Just read an excellent post over at the Product Global blog (a blog you should be reading if you are involved with international manufacturing), entitled “Sourcing: An Ever-Shifting Landscape, Part II.” [Link no longer exists] The Post is on why China is almost always a better sourcing choice than Vietnam for SMEs (small and medium sized companies), even though Vietnam may be nominally cheaper.
The post starts with talking about how for the small business beginning offshore product sourcing, China offers a lot more than just low prices. The post then discusses how the US government’s decision to “monitor” Vietnam’s apparel exports for possible dumping violations has caused several large US retailers that were sourcing apparel products from Vietnam to switch their sourcing to other countries. “Anti-dumping measures can have brutal and unpredictable consequences on a company’s supply chain.”
It then astutely notes how something like trade tariffs can have a greater impact on small companies than big ones:
In this situation, a small business with a much simpler supply chain, involving one or a few factories in Vietnam, would be at great risk. Although large corporations with extensive supply chains in multiple countries will still lose some time in moving production elsewhere, they can react to these trade policy developments more quickly because they have vendors in other countries, more money, and more manpower to throw at the issue. The small company that is beginning offshore sourcing usually only sources from one country. Someone moving to Vietnam right away because they offered the lowest hard costs would now be facing a situation which could potentially threaten the entire supply chain and business. Even if they rushed to find sources in other countries to mitigate the risk, it would take months of lead time to find the right source, create and review samples, set up production, etc.
It then notes that China-US trade relations are not without their own bumps but “these bumps will be far less dramatic than those for countries newly emerging onto the international trade landscape.” It concludes by discussing the cost-risk trade-off in choosing a country for product sourcing:
Cost is important. But so is risk. For pure risk purposes and the small business starting offshore operations, more stable trade relations is highly advantageous. It is certainly a reason why much of what we do today is in China. When our clients grow to a critical point and have stabilized their operations, then we can begin looking at other countries for new opportunities.
We agree, and certainly when we work with our own clients in helping them determine whether to source their product from China versus Vietnam, we discuss risk as a critical factor.