Among other things, there was a lot of economic tension in 2020 between China and many Western countries – most notably the USA and Australia – and those tensions gave rise to lots of discussions within many companies around the topics of “re-shoring” and “near-shoring” as a means to mitigate what many people believe to be an overdependence on China for manufacturing the goods that are consumed in those Western countries.
It is certainly prudent for companies to identify risks in their respective supply chains and to then take steps to mitigate those risks. In some cases, there may well be good benefit to companies trying to “re-shore” / “near-shore” certain pieces of their supply chains as part of their risk mitigation steps. However, any steps to “re-shore” / “near-shore” need to be taken with great care, and they should not be taken until the proper diligence has been completed. Before any pieces are moved, companies need to ensure that they have a holistic understanding of their supply chains down to the supply of raw materials that are used at the lowest-tier suppliers in the chain. In many cases, the steps to “re-shore” / “near-shore” supply chain pieces will be far more difficult to take, and far more costly, than many companies may currently believe they will be.
The extensive supply chain networks that exist in China today were built-up over many years, and in many cases, Western companies can no longer find in / near their home countries suppliers with the appropriate capabilities / knowledge to cost effectively and quickly replace their China-based suppliers. Much industrial “know-how” has been transferred into China since the 1980’s, and in many cases, it will be an extremely difficult task to transfer that know-how back to where it originated from, or to other locations near to where it originated from. There may even be some things that prove to be completely impractical to move away from China-based suppliers.
Given the above, it is still going to be crucial for Western companies to continue to conduct business with China-based suppliers for an indefinite period of time. China will continue for a very long time to be the best, possibly only location for certain industries to obtain critical raw materials, piece parts, sub-assemblies, and/or finished goods.
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