In this global landscape, particularly in our ongoing trade negotiations with China, many companies are feeling the pinch from tariffs. Even worse, as import and export uncertainty rises, they’re frozen about the future and the best way to respond.
Opinions range about how this will turn out, from a satisfactory bilateral negotiation to the possibility of a protracted trade war. Facing all of this, what’s a company to do?
Rather than seeing this as a crisis, consider this period of ambiguity as an opportunity to houseclean and tighten your operations.
Do a top-to-bottom review of your supply chain. With solid long-term suppliers, it’s easy to get complacent and focus growth efforts toward new market activities. Since your last supply chain review, however, new market entrants may be eager to earn your business.
Maybe it’s time to get competitive quotes and renegotiate existing agreements. Further, sourcing and logistics software can assist in complex multinational comparisons to determine the most cost-effective landed price to keep you aggressive in the marketplace.
If tariffs on China hurt your imports, look to other parts of Asia. Over the last 15 years, many Asian countries have invested in facilities, infrastructure and talent to compete with the Chinese juggernaut. Thus, there’s a wider variety of low-cost, high-quality sources of everything from electronic components and printed circuit boards to manufactured goods, plastics, textiles and other consumer goods.
Start with the most stable nations, such as Taiwan, Japan, South Korea and Singapore. Costs will be high in these countries, though, and possibly not competitive with your current supply chain. However, opportunities also abound in Vietnam, Thailand, Malaysia, Indonesia and the Philippines. In fact, the tariff crisis has caused many countries to be more aggressive in wooing new customers to their shores. They can be highly accommodating on product pricing and shipping terms.
If tariffs from China hurt your exports, consider shifting the focus south. Many products that are more difficult to sell in China might find ready customers in Central and South America. In greatest demand are products involved in infrastructure growth and natural resource exploration. China has probably been the greatest market the past 30 years in those two areas, but as China slows down, many Latin American nations are pursuing pro-growth strategies.
Carefully examine and reconsider domestic sources. While offshoring manufactured goods has been a cost reduction trend since the 1980s, advances in factory automation and lean manufacturing have dramatically reduced the U.S. cost of production.
When you factor in tariffs, the cost of transit and the cost of capital of having inventory on the ocean for six to eight weeks, domestic suppliers become highly competitive and have the added benefit of delivering short-run product cycles, often on a just-in-time basis. When reconsidering supply chain, don’t forget your backyard.
The trade wars are causing problems for many. However, a thoughtful, aggressive look at your supply chain might lead to a realignment that not only cures the tariff blues but also makes your business even more competitive once these trade issues are resolved.
David Iwinski Jr. is the managing director at Blue Water Growth. A global business consulting firm with extensive experience and expertise in Asia, Blue Water Growth 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.
