By David Iwinski Jr., Blue Water Growth
When looking at the global landscape, particularly considering our on-going trade negotiations with China, many companies are feeling the pinch from tariffs and, even worse, are frozen with uncertainty about what the future will bring and the best way to respond as import and export uncertainty rises. There are many opinions about how this will all turn out, ranging from a satisfactory bilateral negotiation with China to the possibility of a protracted trade war. Facing all of this, what is a company to do? Rather than looking at this as a crisis, let’s consider this period of ambiguity and uncertainty as an opportunity to do a little housecleaning and tighten up your operation. Here’s where to start…
Top to bottom review of your supply chain – With solid long-term suppliers globally, it’s easy to get complacent and focus growth efforts towards new market activities. However, since your last general review of your supply chain, there may be many new market entrants eager to earn your business. Maybe it’s time to get some competitive quotes and even renegotiate your existing agreements. Further, sourcing and logistics software can assist in the process of doing complex multinational comparisons to determine the final most cost-effective landed price to keep you aggressive in the marketplace.
If tariffs on China are hurting your imports, look to other parts of Asia – Over the last 15 years, many Asian countries have been investing deeply in facilities, infrastructure and talent to better compete with the Chinese juggernaut. As a result, there is a wider variety than ever of low-cost and high-quality sources of everything from electronic components and printed circuit boards to manufactured goods, plastics, textiles and other consumer goods. Start with those nations most stable in the region such as Taiwan, Japan, South Korea and Singapore. The challenge there is that costs will be high and possibly not competitive with your current supply chain. However, opportunities also abound in Vietnam, Thailand, Malaysia, Indonesia and the Philippines. In fact, the current tariff crisis has caused many of these countries to be more aggressive than ever in wooing new customers to their shores and can be highly accommodating on product pricing and shipping terms.
If tariffs from China are hurting your exports, consider shifting your focus to the south – Many of the products that are now more difficult to sell in China because of trade restrictions might find ready customers in Central and Latin America. In greatest demand are products involved in infrastructure growth and natural resource exploration. In those two areas, China has probably been the greatest market of the past 30 years as they pulled out of the crippling economic policies of the Maoist era, but just as China is slowing down, many Central and Latin American nations are pursuing progrowth strategies.
Carefully examine and reconsider domestic sources – While off-shoring of manufactured goods has been a major trend for cost reduction from the 1980’s onwards, it is equally true that during that period advances in factory automation and lean manufacturing have dramatically reduced the cost of production in the United States. When you factor in tariffs, the cost of transit and the cost of capital of having inventory on the ocean for 6 to 8 weeks, often domestic suppliers suddenly become highly competitive and have the added benefit of being able to deliver short run product cycles, often on a just-in-time basis. When reconsidering your supply chain, don’t forget your own backyard!
The trade wars are causing problems for a lot of businesses, but a thoughtful and aggressive look at supply chain might lead to a realignment that not only cures the tariff blues, but makes your business even more competitive once these trade issues are resolved.
David Iwinski Jr. is the Managing Director of Blue Water Growth, a global business consulting firm with extensive on-theground experience and expertise in Asia. Its services include merger and acquisition guidance, private capital solutions, product distribution, production outsourcing, and a wide variety of business advisory services for its Western and Asian clients. He can be reached at email@example.com.