strategicinsight
fleeing
China?
2008 gave U.S.
companies many
reasons to re-examine
sourcing in China. But
pulling up stakes may
not be the answer.
Look before you leap
IF EVER THERE WAS A YEAR FOR U.S. MULTINATIONALS TO RETHINK THEIR CHINA SOURCing strategies, it might have been 2008.
The spike in oil prices and mounting labor and raw materials costs made sourcing in and shipping
from China a more expensive proposition than ever before. The near two-month shuttering of factories and mines in readiness for the Summer Olympics put a crimp in supply chain flows, especially for foreign importers who failed to craft contingency plans. The financial meltdown left credit
scarcer and more expensive, making it difficult for suppliers to secure financing and driving up the
costs of carrying inventory that can spend 20 days or more in transit from Asia to North America.
And the severe global economic downturn shut down tens of thousands of Chinese factories. By one
Chinese government estimate, 67,000 Chinese businesses failed in the first half of 2008 alone. By
another, half of China’s 3,630 toy making plants—mostly smaller, lower-tier operators—had gone
out of business by the end of August.
Then there are such chronic concerns as intellectual property infringement. In the fiscal year ending Sept. 30, 2007, China was the origin of 80 percent of counterfeit and pirated products seized by
U.S. Customs and Border Protection, according to the International Anti-Counterfeiting Coalition.
The seized products were valued at about $158 billion, IACC says.
