In the past few years, I have witnessed a growing trend of businesses shifting away from Chinese manufacturing to other Asian countries or back here to New Zealand. Last year, this trend became even stronger. This begs the question, what should importers and manufacturers take into consideration when it comes to reducing their reliance on Chinese manufacturing?
Business Strategy
Businesses today are under immense pressure to remain competitive, and one way they can do this is by reducing manufacturing costs. A common approach is shifting production to countries in Asia with lower labour and production costs. This trend has occurred before; a few decades ago, Japan was the go-to destination for inexpensive goods before China steadily took over. Now that the market in China is maturing, manufacturers may look toward other locales like Thailand or Romania with less sophisticated manufacturing processes for their product needs. But it’s important to keep in mind that this might just be a repeating cycle.
Potential Opportunities in New Zealand’s Local Businesses
With the shift away from Chinese manufacturing, local businesses in New Zealand now have a host of advantages to take advantage of. By partly or completely producing goods locally, Kiwi companies can benefit from faster supply lines, improved ethical standards, lower reliance on shipping, better cash flow for growth and even take pride in making use of the uniquely-New Zealand brand.
Enhanced Ethical Practices
This is where Conscious consumerism becomes relevant. As more people become aware of the ethical implications of manufacturing goods in overseas factories, local manufacturing has seen a resurgence. Local manufacturing provides opportunities for businesses to create a competitive advantage by meeting higher ethical standards than their competitors and reducing environmental impacts from long-distance transportation. Furthermore, utilising local manufacturers also provides a more direct connection with customers, as consumers tend to prioritise products that are made closer to home.
Diminished Political Instability
For businesses that heavily rely on imports from China, local manufacturing is a way to mitigate the effects of geopolitical risks such as trade disputes and political instability. Ray Dalio’s book ‘Principles for Dealing with the Changing World Order’ offers valuable advice about diversifying one’s manufacturing operations and reducing reliance on a single country location. This is especially important in times of increasing tension between nations, as it can help protect businesses from the resulting disruptions.
Enhanced Product Quality
Manufacturing products locally could be beneficial if quality control is part of your top priority. Regulations in certain countries are more sophisticated when it comes to manufacturing, which would likely result in improved quality standards overall. However, depending on the size of your business, you may not be able to take advantage of mass volume manufacturing in order to capture economies of scale. Additionally, having a few months’ worth of subpar products is an issue that local production may not completely solve, as Kaizen and JIT practices may still be difficult to implement.
Conclusion
Businesses in New Zealand can benefit from the recent trend of companies leaving China for their manufacturing needs. Doing local or offshore Asian manufacturing, depending on the product, can enable businesses to have higher competitiveness, reduce their dependence on a potentially volatile area and adhere to more ethical standards. It is wise for businesses to weigh both their China and general overseas production options so they can make the most of these advantages for achieving a competitive edge in the market.
Thank you for reading this article. If you have any questions or comments, please don’t hesitate to contact me.
