In previous decades, China’s role in global markets was clear – by acting as the world’s factory floor, Chinese manufacturing lowered global prices by bringing millions of low-cost workers into the labor pool and helping make consumer products like jeans and sofas cheaper for everyone.1
However, economic growth in China is moderating with some key generational headwinds including over-indebtedness, lower birth rates, and trade tensions with key economic partners.2 Economic growth in the second half of 2021 was hampered by measures imposed by regulators in Beijing to rein in some of the country’s most important engines of growth, chief among them the real estate and technology sectors.
The Growth and Dominance of Alibaba
Alibaba is the largest e-commerce company on earth, with its three primary e-commerce sites -- Taobao, Tmall and Alibaba.com - engaging tens of millions of online users daily. Founded in 1999 by Jack Ma, Alibaba rode the wave of increasing acceptance to shopping online for goods and services. Commerce-starved China, with hundreds of millions of consumers with money to spend, was the perfect landing spot for Alibaba. Chinese consumers, flush with cash from good jobs that came with the country's transition from communism to capitalism, were immune to the dot-com bubble crash that wiped out billions in capital and took years to recover from.
However, the golden era of exceptional revenue and profit growth may be passing amid a broad weakening in consumer spending in the world’s second largest economy. The Chinese e-commerce giant reported an 87 per cent year-on-year decline in net income for the September 2021 quarter while its adjusted profit fell 39 per cent, marking the company’s first fall in adjusted profit in 22 quarters.3
Issues Arising from Dependence on Chinese Manufacturing
One of the key issues from outsourcing production over multiple decades is that this practice has left the U.S. without the means or ability to innovate, let alone produce, the next generation of high-technology products. The country has lost suppliers, skilled trades, and the product and process design and engineering knowledge that can only be built and renewed through hands-on production.4
The following three problems highlight the need for Western buyers to reassess their supply chain logistics and manufacturing partners:
- Unreliability of Product Delivery
One of the effects of the coronavirus pandemic was to get U.S. companies to reevaluate their supply chain needs. Many companies were unprepared for critical shortages of components and unreliable delivery of goods from China. For example, vehicles and other products are still in short supply amid a global computer chip shortage, and other supply constraints across the economy have left manufacturers struggling to meet demand. These factors in turn have helped push up prices, raising inflation worries and prompting the Federal Reserve to signal it may raise interest rates sooner than previously anticipated.
Low business and retail inventories have translated to increased demand for manufacturers for much of the past year, but supply-chain issues continue to constrain production and delay some shipments.
Shortage of chips drives gadget prices up. The global chip shortage is pushing up prices of items such as laptops and printers and is threatening to do the same to other top-selling devices including smartphones. The price increases are snowballing their way through suppliers and key materials in chip making as the industry rushes to meet rising demand and plug supply holes. As a result, many of the world’s largest chip makers are raising prices they charge to the brands that make PCs and other gadgets. Consumers are starting to feel the pinch. Prices of popular models of some laptop computers have crept up over the past two months.
- Rising Producer Prices
As we outlined in depth here, another major effect of over-reliance on Chinese manufacturing is rising producer prices. The global supply problems that accompanied a rapid surge in demand earlier this year have yet to be resolved. Continued price increases for labor, raw materials and transportation threaten to keep inflation elevated.
As China’s factory-gate prices soared this year – the fastest pace in nearly 13 years – driven by rising commodity (i.e. crude-oil, iron-ore, metals) costs, profit margins for businesses have been squeezed,5 with Chinese factories passing on price increases to Wester buyers,
Compounding the issue is the fact that shipping rates have soared in recent months amid port bottlenecks and container shortages. In some cases, clients ask Chinese suppliers to share the burden. In other cases, Chinese factories themselves are having to pay more to ship in imported raw materials, like lumber.
- Questionable Trading Practices
In response to rising factory-gate prices, China said it would begin to dump major industrial metals from state stockpiles into global markets.6 As the world’s biggest buyer of a range of industrial commodities, China is using its market heft to try to quell the sharp rise in global metal prices over the past 12 months, including a 67% surge in copper, a bellwether for macroeconomic health. China has a history of using its vast buying power over commodities to influence and control global prices.
Furthermore, Chinese factories that supply Apple and Nike and make other products sold in the U.S. are shunning workers from Xinjiang, as Western countries increase scrutiny of forced labor from the remote northwestern region where Beijing has been accused of committing genocide against local ethnic minorities.
The human rights issues relating to Chinese suppliers that have collectively hired thousands of Xinjiang workers through government-backed labor programs highlights the growing pressure that firms face as Western governments push multinationals to eliminate forced labor from their supply chains in China. Rights groups and Western researchers have accused Chinese authorities of mass internment and exploiting what the Chinese government calls “labor transfer” programs to force Uyghurs and other Turkic Muslims from the region to work at factories around the country.7
Introducing Exporta Wholesale: A Better Alternative to Alibaba
The chlorine tablet shortage is impacting global supply chains, leading U.S. buyers to consider establishing new supplier relationships.
- Large and Growing Network of LatAm Suppliers
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.
- Simple and Convenient Process to Source Trading Partners
The process for requesting quotations, matching with suppliers, receiving samples, and placing purchase orders is seamless and can be explained in more depth here. 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.
- High Quality Materials at a Low Price
Latin America is a growing region with an abundant and highly-skilled labor force that will propel manufacturing and economic activity for decades to come. Given the geographic advantages, cost-competitiveness, and high raw material qualities, Latin America is the perfect place to diversify your supply chain, and at Exporta Wholesale, we can help you do just that.
Conclusion
One unpredicted impact of COVID-19 is a renewed interest and debate about the world’s dependence on the off-shoring of manufacturing and services to China. As a result, near shoring has become an attractive possibility for many businesses. A recent survey of supply chain leaders “found that 33% had moved sourcing and manufacturing activities out of China or plan to do so in the next two to three years.” 8
Please reach out if you’d like to learn more about our network of trusted Latin American suppliers. We are excited to support the growth and diversification of global supply chains, while at the same time make meaningful improvements to limit the types of global supply shortages we currently seeing with chlorine tablets.
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
- https://www.wsj.com/articles/china-long-a-source-of-deflation-starts-raising-prices-for-the-world-11617015600?mod=article_inline
- https://www.wsj.com/articles/china-gdp-grew-8-1-in-2021-though-momentum-slowed-in-fourth-quarter-11642386349#:~:text=The%208.1%25%20growth%20figure%20for,expansion%20in%20coronavirus%2Dravaged%202020.
- https://www.scmp.com/tech/big-tech/article/3156712/alibabas-era-exceptional-growth-over-chinese-consumer-spending-power
- https://www.forbes.com/sites/kenrapoza/2020/04/30/why-is-the-us-is-so-ridiculously-dependent-on-china/?sh=1877e05e56b5
- https://www.wsj.com/articles/how-china-is-helping-to-damp-global-inflation-11626616802
- https://www.wsj.com/articles/how-china-is-helping-to-damp-global-inflation-11626616802
- https://www.wsj.com/articles/chinese-suppliers-to-apple-nike-shun-xinjiang-workers-as-u-s-forced-labor-ban-looms-11626795627
- https://www.brinknews.com/latin-america-is-missing-a-72-billion-opportunity-in-nearshoring/
