Getting Out Of China? Have Your Cake & Eat It Too
Written by Laura Dow, Business Director
Laura Dow, Business Director at CPG, manages growth and its key components: business development, marketing, client success, and finance. In her role, Laura establishes company growth objectives, designs and executes strategies and protocols to enhance overall performance,
China has been known as the “factory of the world” for several decades, ever since economic reforms in the late 70s led to rapid industrialization and export-oriented growth.
Since opening up to the outside world, the country’s vast workforce, low labor costs, and heavy investment in infrastructure made it very attractive for companies to buy direct from China. A China office suddenly became an enticing investment: hands-on involvement provided more control over sourcing activities, helping to ensure better performance, and it looked good on a company profile. Moreover, for some, engaging with China created market-entry opportunities.
It was an exciting time for China, and everyone wanted to be a part of it, including CPG. We opened our first office in Beijing in 1978 and have followed “China’s rise” firsthand:
Foreign money flowed in and was reinvested in research and development.
Manufacturing processes were upgraded to increase performance.
The technological capabilities of China’s factories and workforce rapidly evolved.
This evolution accelerated and continues today, making China’s supply chain the most nimble and sophisticated in the world – and for most products, the lowest cost.
As with everything in life, the only constant is change. While China no longer has the cheapest labor, the country’s expansive network of suppliers and manufacturers, coupled with its efficiency and responsiveness to global demand, still make it an unbeatable source for most products. China demonstrated its ability to adapt quickly to changing international dynamics during the COVID-19 outbreak by manufacturing a vast amount of PPE equipment.
In addition to the resilience of China’s supply chain, economics is also on its side. The country’s deflationary trend and the weakening of the RMB are making Chinese products even more cost-effective than before when buying directly from China. Thus, despite the anti-China sentiment in the media, financially and pragmatically speaking, now is not a good time to move away from China.
And yet, transnational tensions are not going away. This makes long-term sourcing prospects unclear and China exposure unwelcome. Many businesses now feel it no longer looks good to highlight their China connection.
Business fundamentals do not support a complete exit
The U.S. and China are economically linked and reliant on each other; this is not expected to change in the near future, regardless of politics.
China sourcing remains unbeatable for most industries when considering supply chain optimization holistically: raw material costs, productivity, lead times (related to infrastructure development), adaptability, etc.
Geopolitical change: We don’t know which way the winds will blow next. What will be the situation in 5 or 10 years? There is no compelling alternative (yet) to China. And even if there was, diplomacy is fickle, and it is impossible to predict relations with any substitute country.
So, if the present zeitgeist is to leave China, how do companies disengage while keeping their China supply chain? How do they close their sourcing office while maintaining transparent control over their buying program? How do they reduce their China profile while securing their China advantage?
These are issues CPG has been resolving with our clients for many years – helping them to reduce their China exposure while maintaining their China edge.
It is a complicated process: setting up a China office is hard, and a big commitment in terms of vision, management, and resources. Thus, reversing such a process is equally hard, especially when these operations have been in place for years. A smooth transition requires legal as well as reputational considerations: physically closing offices, disbanding teams, transferring orders, etc., all of which must be done without disrupting the flow of supplies.
Interestingly, the transition to CPG has proven time and again to be not only a public relations success but also more cost-effective and efficient, creating greater profitability for our clients.
As for us, we’re staying the course and continuing to do what we do best: managing and optimizing the China supply chain. CPG’s incredible multidisciplinary team of professionals in Beijing will continue to serve our clients, rain or shine, no matter which way the wind is blowing.
Laura Dow, Business Director
Laura Dow, Business Director at CPG, manages growth and its key components: business development, marketing, client success, and finance. In her role, Laura establishes company growth objectives, designs and executes strategies and protocols to enhance overall performance, and oversees budgets and financial activities. Laura began working in China in 2006 as a Peace Corps volunteer in Sichuan province. She holds a Master’s in International Affairs and Chinese Studies from the Johns Hopkins School of Advanced International Studies (SAIS). Ms. Dow speaks English and Mandarin fluently.
