The global Covid-19 pandemic has led to a major rethink of many organizations of all sizes about their supply chains and their associated risks. The Peoples’ Republic of China has been the focus of such discussions.
China has many advantages when it comes to production costs, for example still relatively cheap labor, cheap energy, an abundant workforce, and a high production capacity. There are also numerous problems: For example, long transit times, high emissions due to the long transit routes, the humanitarian and political situation in China, the problematic intellectual property situation, product safety issues, and exchange rate instabilities. Additionally, the Covid-19 pandemic has shown how easily global supply chains can break down, which makes getting goods to customers in a timely fashion challenging.
These factors have made onshoring/nearshoring much more attractive to many businesses. We took this step in 2015 when we moved the manufacturing of BetterDry (initially ComfiCare) and Crinklz to the European Union.
The advantages of moving production closer to home are obvious:
European production has long had a perceived superior quality compared to producing in the Peoples’ Republic of China. While high-quality goods are routinely manufactured in China, there continue to be product safety scandals, which have deeply undermined the reputation of Chinese products.
Shipping times can be drastically reduced by moving production from China to Europe. 30-40 days of ocean transit become 3-5 days transit time on rail and trucks in many cases. Stock levels can thus also be better controlled and the amount of inventory can be reduced due to the lower lead time requirement. These much shorter transit routes also drastically reduce emissions.
Due to the current political situation, duties are applied to the vast majority of goods coming from China. Producing in Europe can thus save a significant portion of the overall costs. Textiles are a point in case because a general duty rate of 12% applies to goods coming from China to Europe. In contrast to that, products produced within the European Union carry 0% duty in the EU.
European producers are seen as having an advantage of being in the lead over China when it comes to product innovations. Traditionally, Europe has innovated and China has tried to copy new, innovative products or performed contract manufacturing. This gap is slowly closing – at least in some areas – with the new generation in China putting an emphasis on innovation and quality.
Trademark infringement and design theft/replication are rampant in China. Asking Chinese manufacturers to produce a product for you is a leap of faith. Non-Disclosure Agreements (NDAs) and similar contracts are unenforceable in China and provide no protection whatsoever. Producing in a Western country has the big advantage of trademark protection and legal recourse if something goes wrong.
News about the horrible treatment of Uighur people in China has recently been all over the news. Especially the fashion industry and textile manufacturing seems to be affected. Cotton from the Chinese Xinjiang Province is used extensively in textiles produced in Far East countries. Any organization knowingly engaging with companies that use forced labor (or elements derived from forced labor) should seriously question their values and commitment to a better world. There are examples of forced labor in Europe but the likelihood of encountering that in a European supply chain is massively reduced in comparison to a Far Eastern supply chain.
Great care is needed when setting up a supply chain. Price and speed need to be balanced, quality versus quantity, and above all the fair and respectful treatment of workers must be ensured.