Companies subject to competitive and economic pressures worry about the tradeoff between costs and ethics, industry shifts in demand and supply, and the changing cost structure of locations abetted by technology and digital transformation such as 3D printing and the eventual shortening of supply chains.
Large geographical developments such as the Belt Road Initiative and the emergence of the Northern Sea route have a lasting impact on the movement of goods and people, no matter how quietly or slowly the change occurs.
Lastly, BEPS 2.0 and the consequential tax regulations and new nexus and profit attribution principles are likely to lead to re-evaluation of supply chains and business structures by companies and governments alike.
The crux of the problem is how a supply chain can achieve resilience in the face of this onslaught of complications with unknown and intertwined implications.
Assessment and adjustment
The first step is to assess the current state of supply chain resilience through a strategic review. Several tools are available for both self-assessment as well as aided assessment. Comprehensive reviews can identify key areas of weakness and help formulate appropriate improvements.
With the current state understood, companies can then choose to integrate the necessary mechanisms or strategies in the physical supply chain, the financial supply chain and/or the operating model to improve resilience to shocks.
A common financial supply chain adjustment especially for China-based multinational companies faced with US tariffs is to implement the “first sale for export” methodology. In addition, in recent months, many companies have abandoned hope that the trade winds will return to their familiar course, and now actively plan for alternative or multiple manufacturing locations.
In an AmCham China survey from May 20191, 41% of the respondents have considered relocating or already relocated manufacturing facilities out of mainland China. Some toy and mobile camera makers shifted production to Mexico; personal computer makers looked to Taiwan; and tire, machine tools and metal makers are considering Thailand. The largest beneficiary seems to be Vietnam, where a Guangzhou-based transport company helped 10 firms move their entire plant from mainland China since 2018, with 500 companies moving part of their production.2