Why Businesses Are Moving Their Supply Chains From Factory Asia

Global supply chains were being disrupted long before the pandemic began. The ongoing trade war between the U.S. and China prompted supply chain leaders to question the logic of heavily outsourced and concentrated networks. Tariff costs and a renewed focus on network resilience drove U.S. buyers to begin looking for alternative manufacturing locations in earnest.

A global Gartner, Inc. survey of 1,300 supply chain professionals from September 2020 to November 2020 found that 87% of respondents plan investments in supply chain resiliency within the next two years, and that another 33% had already moved sourcing and manufacturing activities out of China or plan to do so in the next two to three years.¹

Responding to a Disrupted World

The challenge in today’s global economic and manufacturing environment for chief supply chain officers (CSCOs) is finding the right balance between cost-efficiency, infrastructure resiliency, and fulfilling increasing customer demands. The need to make supply chain networks more agile and reliable is making many buyers pause at the prospect of continued Chinese over-reliance.

Over the past two decades, China has moved up the value ladder to become the world's largest exporter of intermediate goods used to make final products. The severity and uncertain duration of the Covid-19 shock have left overseas manufacturers with little ability to substitute inputs from other sources in the short run.

The consequences of Chinese dominance in global supply chains are far reaching. For example, a number of international carmakers, Nissan Motor and Toyota Motor have had to halt production at some factories in Japan because of the interruption in the supply of parts from China. Indian pharmaceutical companies have warned that their output is at risk from disrupted shipments of Chinese ingredients. Western manufacturers of industrial electronics complain they cannot get the Chinese circuit boards their machines require.2

Finding Alternative Suppliers Outside China

Major clothing and shoe companies are moving production to countries closer to their U.S. and European stores. Shipping bottlenecks at major Asian ports are driving up costs and forcing companies to rethink their globe-spanning supply chains and low-cost manufacturing hubs in Asia.

Several examples from recent months from major global brands highlight the growing urgency to find alternative wholesale suppliers outside of China.

• Turkey, Morocco & Portugal

Spanish fashion retailer Mango has recently accelerated its process of increasing local production in countries such as Turkey, Morocco and Portugal.3 As recently as 2 years ago, the company largely sourced its products from China and Vietnam. However, Mango has indicated it will considerably expand the number of units manufactured locally outside of China.

• Brazil and Mexico

U.S. shoe retailer Steve Madden recently pulled back production in Vietnam and shifted 50% of its footwear production to Brazil and Mexico from China.4 The relocation of about half of its women’s production to Brazil and Mexico for the fall season highlights the challenges and worries of business executives in their pursuit of decoupling from China’s stranglehold on global supply markets

• Guatemala

In Guatemala, where Nordstrom significantly shifted its private-label volume production in 2020, clothing exports were a touch over $1 billion as of the end of August, up 34.2% from 2020 and even 8.8% higher than in 2019.⁵ Nordstrom is committed to increasing its supply chain resiliency by growing its private brand business through flexible sourcing arrangements made in production systems closer to home such as Guatemala and Mexico.

Introducing Exporta Wholesale: Your One-Stop Shop to Latin American Manufacturing

Latin America is well positioned to utilize its proximity to the U.S., demographic advantages, and duty-free arrangements to alleviate the ongoing supply chain disruptions and labor shortages that have riddled American businesses in recent years

• Superior Economics via Faster Lead Times

The challenges of global shipping have improved universally over the preceding decades, however, there are still some clear advantages to nearshore manufacturing over offshore manufacturing that will always persist due to its unique geography. 

Similarly, Latin America boasts a language and time-zone advantage over its offshore competitors. Ease of communication can make significant differences in the globally competitive manufacturing industry, as English is already the second language for people in Latin American and operating in Central Standard Time means it is easier for businesses to stay on top of communications, emails and conference calls.

• Trusted Partners

Exporta Wholesale is the largest marketplace connecting suppliers in Latin America with buyers in North America. Today, we have a network of over 5,000 Latin American suppliers serving a variety of consumer goods and product categories in the United States. 

Exporta’s proprietary matching algorithm ensures your product and supply needs are met with the highest quality standards and at a price that is competitive with leading suppliers in the world. 

• Increasing Global Market Share in Key Export Categories

Over the past five years, Latin America has made significant headway into more industrial-specific commodities and exports, including natural resources, wholesale fabric, and intermediate goods.⁶ (Source: World Integrated Trade Solution).

Conclusion

China has long been the default option for U.S. businesses who decide to manufacture abroad. This practice of offshoring manufacturing to China was historically enabled by cost and labor-pool advantages. However, increased export costs via tariffs and rising labor rates have diminished the relative advantages that once sustained China for decades. The evidence of this irreversible trend is clear as demonstrated by the many U.S. firms who have already decided to move their sourcing and manufacturing activities outside of China.

Latin America is well positioned to take a larger share of global supply chain volume away from China. Latin American export markets are growing at a rapid rate, turbo-charged by the region’s overall increased manufacturing capacity and its vibrant, young and highly-educated workforce.

About Exporta Technologies

Exporta Wholesale is the largest marketplace connecting suppliers in Latin America with buyers in North America. Today, we have a network of over 5,000 Latin American suppliers serving a variety of consumer goods and product categories in the United States. 

Exporta’s marketplace offers buyers a full service experience in the origination, sourcing and managing of products. The platform was founded on the idea that curation and service are the most important elements in the buyer’s journey. Exporta’s marketplace is building technology that addresses the pains of sourcing products internationally at attractive prices.

References

1. https://www.gartner.com/en/newsroom/press-releases/2020-06-24-gartner-survey-reveals-33-percent-of-supply-chain-leaders-moved-business-out-of-china-or-plan-to-by-2023
2. https://asia.nikkei.com/Opinion/Companies-must-move-supply-chains-further-from-China
3. https://www.reuters.com/business/retail-consumer/retailers-lose-love-asia-snarled-supply-chains-force-manufacturing-exodus-2021-11-09/
4. https://www.businessoffashion.com/news/global-markets/steve-madden-shifts-production-from-china-to-mexico-and-brazil/
5. https://footwearnews.com/2021/business/retail/nordstrom-made-private-label-brands-1203177705/
6. https://wits.worldbank.org/CountryProfile/en/Country/WLD/Year/2014/TradeFlow/Export/Partner/EAS/Product/all-groups#