Shifting away from sourcing in China has its appeal when it comes to altogether dodging President Trump’s trade war, but now that immediate tariff threats appear on hold, brands and retailers may be looking more toward balancing their China sourcing than bailing on it entirely.
That’s at least the way Walmart sees it.
“It’s just about balance…the China threat was real, it was scary, it could still come back,” said Liz Hershfield, VP and head of product development, production and sustainability for Walmart eCommerce, speaking at The Lead Innovation Summit 2019 in Brooklyn Tuesday. However, she noted, “I think it’s the same thing as years ago: quotas went away and everyone moved from this hemisphere to China. It was like this mass exodus, but then it started to kind of balance back out.”
For Walmart—as for others not putting all of their supply chain eggs in one basket—sourcing diversification is about never being too reliant on one country, one factory or one supplier.
“Obviously, China can do small runs and they can turn fast, but there is this hemisphere, and there are great facilities in Central America and South America,” Hershfield said. “But do they have enough capacity for 100 percent of Walmart’s production? Of course not. But there’s so much opportunity to just diversify and kind of be thoughtful about what goes in China, what goes in South America, what goes in Bangladesh and be more balanced with it.”
For other companies, like Rothy’s, which makes its washable, woven flat shoes from recycled plastic in its owned factory in Dongguan, China, supply chain diversification isn’t the order of business. And it’s China’s capabilities that are keeping the company’s feet firmly planted on the ground there.
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“We don’t have the choice of diversifying our supply base…there’s so much skilled labor in China. I can ask my head of supply chain, ‘hey, I want this,’ and the next day he can say ,’here are the three options,’” said Rothy’s president and COO Kerry Cooper.
The company has nurtured its factory staff and a chain of suppliers in China to make its specialized shoe, the discarded plastic raw material is there, and so is the efficiency.
“We launch a product on a Tuesday, we can have it back in stock on a Thursday,” Cooper said.
That’s a sentiment Nike has echoed with its recent commitment to double down on its China sourcing despite the country’s back-and-forth battle with the U.S. The athletic wear company has had its focused fixed on China for growth in recent years and its setup there allows it to manage leverage, serve its customer, deliver product consumers want and build its brand.
“Our greater China business is the blueprint for how all those dimensions come together,” Mark Parker, Nike’s chairman, CEO and president said on a recent conference call. “We added more than $1 billion of incremental growth in the geography over this past year. We are and remain a brand of China and for China.”
Whether brands decide they should stay or they should go when it comes to manufacturing in China, the country is set to evolve from being the world’s factory.
“China has such a strong cluster of supply chain on its own…it’s actually very difficult for companies to leave,” admitted Yvonne Lau, SVP for corporate development at Li & Fung, a Hong Kong-based supply chain management company.
However, she said, China is evolving from being a mass production country.
“I think China will become a product development country,” she said, noting the country’s investments into factories and mills in neighboring countries, its reach when it comes to tackling the supply chain from all angles, and its ability to manufacture “far superior products” despite popularly held beliefs. “I think China will have a much bigger role in terms of the sourcing activities.”