The cost of labour in China is rising as the country’s economy matures and wages increase, particularly in labour-intensive industries. Accelerated by the US-China trade war, businesses are now exploring new sourcing options to avoid tariffs and reduce operational risks. Companies are increasingly drawn to countries like Vietnam, Bangladesh and India, where labour costs are comparatively lower, to optimise their production costs and remain competitive in the global market.
Another significant factor driving the shift in supply chain sourcing is risk diversification. Foreign and Chinese companies alike are actively seeking to reduce their dependence on China and spread their manufacturing operations across multiple countries to mitigate geopolitical, economic, and operational risks. By spreading production activities to other countries in the region, businesses can better navigate uncertainties such as trade tensions, natural disasters, and political instability, ensuring continuity in their operations and supply chains.
Challenges and opportunities
One of the main challenges with this shift is overcoming infrastructure, logistics and freight route hurdles. While China has established robust infrastructure and efficient logistics networks over the years, other countries in Asia may not have the same level of development in these areas. This can result in delays, increased transportation costs, and difficulties in ensuring the smooth flow of goods along the supply chain.
Another critical consideration when shifting sourcing from China to other parts of Asia is the availability of skilled labour. China has long been known for its large pool of skilled workers. While the production costs are lower in Southeast Asia, there remains a productivity gap compared to China that needs bridging to maximise cost benefits. Additionally, there’s a need for these countries to move forward in terms of safety, ethical standards, environmental awareness, and other related areas to meet the expectations of some multinational corporations on their ESG commitments.
Despite these challenges, shifting supply chain sourcing from China to other parts of Asia offers significant opportunities for innovation and growth. Companies can leverage the unique strengths of different countries to drive innovation, tap into new markets, and expand their global footprint. For example, many of these countries offer various incentives to attract and retain foreign investment, including tax breaks, subsidies and simplified regulatory procedures. Governments are also investing in improving infrastructure to make it easier for companies to set up and operate.
3 key areas of focus when you’re exploring changes to sourcing strategy
1. Understanding local regulations and practices
Before shifting sourcing to a new country, thoroughly research and understand the local regulations, labour laws, and compliance standards to ensure ethical sourcing practices.
Engage with local experts or consultants who are familiar with the business environment and supply chain management in the target country to navigate any potential challenges and ensure compliance with international standards.
2. Building strong relationships with suppliers
Establishing strong relationships with suppliers in new sourcing locations is crucial for a successful transition. Invest time and resources in building trust, communication channels, and a mutual understanding of expectations. Regular visits to supplier facilities, clear communication of quality standards, and the fostering of a collaborative partnership can help ensure smooth operations and quality control in the supply chain. Provide training and support to help suppliers meet your requirements and scale their operations – or consider getting support from a third party who can facilitate this.
3. Enhancing visibility and management
Suppliers located in multiple locations (not to mention multiple countries) need an efficient communication and management approach to minimise errors when large amounts of complex information are in circulation. The focus should be on visibility and collaboration in the supply chain when moving goods from manufacturing through to their destination. With technology like Ligentix that tracks items at SKU level, both customers and suppliers have access to monitor and adjust their shipments to ensure every item arrives in time, enabling them to waste less and sell more.
A proactive approach with Ligentia
At Ligentia, our 1200 strong team of supply chain experts is committed to refining and improving your global supply chain. Our team is committed to ensuring that you are always on the right track to achieving more value in your supply chain, as you explore new sourcing locations, and beyond. We provide customers a comprehensive range of solutions in Asia which covers:
Connect with us today to learn more about how we help support you through strategic sourcing decisions.
Wendy He is the Managing Director for Asia at Ligentia. With over 25 years of industry experience, she brings the energy to inspire, motivate, and guide leaders and managers across the region. In her role, Wendy oversees all operations and management practices in Asia, ensuring they are effective in achieving the strategic goals of Ligentia and our customers.
