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Where are the U.S. companies that are leaving China moving to?

In my opinion, very few are leaving.

USA Today claimed the following: “Steve Madden, the footwear and handbag maker, shifted its production to Cambodia. GoPro, the mobile camera maker, has its sights on Mexico. Gap, the clothing and accessories retailer, has started up new factories in Indonesia, Vietnam and Bangladesh. Brooks Running, a running shoes and clothes maker, said they'll move 8,000 jobs from China to Vietnam by the end of the year.”  Now, this is very well underway and many big companies are indeed moving the supply chain to Southeast Asia or Mexico or even Bangladesh. It is hard to get a gauge on what the number is exactly, but if we were to divide the segments it would something like the following:

Large Scale Companies: These are the ones mentioned above and others such as your Foxconn.

Retail Chain Suppliers: These are your Walmart, Dollar Tree, Dollar General, Kmarts and other large discount retailers.

Internal/External Players: Within this segment, we have one might call the mixed interest groups. They have a large supply chain built for export but have also local footprint meaning they do supply or sell within China itself too. Bloomberg, Colgate Palmolive, Unilever, Apple etc.

Small Multinationals / Importers: These are small traders that supply to chain stores in the West or make products in their own brands from China. Most of these work on X amount of TFUs (Twenty Foot Equivalents) per annum.

Now let us take a look on what exactly each one is doing:

Large Scale Companies: These, in lieu of lower manufacturing costs, will eventually move. The move will be gradual, no immediate. Build Supply Chain elsewhere and decrease footprint within China. Companies within this segment are self-sufficient and have enough manufacturing quantities to run on their own terms and can do so by building a robust supply chain somewhere else over time. It is important to note that many of these have low manufacturing costs as their key competitive advantage - tax hikes or tariffs and increased labour wages really put a dent into their profits.

Retail Chain Suppliers: These will ask their vendors to absorb much of the tariff hikes as these companies do not source or manufacture themselves. Rather they ask suppliers within and outside China to supply them on a credit term-basis. If these vendors want business in such large scales, they will have no option but to reduce profits, absorb hikes and continue to supply. It will be up to the vendors to source manufacturers outside China or make-do somehow. One can go as far as saying they are immune to a lot of these shifts. Not 100%, but significantly.

Internal/External Players: Oh this a complex one! If they leave, the Chinese government is sure to strong arm them to work out some deal that is beneficial to China. This is only natural, because if they shift supply chains - they will not create more jobs or invest into the economy. On the other hand, China is big market for them so they need to be well structured and have significant presence to shift based on changes in the market. So, its a thin line to tread for these companies. They will have to enter in some kind of deal if they decide to move out of China. Most of them, in my opinion, will stay in China; given their existing manufacturing infrastructure and brand presence within the local market.

Small Multinationals / Importers: It would be safe to say that these are the ones being heavily hit. Being small in scale, compare to the above, they will have to absorb costs and run to find a similar or imitable supply chain outside china - which is virtually existent. These are very similar to the agents to Retail Supplier Chain, but those vendors have their risks divided as they supply to markets apart from the USA. Such is the case, that small MCNs and Importers will have a hard time navigating through these tough times. Some will go out of business while others will just leap past and hope for a trade deal to be struck as soon as possible.

So, its not very clear what’s going. Companies are operating on different business models, and it will be up to each one to asses their pros and cons in order to see what needs to be done. Some will hope for the best while others will definitely move outside China. It will not be something done overnight or over the course of a few months, it will be gradual in all cases.

Content created and supplied by: fiveGee (via Opera News )

Cambodia China Mexico Steve Madden Vietnam

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