Notes · Manufacturing in Asia
China+1 is a question, not a strategy
Supply chains are being redrawn, and the news coverage makes it sound simple. From a factory floor in Asia, it is not.
What the move looks like from here
Bag making shows it well. Brands have moved a large share of their production out of China in a few years, and Vietnam is one of the main destinations. Our own group made that move itself: after many years producing in China, it built its factory in Vietnam. Then the trade rules changed several times within a single year.
I have sourced in both directions: tooling and equipment from Asia for European plants, and now materials and customers across borders from Vietnam. Here is how I frame the question, using three ideas from my Executive MBA.
Three ideas to hold
- Total cost, not unit cost. Price per piece is the smallest part of the story. Lead time, inventory, quality, risk and exchange rates decide the real cost.
- Optionality has a price. A second source reduces risk and adds complexity. Decide what failure you are insuring against, and what you are willing to pay for it.
- Policy is an input, not a surprise. During the MBA residency in Washington we debated with a policy think tank, and I wrote an essay on global governance. My conclusion then still holds: leaders are rewarded for local, short-term agendas far more than for long-term global benefits, so trade rules will keep moving with domestic politics. Plan for that rather than hoping it settles.
A reading from Singapore
In the geopolitics module of the same MBA, in Singapore, our group asked whether the United States and China were heading into a Thucydides trap. Our answer in 2018 was: probably not a war, but a long economic and technology contest, with tariffs and production moving out of China. I now run a factory that is part of that move. The habit I kept is to ask who benefits when a rule changes, and to plan for both outcomes.
What I would ask before moving
- What are we protecting: continuity, margin, access to a market or a customer requirement?
- What is the total cost, once lead time, inventory and quality are counted?
- What would a second source cost us in complexity, and who would own it?
- Which rules could change, and what would we do on that day?
Questions this note answers
- What does China+1 mean for a manufacturer?
- Adding a second production or sourcing country beside China. It only works as a strategy once you know what you are protecting: continuity, cost, access to a market or a customer's requirement.
- How should a buyer compare sourcing in China and Vietnam?
- On total cost, not unit price: lead time, inventory, quality, risk and exchange rates. Then decide what a second source is worth, since it reduces risk and adds complexity.
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