As manufacturing for export and sourcing in China is becoming more difficult for Western companies due to cost of inflation going up, increasing labor costs, high production expenses, volatile tariffs, political tensions, not to mention new and challenging rules and regulations that continue to evolve – companies are looking for other locations.

These trends are applicable to companies who are operating on the ground in China facilities and relocating them outside or sourcing them out of China for components or raw materials.

The questions to ask when looking to relocate are these:

• • Where is your market?
  • Where are your components and finished goods?
  • Where are they to be consumed?

These three questions will help determine the best solution for your operations.

Attractive alternatives exist for relocating China supply chain & operations, including Mexico, Southeast Asia, and Central/Eastern Europe.

The first example was a very successful US-based manufacturer of electronic equipment selling into industrial markets and was established in China since the early 2000s. In addition to manufacturing, they had developed a sourcing office there, and they were sourcing components for their US factories. They had a strong operation with a strong domestic market, growing steadily, and were satisfied with the performance of their operations.

We were engaged a few years ago to initiate a search for suppliers in Mexico after the introduction of the tariffs in China. They also experienced logistics challenges, increased cost and transit times, problems with container availability, along with becoming increasingly concerned about the political situation between China and the US.

The company was looking forward into the future and had some concerns, particularly where their marketplace was somewhat of a high-tech product, were concerned about China’s 2025 policies and the potential for the loss of intellectual property and the loss of control of production.

We provided the company with options for suppliers Mexico to be closer to their clients in the US and North America and visited the top candidates. 

Our next example was US global HVAC business, with manufacturing in the Guangzhou province in the 90s. Back then they were able to reduce their bill material cost and total cost between 25-30%. They could have long shipping lead times of 9-11 weeks to get to their different global distribution centers.

We were engaged to look at a new facility to help move it closer to their European markets to ease the shipping times to those markets. We determined the best area was along the Polish and Czech Republic boarder to get their goods into Western Europe, bringing the shipping times down to 10 hours by highway with a strong labor force in place.

Our last example was a very large iconic manufacturer of electronic equipment selling into industrial markets and was established in China since the early 2000s in Guangdong Province, with growth of their markets in ASEAN.

We were asked to do a study to find a larger facility close to their current one so they would be able to keep their labor force. We demonstrated to them it would be better for their market base if we broadened it to ASEAN to keep their facilities on the cutting-edge, looking at Vietnam, Thailand, and Malaysia.

After negotiating with Thailand’s Board of Investment, we brought our client’s second design center which included their R&D first tier products and the internet of things connected products to Thailand, and the Thai government gave them a 10-year corporate tax holiday and 5 more years at a 50% tax. This saved the company an enormous amount of money compared to if they built a new facility in China.

When you are going to close a production center in China, you need to anticipate the time involved and put together a solid, upfront plan.

Set aside a two-month period working with corporate management and local leadership to develop solid plans around:

• Understanding required severance
• Understanding market practices around severance
• Communication plans
• Inventory disposition
• Whether you need to build up or draw down inventory.

The need for a multifunctional or cross-functional planning is key for a successful plant closing.

For assistance with a plant closing or if you have additional questions, please call or contact us at 704.807.9531 or abryant@eastwestassoc.com.