1.The trend of regionalization has spread all over the world.
Companies around the world are doing two things: one is to shorten the supply chain, which has already begun before and during the epidemic; the other is to see other disadvantages associated with long supply chains in addition to geopolitical risks.
The rise of the regionalization trend is due to a relatively positive factor, that is, the growing maturity of the global trade market, which has made the establishment of local supply chains a viable option. The larger the market, the more meaningful it is to have specialized production and industrial clusters. This is true whether in the United States, Europe or Asia. This is the premise of the regionalization process.
Against this background, China’s position as a procurement destination remains very stable and still has an overwhelming advantage. Exports continue to grow, and many companies are very satisfied with China’s supply chain. In the past few years, many companies have tried to set up factories in and around China, or to move their supply chains from China to other countries (such as Southeast Asia, Europe, etc.), but in the end they concluded that for most products, it is most advantageous to set up factories in China because China has a very complete supply chain and very complete infrastructure.
When working with China, I can personally feel the real desire of Chinese companies for business, and it is not limited to manufacturing. They are also willing to undertake design and other value-added links. Therefore, in terms of the size of China’s supply chain, its complete supporting facilities and rapid response have won the favor of many companies.
2. Challenges and competition faced by Chinese suppliers
Shortening transportation distances and reducing procurement costs are the lifelong goals of some industries, such as the automotive industry. In these industries, there are a large number of different types of components, with strict and changing requirements, and they need to respond quickly to end customers. Therefore, for these industries, the closer the supply chain is to the end customer, the better. This industrial logic is very clear. It is for this reason that I firmly believe that more Chinese companies will build factories in Europe, and some companies have already taken action.
In the future, we will see more global supply chains competing head-on on two lines. On one side is China, and on the other side are emerging markets such as Vietnam. In terms of labor costs alone, Southeast Asia is much lower than the former, but there are also disadvantages. In the future, you will see companies establish unique value chains, such as the combination of Japanese and Korean companies and exclusive Chinese suppliers. In addition, this kind of competition in the value chain is also quite focused. It is not only carried out between countries, but also between companies, groups and industrial clusters.
3. How should Chinese companies deal with trade protectionism in emerging markets
Although the growth of specialized division of labor and global trade is beneficial, it will also cause political friction in the transformation brought about by creative disruption.
As many Chinese companies increase their efforts to go abroad and grow in a rather radical way, the high efficiency, large-scale production and low prices from China may quickly arouse a response in some countries. Then the problem comes, or it can be said that this problem has already existed. There are already quite a few emerging markets that may continue to pursue protectionism and add more local requirements to their policies, such as forcing mineral processing to remain in the local area and requiring local content ratios for goods imported into the country. These are all problems that have already occurred and need to be solved.
But this is nothing new. For many years, many investments in Western countries have encountered this situation. As these countries gradually become richer, the way wealth is distributed will also be affected, and the industries in which some people are engaged will no longer be competitive at the global level. Many transformations actually have little to do with China. Generally speaking, they are caused by global trade.
When facing global competition, local special interest groups and local companies always voice dissatisfaction, which is particularly evident in the markets of many developing countries. Many policies introduced in these regions are derived from this, such as protecting local companies, ensuring local employment, and retaining votes. Such localization requirements are nothing more than the product of these countries’ political initiatives and industrial policies, the political balance within these countries, and the balance of the entire market.