For today’s global companies, geopolitical uncertainty has affected more than just price, but also investment, consumption, inventory and even the way companies must do business. With changing tariffs, free trade agreements, bans and retaliatory actions, how do you stay lean and cost competitive.
How should you deal with trade uncertainty? What can product owners do to diversify their risk in such circumstances? Here are 5 suggestions we have.
1. Have a backup country / location
Start exploring other countries as a second location to manufacture your products, whist another location might not be the most convenient or most cost economical, any supply shocks from trade uncertainty can be better weathered when you have a backup plan. If the country where your main manufacturing base were to come under unexpected tariffs, you could easily increase the load on a second location.
It often takes more than half a year to develop a manufacturing site or a
vendor in a new country, so it pays off in the long term to start sooner. A lot
of the work is done up front with qualification and testing being set out, so
to increase volume later shouldn’t be difficult as long as you work with your
suppliers.
2. Develop your supply chain
With the supply chain in China having grown to such breadth, it may be too easy to rely on a single location. You can work with an established contract manufacturer or supply chain consultants to tap into their existing vendors as they will have a pre-built network. This saves a significant amount of time in searching for vendors as finding a suitable fit between price, quality and delivery is a challenging approach.
Having a new location also doesn’t mean that you need to redevelop the
entire supply chain. Countries in South East Asia can easily draw upon your
existing supply chain to reduce the burden of sourcing and improve the speed at
which you can establish a presence.
3. Understand trade rules
What HS code do your products come under, what is the percentage required for a change in country of origin? Which countries have free trade agreements which each other? How to deal with trade uncertainty? These are all important questions to ask before making inroads into a new location. Global companies often have multiple manufacturing sites to take advantage of different tariffs or free trade agreements. Having a CM with multiple sites can look to reap the rewards of multiple geographic locations without much of the legwork. Vietnam (http://ec.europa.eu/trade/policy/countries-and-regions/countries/vietnam/) is a signatory in a free trade agreement with the EU, so goods manufactured in Vietnam will have a significant cost advantage for European markets.
You might also be able to benefit from assembly in a different country as
CKD/SKD can often change the HS codes. Experienced partners can help you
navigate and also suggest opportunities for greater efficiencies.
4. Understand the differences
A period of change means the rules will be different, existing strategies
may not work, old strategies may be worth revisiting and new ideas have a
chance of taking off. Taking South-East Asia as an example, each country has
its own language and culture to deal with. Malaysia is multicultural with some
of the more widely spoken languages include English, Mandarin, Cantonese and
Malay. Malaysia also has a good legal system based off British common law.
Vietnam on the other hand is more homogenous with a legal system based off French
Civil law and Communist ideology.
5. Don’t delay
Trade uncertainty is the key word, waiting for a clear sign is often too late. It pays to have the infrastructure set up so that you can seamlessly switch should the worse happen. When the worse does happen, you will be caught off-guard and have customs, regulatory and approval delays.
Contact us to see how we can help you