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Manufacturing at a ‘Tipping Point’ to Diversify Beyond China

Bill Koenig
By Bill Koenig Senior Editor, SME Media

Manufacturing’s supply chain is approaching a “tipping point” of diversifying beyond China, consulting firm PwC said in a report.

PwC said there will be “an ongoing evolution from China’s traditionally dominant role as the default go-to location for sourcing.” Industry, the firm said, is “approaching a tipping point of global supply chain rebalancing.”

China emerged as a global economic power in part through manufacturing. Companies for more than two decades have established manufacturing operations in the country and imported goods from Chinese manufacturers.

During the Trump administration, trade tensions rose between the U.S. and China. Then, in 2019, the novel coronavirus (COVID-19) originated in China. A global pandemic followed. That further increased conflict between China and the U.S.

PwC said there are other reasons spurring manufacturers to re-examine their supply chains.

“Other viable and competitive low cost country sources (LCCs) have emerged, particularly in southeast Asia,” according to the report. Such countries, PwC said, “have significantly improved their supplier bases and manufacturing labor forces, making them a more attractive option that just three years ago.”

Beyond Asia, “Mexico is increasingly posed as an attractive option to China,” PwC added. Mexico, Canada and the U.S. agreed to a new trade accord that took the place of the North American Free Trade Agreement (NAFTA).

PwC said manufacturers may shift to a supply chain model with multiple sources. COVID-19 “presents unprecedented challenges and uncertainty,” according to the report.

However, such a shift won’t happen quickly. “Of course, companies that rebalance to other regions will likely do so gradually,” PwC said.

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