Governments and organisations around the world are questioning if they should continue to do business with China after supply lines broke down during the country’s shutdown.
In economically difficult times, organisations examine every aspect of their operations. All suppliers come under scrutiny whether they’re local or abroad. If you’ve been using a Chinese manufacturer you might be considering moving your orders, but it can be more difficult than you think.
Cost of Goods
For many organisations China remains the cheapest option for manufacturing their goods. Material and labour costs are usually far less than making goods locally. And now more than ever, Australian businesses are watching the cost of goods sold (COGS) to stay profitable and, for some, keep the doors open.
If a Chinese factory is the cheapest option for manufacturing your goods then you need to consider if the balance sheet can cope with any increase in costs.
Some businesses will have a backlog of orders and jobs to complete once Australia's COVID-19 social distancing rules are relaxed. If you’re one of the lucky ones, it’s unlikely you will have time to find a new supplier, order samples, make the necessary amendments and place an order. Staying with an existing supplier will allow you to fill the backlog quickly and keep your customers on side.
It’s not the first time Australian businesses have been nervous about relying on China to manufacture their goods. As recently as last year, the US China Trade War saw Australian businesses and brokers look for manufacturers further afield. Manufacturers in India and Taiwan were considered, but most businesses gave up their search because of a lack of viable options.
China is the world’s factory and few nations can match them on expertise, infrastructure and price. Over the years, Vara Allied has made manufacturing enquiries in other nations but hasn’t found a supplier that could match those in China.
No Risk of Importing Coronavirus
If you're nervous about the possibility of bringing COVID-19 into Australia on imported goods, there’s no need to be. While the virus can live on some surfaces for hours or even days, it can’t survive the length and conditions of its trip at sea. Australian maritime workers have refused to unload a ship that hasn’t spent a minimum 14 days at sea since leaving their last international port.
China hasn’t come out of the first wave of the pandemic economically unscathed. The CCP might have reopened the country for business but three months of strict lockdowns have devastated China’s economy with double digit declines for several indicators. The industrial production indices which is a measure of manufacturing, mining and utilities activity declined 13.5% for January and February. Bloomberg analysts were predicting a decline of just 3%. Retail sales fell by 20.5%, also the first decline on record. Bloomberg had predicted a 4% contraction.
China is the second largest economy in the world and if it enters a recession, it’s likely the rest of the globe will follow. Some economists are predicting the drastic economic measures nations have made to save lives will cause a global depression. Only time will tell. President Donald Trump is expected to call on more US businesses to pull out of China and set up manufacturing operations on home soil. And if all international organisations do the same, China is sure to fall.
Further economic pain may be felt by the CCP. While the governments of most nations were busy battling containment of the coronavirus, a UK think tank announced China could be sued trillions of dollars in reparations.
If you have any queries about manufacturing and shipping from China, call Vara Allied on (08) 6115 0118 or contact us