Vietnam Likely to Benefit as Companies Rethink China Dependence
The manufacturing behemoth that is China is not going away, nor is its strategic role in many global supply chains. However, the COVID-19 pandemic has “accelerated and deepened” a number of supply chain trends, chief among them the desire of many companies to reduce dependence on suppliers in the Asian country.
QIMA, a provider of supply chain compliance solutions, said 95% of U.S.-based organizations it recently surveyed “had plans to change suppliers due to the COVID-19 pandemic and the ongoing concerns around the U.S.-China trade war, with top destinations of choice being Vietnam.”
This trend is part of a broader reevaluation of priorities, according to the “QIMA 2020 Q3 Barometer.” “As global trade enters the second half of 2020, it is emerging that the pandemic has not redrawn the maps of global sourcing — but it has accelerated and deepened a number of pre-existing trends,” the company said. “Among them are decreased reliance on China, diversification of supplier portfolios and more advanced use of digital and remote tools to manage quality and compliance.”
Also this week, CBRE, the world’s largest commercial real estate firm, noted that recent disruptions are encouraging companies to consider a “China Plus One” strategy. In its own report, “The Changing Flow of International Trade,” CBRE too said that Vietnam is likely to be a beneficiary of this trend, as is Thailand.
CBRE said it’s not likely companies will abandon China wholesale; rather, they are likely to supplement their sourcing with new partners in other countries in Asia or other regions. “A widespread exodus of manufacturing capacity from China is unlikely given the sophistication of the industry, the maturity of the supply chain and China’s massive domestic consumer market,” CBRE said in its report. “While there is no doubt that the number of small manufacturers in the Americas will grow significantly, the volume of goods produced in China and broader Asia likely will remain dominant.”
Troy Shortell, head of supply chain advisory for CVRE Asia, noted that the “months-long global supply chain disruption caused by COVID-19 has uncovered serious flaws in supply chain organizations and raised questions about the viability of long-accepted supply chain practices. This has prompted companies to take a hard look at their supply chain models as they seek to recover from the current phase of the crisis and to mitigate future risk.”
Closer to home, CBRE observed that the U.S. “southeast region is best positioned for more industrial space demand from import shifts to other parts of Asia, which can reach the East Coast faster through the Suez Canal.”