturing source for a company while it will slowly diversify capabilities based on benefits to specific operations but does not move the whole supply chain.

While the state of U.S. manufacturing has drastically declined over the years many companies seem to think it was either too soon to tell whether the pandemic would shift their long-term China strategy, or that it has not changed their approach at all.

Currently, moving goods through and out of China is the primary concern for all manufacturers there and operating at a limited capacity and insufficient labor availability.

The Institute for Supply Management found supplier lead times have increase over 222% in China and 200% in the U.S. due to the ongoing effects of the coronavirus outbreak, according to a survey of 559 primarily U.S.-based companies conducted March 17-30.

No doubt, this can affect operations at U.S. factories that are waiting on critical parts and is also a challenge for firms that need to export components from the U.S. to China for final assembly as transportations costs have increased drastically.

These factors have all come to a head as the economy slides into what the International Monetary Fund is calling “the Great Lockdown” becoming the most substantial downturn since the Great Depression.

As a result, regardless of whether businesses diversified away from, or stayed the course in China, as global supply chains slow down with the economy, many supply chain experts expect the downturn to continue over the next couple of months until China, EU, and the U.S. begin to fully rebound.

In this time of unprecedented strain on companies supply chains, organizations now need to reassess their supplier relationships and evaluate new potential vendors!

Modevity Investigative Due Diligence Services provide actionable intelligence for risk avoidance in detailed reports that assist companies in assessing their supply chain.

Modevity supply chain audit services can assist you in protecting your company’s financial position, its operations, and its reputation going forward. Our staff of veteran investigators can provide timely and actionable intelligence on your entire supply chain. Allowing you to get on with what is important.


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April 22, 2020