Why a Plan B for Supply Chains Is Essential
As the trade war heats up, supply chain managers with China interests have been fighting it on two fronts:
- Asking suppliers to absorb some of the tariff-related costs, and
- Attempting to pass along price increases to customers.
Both are a tough sell. So it’s not surprising that we’re spending many an evening talking to leaders about alternative countries beyond China. The six you’ll read about here are the candidates most often discussed, and each has pros and cons.
The first question leaders are asking… “How urgent is a Plan B?” Politics aside, Plan B is always a good idea (war or no war), to mitigate risks in any environment.
Here’s what we know:
- Significant change before the midterm elections is unlikely. If things tip red, we expect tough talk and the tit-for-tat approach between the two nations to continue. If things tip blue, we’ll likely see more negotiations.
- In the meantime, deals will continue to come together regarding Europe, Mexico, and Canada; and we’re watching those closely.
- If history is our guide, once tariffs are in place, clawbacks can be spotty. We need to be prepared for scenarios where the price hikes stick.
One thing is certain: a wait-and-see approach heightens unnecessary risks. Supply chain leaders are urgently exploring options outside of China.
Top six Asian supply chain alternatives to China
India: Emerging Market with Export Potential
India Pros
- Emerging market: suppliers will aggressively quote for business
- Less of a language barrier: 80% of the country speaks English
- Low labor cost
- Familiar with export markets
- Decent skilled engineering labor in pockets (depending on the supplier)
- Flexibility: capable of doing lower volume, highly-engineered content
- Process clarity: clear business setup process, but it can be long and tedious
India Cons
- Limited infrastructure: suppliers can be remote and difficult to access
- Lack of supply chain vertical integration that could lead to quality oversight issues
- Limited access to skilled labor
- Disruptions to utilities
- Material quality and cosmetic quality can be overlooked by suppliers: requires high-level quality oversight and attention to detail
Thailand: Strong Infrastructure and Customer Focus
Thailand Pros
- Good customer culture: willingness to satisfy the customer
- Well-developed infrastructure: easy to get around to suppliers
- Decent supply chain vertical integration
- Established raw material supply base
- Access to skilled labor
- Moderate English capability
- Existing industries already present
- Relatively politically stable
- Several major ports
- Transparency when setting up a business
Thailand Cons
- Limited existing capacity, and it’s being eaten up fast: the time to engage suppliers is now
- Engineering development can be challenging due to language barriers, but it can be overcome
- Where India requires more quality control support, Thailand requires more engineering support
Vietnam: Low Costs but Limited Skilled Labor
Vietnam Pros
- Emerging infrastructure and seaports
- Low labor cost
- Good Chinese-speaking capability if you have a Chinese team
Vietnam Cons:
- Lack of skilled labor
- Lack of supply chain vertical integration
- Corruption
- Requires a high level of quality oversight
- English is not commonly spoken
- Lack of infrastructure: can be difficult getting around to suppliers
- Limited raw material access depending on product range
Philippines: Easy Regulations and English Fluency
Philippines Pros
- English is widely spoken
- Regulatory environment is relatively easy to navigate
- Low-cost unskilled labor: good for assembly work
- Skilled labor is industry dependent
- Good if industry is capital-intensive with automation
Philippines Cons
- Lack of vertical integration
- Unstable security environment
- Corruption
- Not good for heavy manufacturing
Indonesia: A Booming Domestic Market
Indonesia Pros
- An already booming economy: a population closing in on 266M
- A sound strategy if you are making in Indonesia for Indonesia
Indonesia Cons
- Political instability
- High import duties
- Complexity of government regulation
- Corruption
- Labor unrest
Malaysia: Transparency and Established Industries
Malaysia Pros
- Ease of investment entry and business transparency
- English language capability
- Established supply base for automotive components, rubber, and chemicals
- Regional specialties: pockets of decent engineering
Malaysia Cons
- Can be costly due to proximity to Singapore
- Past issues with government stability: situation is improving
- Caution when dealing with Chinese suppliers: guarding against China “takeover”
- Limited raw material capacity
Work with Supply Chain Experts at CMD
Ready for a robust Plan B to mitigate supply chain risks?
Tap into experts at CMD with years of experience (in China and beyond) to help formulate your plan and accelerate results.