Should You Source from Outside China?

Posted on 1 August 2022

It is estimated that more than one-third of supply-chain leaders will move some of their manufacturing out of China by 2023.* This can be attributed to several factors, including labor costs, decreased quality, and tariff charges. However, reports have shown that the biggest contributing factor is increased production times.

For most e-commerce sellers, taking your production out of China can seem daunting, especially if that’s how you’ve always done it. To help make the decision a little clearer and easier, we have compiled this article outlining some facts.

Disadvantages of Sourcing from China

Below is a list of disadvantages of sourcing from China:

Increased Lead Times

The COVID-19 outbreak saw many assembly and manufacturing plants in China slow or stop production altogether. Now, almost two and a half years later, e-commerce businesses are facing major order delays.

The shutdown caused a backlog of orders, and factories are struggling to keep up. Current figures show that an average order takes 100 days to fulfill. **

Decreased Quality

As factories and workers rush to clear orders and make up for the money they lost while closed, product quality has suffered. This has led to unhappy customers, lowered brand reputation, and fewer sales in the long term.   

Increased Labor Costs

In China, labor costs have risen consistently over the past 20 years, while they have remained much lower in Bangladesh, Vietnam, and India. This means businesses can make their products for a fraction of what they would cost in China.

Tariffs Charges

As a result of the US-China Trade War, US e-commerce business owners who import from China are charged an additional tariff to disincentivize trading with China.

This charge is estimated to add an additional 25 per cent to import tariffs. This adds strain to already cost-sensitive e-commerce sellers’ budgets.  

Challenges of Sourcing Outside of China

There’s a reason China makes almost half of the products sold and used worldwide. Its factories have years of experience and provide businesses with a complete supply-chain of raw materials, a capable labor force, and smooth logistics. Deciding to source outside of China comes with some challenges, including:

Finding a Country That Can Keep Up with Demand

Due to its ample supply of raw materials, China is often a business owner’s first port of call when manufacturing products. This cannot be said for all countries that often struggle to meet their own needs.

This can increase the cost of manufacturing as manufacturers may have to pay more to get the materials they need to create goods. This could lead to an unaccounted and unexpected increase in the price of goods.

Lowered Productivity

Another major disadvantage sellers may encounter when sourcing from other countries is lowered productivity. On average, workers in China are more experienced and skilled, and their work schedules are much longer.

The lowered productivity can lead to longer production times, potential problems with quality, and other unexpected delays.

Logistics

Finally, it’s important to consider logistics. Chinese logistics is better run as it is more established.

For example, ocean freight from Eastern India to the US can take up to two weeks longer than when it comes from China. Coordinating a consolidated shipment from several vendors outside of China is also more challenging.

Conclusion

Owning an e-commerce business comes with a lot of challenges and considerations. One of the main factors is lead time. Lead times between order, shipment, and the arrival of goods from your supplier are crucial to your business’ success—the shorter the time, the better.

Works Cited

* https://www.gartner.com/en/newsroom/press-releases/2020-06-24-gartner-survey-reveals-33-percent-of-supply-chain-leaders-moved-business-out-of-china-or-plan-to-by-2023
** https://www.bloomberg.com/news/newsletters/2022-05-03/supply-chain-latest-labor-long-lead-times-a-one-two-punch-for-u-s-factories