Offshore Sourcing: An Ever-Shifting Landscape, Part II

While small businesses enjoy a number of advantages over big business, this is not always the case.  Sourcing and supply chains, two parts of small businesses which routinely fall to the corners of the radar screen, are two areas that can't be ignored.  Your business will depend on them.

New clients often ask us which countries we operate in.  I usually tell them that we have experience in many throughout Asia and a few other parts of the world.  But, most of the business we are doing these days is taking place in China.  Why?  Many people have read or heard that lower prices can be found in other countries, such as the Philippines, Vietnam, Indonesia, etc.  We judge where to source for a given project based on not only what that project needs, but also what a country's manufacturing base has to offer.  China, as we all know, has quite a bit to offer these days.  For the small business beginning offshore sourcing, China offers a lot more than just low prices. 

I wrote a post entitled Sourcing: An Ever-Shifting Landscape, Part I back in December, which discussed Vietnam's entry into the WTO and the recent boom in apparel manufacturing the country has enjoyed because of the quotas placed by the US government on certain apparel items coming in from China.  Vietnam will no doubt become more important on the international trade scene in the coming decade.  But that doesn't mean there won't be bumps in the road.

A recent article by the National Retail Federation gives a nice follow up to this in an article Monitoring Has Chilling Effect on Vietnam Trade, and discusses the results of the US government's decision to "monitor" and possibly take issue with Vietnam's apparel exports because of anti-dumping (trade policy used by importing governments to counteract dumping or the export of goods below cost, for example by imposing duties or negotiating price increases).  Several large US retailers that were sourcing apparel products from Vietnam have practically ceased their orders and are placing them with factories in other countries because of this possibility.  Anti-dumping measures can have brutal and unpredictable consequences on a company's supply chain. 

In this situation, a small business with a much simpler supply chain, involving one or a few factories in Vietnam, would be at great risk.  Although large corporations with extensive supply chains in multiple countries will still lose some time in moving production elsewhere, they can react to these trade policy developments more quickly because they have vendors in other countries, more money, and more manpower to throw at the issue.  The small company that is beginning offshore sourcing usually only sources from one country.  Someone moving to Vietnam right away because they offered the lowest hard costs would now be facing a situation which could potentially threaten the entire supply chain and business.  Even if they rushed to find sources in other countries to mitigate the risk, it would take months of lead time to find the right source, create and review samples, set up production, etc.

Although trade relations between China and the US are certainly still experiencing bumps in the road, it is likely that these bumps will be far less dramatic than those for countries newly emerging onto the international trade landscape.  Cost is important.  But so is risk.  For pure risk purposes and the small business starting offshore operations, more stable trade relations is highly advantageous.   It is certainly a reason why much of what we do today is in China.  When our clients grow to a critical point and have stabilized their operations, then we can begin looking at other countries for new opportunities.