Moving out of China – US & Euro Companies are NOT Doing It

Moving out of China, is it happening?

According to some interesting new data, only 4–11% of Western companies in China are considering moving.

In many countries, labor is cheaper, but when everything is accounted for, the unit cost in the new country often ends up being 30%–40% higher.

That’s a lot.

Perhaps then a China+1 strategy, diverting, say, 20% of your quantity to another country to have a safety net, could work?

Finding and qualifying one new factory, let alone a whole new supply chain, requires a lot of time and investment. You will have to open extra sets of molds, dies, etc.

“So we need to INVEST HOW MUCH to achieve a 30% INCREASE in cost?”

Only multinationals with massive volumes can afford those just-in-case investments, and they have pressure from the stock market to raise, rather than lower, margins.

Considering moving is very different from actually moving.

The fact is that China has by far the biggest concentration of factories for any kind of electronics.

Hyper-intense competition keeps value for money and speed at an unparalleled level.

For each and every part of the supply chain.

So if companies do move, it will be only assembly, screwing together a kit of components that all still come from China.

If firms move at all, most stay in Asia due to logistics.

All these statements are supported by two different pieces of research.

The European Union Chamber of Commerce in China, “Business Confidence Survey 2020,” shows that only 11% of European companies are considering moving out of China; the amount is even less than the previous year.

The places where most of them are considering moving are mostly in Asia. This has to do with the unparalleled supply chain of components China has built over the years, which is especially critical for electronics.

EUROPEAN COMPANIES ARE NOT MOVING OUT OF CHINA

Source: European Chamber – Business Confidence Survey 

Different research made by the American Chamber of Commerce in China shows that the departure of American companies from China—which Mr. Trump would be so happy to see—is far from happening.

An incredible 83% of companies, when asked if they were considering moving operations out of China, replied: No, we’re not considering relocating manufacturing or sourcing outside of China

USA COMPANIES ARE NOT MOVING OUT OF CHINA

Source: American Chamber of Commerce in China “2020 Business Climate Survey”

The message from the business sector is clear: “We’re not leaving China” at least not anytime soon.

Moving operations to a different country needs lots of investment. For many companies, even with the piling number of tariffs, it doesn’t make economic sense, and what if the tariffs eventually go away?

Let’s also not forget that the COVID-19 pandemic has had a hard impact on the bottom lines of many companies, making new investments riskier and mobilization more complicated than ever before.

Governments around the world are clear on the tricky situations in which many companies find themselves in their relationship with Chinese manufacturing; some understand that tariffs won’t be enough to get companies to move operations outside China.

Rich governments, such as the Japanese one, have designated $2.2 billion of their economic stimulus package to help Japanese manufacturers relocate from China.

In Taiwan, 189 companies have applied for government incentives to move operations back home.

Over the next 2-3 years, we can certainly expect to see governments from rich nations making a big effort to bring back home the manufacturing of vital medical equipment and any other item they consider to be strategically important, as COVID-19 has shown that during a pandemic, it’s suddenly every country for itself.

But, for consumer electronics (IoT, especially), manufacturing will take place in China.

The concentration of input suppliers cannot be replicated anywhere else in the world for at least the next 5 years.

For on-the-ground experts’ opinions on this topic, you can take a look at the discussion I had with my LinkedIn network, US and European Companies are not leaving China.

FAQ – MOVING MANUFACTURING OUT OF CHINA