Tag: china

The U.S. – China Trade War Creates Demand for Sourcing Diversification

Written by: Alexander Parker, Account Manager (Tampa, FL)

Pro QC International works with businesses to develop and maintain their quality programs. Many of these clients have their primary suppliers based in China. Due to recent trade escalations between the world’s two largest economies, the United States and China, U.S. corporations are finding ways to adapt and avoid extra costs as the tensions continue to escalate.

Some prominent U.S. companies have already directly indicated that the U.S.-implemented tariffs will force them to pass down higher costs to customers and revise their earnings forecast downward. However, there is an alternate solution to pushing costs onto customers.

Large U.S. companies, like Honeywell, Hasbro, and Boston Scientific, have indicated that they will increase the use of supply chain sources from non-China countries to counter growing costs related to the rising tariffs. Compal, a Taiwanese contract manufacturer of electronics, has mentioned that while “assembling notebooks outside of China could cost at least 3 percent more per unit, the possibility of U.S. tariffs could wipe out its gross profit margin of slightly above 3 percent last quarter.” (Wu, 2018) (“Factbox – Impact of U.S.-China trade tariffs on U.S. companies”, 2018).

This is in fact one of the purposes of these U.S.-tariffs, to protect domestic industries and to make goods produced in an outside country less enticing. The goal is to eliminate the cost benefit that leads to companies purchasing from a country in the first place.

Despite some larger companies having opportunities to appeal to the U.S. government for exemptions from tariffs that would directly affect them, most companies do not have the resources or power to make such an impact on the U.S. movement. Being that these tariffs are out of their control, many companies, some of which include Pro QC’s own partners, have begun to diversify their supply chains to prevent and avoid major business disruptions. With tensions escalating and potentially further tariffs to be added in the upcoming months, companies are rapidly looking into this option before costs in China become too high.

For example, we have had clients cancel Initial Supplier Evaluations in fear that the tariffs will no longer make the potential new Chinese supplier a more affordable option than suppliers elsewhere. This uncertainty leads to a risk that is not worth taking.

Diversification to suppliers from various countries will lead to a more robust supply chain that allows for resilience in times of uncertainty like now. However, companies that have limited resources or time to find new suppliers may find it very difficult to locate and transition to these new facilities.

Pro QC can assist during this time with services like supplier selection and identification, supplier development, and inspection services to get new suppliers up to speed and ensure their products are meeting a company’s quality standards. If it is desired to replace an existing supplier, we provide help in identifying or transitioning to suppliers in countries that will not be affected in these trade disputes.

As written about in a separate Pro QC blog post “China Sourcing Alternatives: Thailand,” other reliable manufacturing nations, notably Thailand, as well as Vietnam, India, and Mexico, also offer affordable costs and business environments. With local Pro QC teams in each of these locations and services in a total of 88 countries, our quality professionals will assist in executing any range of solutions required.

It is important to remember that despite China potentially losing some market share to other countries, they will still account for a major portion of trade in the world. For example, China still accounted for 35 percent of global clothing exports last year. Rather than China backing down during this time of intense pressure, the Chinese government and factories are going to respond by searching for methods to increase competitiveness by finding alternative markets, increasing factory automation, and creating more value-added products. Factory owners are not going to be willing to give up and shut down their businesses, but will become increasingly more innovative. (McDonald, 2018)

This trade war will ultimately resolve itself, but when this will happen is unknown. China will remain a prominent player in the manufacturing arena, and removing all connection to the country may be impossible or too inconvenient for many companies. However, diversifying a supply chain can help create a buffer during times like these. Whether it’s needed to maintain relationships within China, or find a way to diversify, Pro QC is here to assist you create dynamic and innovative solutions.

China Sourcing Alternatives: Thailand

Written by: Daniel Ben-Ezra, Pro QC Country Manager 

Many companies are looking for alternatives to China these days with regards to their supply chain. Most often the driver is costs. We’re seeing an increasing number of clients contemplating a shift, or already being in the process of implementing one towards other Asian nations with regards to their manufacturing base. This post is the first of a series discussing alternative options to China, and starts with Thailand.

Despite not being a low-cost production base, Thailand is seen as a viable option by many companies to set up a manufacturing unit or to source from. This stems from its reliable business environment, well-developed logistics infrastructure, vast natural resources and existing functional industrial base. The government of Thailand is also taking active steps towards improving the country’s position by pushing investments in technical equipment, allocation of SEZs along its borders, and developing cluster structures.

As share of GDP, major product categories produced in Thailand include food items, metal and construction materials, rubber, plastics, electrical appliances, cars and related components, jewelry and handicrafts. Coupled with its natural resources and easy connectivity with other ASEAN countries (notably Cambodia, Laos, Myanmar and Vietnam), Thailand makes a strong case for itself as alternative to China for specific product categories.

A downside to manufacturing in Thailand is that its labour pool is relatively expensive and unemployment stands at low rates. In order to tackle this, the Thai government has come up with the strategic decision of allocating 10 SEZs (Special Economic Zones) in the years coming. Planned along the borders, companies locating themselves within these zones would be able to enjoy low-cost, easily-commuting workers from areas such as Tak and Kanchanaburi (bordering Myanmar); Sa Kaeo and Trat (Cambodia), Mukadahan, Chiang Rai, Nong Khai and Nakhon Phanom (Laos); and Songkhla and Narathiwat (Malaysa). Other incentives to attract FDI include infrastructure creation, fast processing of licensing and permission applications and creating one-stop service centres with customs checkpoints. Additional incentives are planned for companies active in specific sectors, which include tax reductions, low or zero import duties for parts & materials exported afterwards, low interest loans and more.

Similar to China’s Made in 2025 initiative, Thailand 4.0 is a key element in the government’s mid to long term strategic development plan. It aims to create the foundation for production of high value added products and services, and focuses extensively on technology and innovation. Despite hefty competition from China specifically in that regard, manufacturers are moving into Thailand also for risk diversification and access to the ASEAN market.

Pro QC’s team of quality engineers are based in Bangkok and surrounding areas, from where we are able to provide nationwide coverage. For those companies looking to explore possibilities in Thailand with regards to their supply chain, we offer a variety of solutions. The careful screening of vendors is naturally a highly critical process that will influence subsequent developments. Popular services in this regard include our Supplier Verification and Quality Process Audits. Sample reports can be downloaded here.

Welcome Year of the Monkey – Preparing for Chinese New Year

Wishing-You-A-Happy-Chinese-New-Year-720x320

Anyone involved in sourcing from China has likely been preparing for Chinese New Year for several weeks.  The “new year,” also known as the Spring Festival, is marked by the lunisolar Chinese calendar.  The festivities usually start the day before the new year and continue until the Lantern Festival, the 15th day of the new year. During that time, factories and other businesses are closed.

What happens during Chinese New Year?

Chinese New Year is the most significant holiday in China.  It’s a time when the Chinese return to their home towns and celebrate with friends and family.  Learn more about the cultural aspects here. 

For those involved in manufacturing within the region, there’s an urgency prior to the holiday to ensure timely shipments. This is where proactive planning is helpful.

Quality testing adventure… Evaluating strollers

They say you should walk 10,000 steps per day, and our engineers in China are hitting the mark as they road test these strollers through various road conditions.

Sebastian Oarcea, Pro QC’s Chief Engineer, explains the evaluation in more detail below.

Purpose:  To determine the functionality and performance of the strollers in a real-life operating condition.

Process:  One sample is subject of functional evaluation in reference with instructions manual provided and applicable standard prior to road test to identify potential failure modes.

The road test is performed with strollers loaded at maximum stated by manufacturer (both for occupant and luggage compartments, basket etc.) over terrain that mirrors the expected usage environment (including stairs, inclined road, grass and sand roads etc.).

The strollers are tested in ways that would parallel the way it would operate in normal home use.  Normally 5 samples of each model are included in this test.

Report: The final Summary Report evaluates and records the performance and physical aspects of the stroller during the test. It includes initial observations from the receiving of the product, packaging, compulsory markings and warnings, instructional literature, Mean Time To Failure (MTTF) with reliability data in hours of use and distance, comments (both positive and negative) and suggestions from testers, satisfaction score and daily reports. The test distance is about 50 km (for current road track 53km).

Product_Testing_Strollers

Intern insight

Before our intern, Melanie Rinehart, left for China, I had the pleasure of meeting with her.  Our Managing Director has a keen eye when it comes to recruiting passionate individuals.  Melanie is no exception.

For the past several weeks, Melanie has been training in our Shenzhen office.  I wanted to reach out to her again for insight into her experience.

You recently moved from Tampa, Florida to Shenzhen, China for an internship with Pro QC. Having been to China before and studied the language in college, do you find there are significant cultural differences?

I definitely feel that the cultures in China and the West can be almost overwhelmingly different at times. The cultural differences between China and the West are nowhere more pronounced to me than in a business/school setting. The hierarchical structure of Chinese society can leave a foreigner feeling uncomfortable and out of place without the proper cultural training. Expectations from the company and staff of an organization may vary widely from those in the West. 

For instance, a Chinese co-worker could expect a lot less from a foreigner in China, not only because of their Mandarin proficiency or lack-thereof, but also because being an intern in general carries a different weight in Chinese culture than in Western culture.

To avoid complications and frustration, I try to read as many cultural studies and foreign professionals’ journals of times spent in China as possible; Eric Shepherd has published many great articles and books about cultural differences to be aware of in China.

What is it like working with Pro QC in the Shenzhen office?

Working for ProQC in the Shenzhen office is much different from the last internship I had in China. I mentioned above that expectations in Chinese businesses are different than in Western businesses, but to be honest working for ProQC has been a more “Western” experience than I have had previously. It is important to take each case individually and not develop any stereotypes from reading about the cultural differences. The best thing about working in the Shenzhen office so far is that the staff has been really welcoming, and I have been given the opportunity to jump right into the actual work.

What do you miss the most about living in the United States?

This is my third time in China, and I have been here for one month at this point. What I always miss most about the United States is my friends and family. Moving far does not seem so daunting at first, but when you arrive in a country whose time zone is twelve hours different it can be very difficult to stay in contact with friends and family as much as you would like. Developing a network of friends in your new city can be very helpful and setting designated times to talk with friends and family is important.

 What is your favorite place to eat and favorite thing to do in Shenzhen?

There are so many great places to eat in Shenzhen! Having been to Beijing and Qingdao before, I can really appreciate the “openness”.  Because Shenzhen was opened up economically in the 70s during Deng Xiaoping’s economy reform, the city is fairly new but also a huge center for foreign direct investment (FDI). FDI has brought many ex-pats from all over the world, so the food is just as eclectic in Shenzhen as it is in the United States. 

My favorite restaurant so far is definitely a small Muslim restaurant in Shekou where you can eat the best 鸡蛋炒拉面 egg fried noodles that I have found in China. The Xinjiang province of China is the origin of the hand pulled noodle, and they are famous worldwide.

One of my favorite things to do in China is to shop. The market itself is a cultural experience. The technology market, iPhone case market, handbag market, and clothes market are all more than five stories of shops. Bargaining with sales associates is a great experience in China, especially if you learn the best techniques from Chinese themselves.

Do you have any words of advice for others looking at internships abroad?

Looking for a job or internship abroad is an interesting challenge. It is important to stay competitive, culturally adaptable, and at least somewhat fluent in the local language.

I have found that my best asset I have for studying and working abroad is flexibility. It is important to know that to be competitive, you have to be willing to take risks as an individual. Each time a business hires a new employee they are taking a risk, and in order to make that risk worth their while, I feel it is important to show that you too are willing to go out on a limb. Plus there is the added benefit of travel, and your company will know that they can count on you to be a reliable asset.