Why is Supply Chain Diversification a Necessity?

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I had one of those trips to China in December that’s so short I land back home before jet lag has a chance to affect me. During my car ride to the airport before my 16 hour flight to Hong Kong, I learned that Presidents Xi and Trump had agreed to a 90 day reprieve to review the tariff issue. During the flight, one of my factories was able to increase the number of people working on my bags by four-fold as they were no longer in such a tight deadline to try to finish before the January 1 deadline.

Make Mine Tariff Free

Everyone is trying to avoid additional tariffs, which is only logical.

I’ve had prospects that may not be able to order enough to make overseas production worth their trouble asking about making their bags outside of China so that it would be tariff free.

It’s worth nothing that almost all imported products carry some tariff. While the tariff issue is only with China, a lot of goods produced elsewhere in Asia, Cambodia for instance, it’s likely that some or all of the fabrics and accessories are still made in China and imported in and assembled there. 

Easier Said Than Done

The buzz term on everyone’s lips is Supply Chain Diversification. As it is with investments, diversifying is a good idea. But moving production out of China is easier said than done. I’m no economist but I think these factual numbers is worth considering. China is a manufacturing powerhouse with a population of almost 1.4 billion. Roughly 60% of the total population is in the workforce and about 40% of that is in manufacturing, or almost 340 million people, about equal to the entire population of U.S.

Bottom Line – Diversification is a Necessity

Cambodia, Vietnam, Thailand, Myanmar and Laos combined don’t make up 20% of China’s total. That means if just 20% of China’s manufacturing moves to these 5 countries, every single person in manufacturing in these ASEAN countries would need to be used to handle just the overflow. So even a little bit of production moving out of China can’t possibly go to any one of these countries so diversification becomes a necessity.

 The current 10% additional tariff is already having an impact and slowing down the manufacturing sector in China. I hope that the 25% additional tariff doesn’t happen on March 2nd as it will affect so many people. Even if it does, the reality is that China will still be the main place to turn to for manufacturing.

Related Articles:

The Consequence of Tariffs

A Visit to our Factories in India

Manufacturing in China

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Sung Park, along with his wife and business partner, Annie Fan, own Custom Direct Promotions (CDP). CDP is a provider of high-quality GWP packaging solutions to optimize materials used and control costs for luxury brands.