After the year 2020, I think we can all agree that the world needs to move beyond outsourcing its services from China. Today, China is the biggest manufacturing and production giant in the world. When we think about getting a product made in the most affordable manner, we think of China. And in the last two years, businesses have suffered terribly for not having a reliable alternative to China for their manufacturing and production needs.
It is reported that in the last 30 years, businesses from around the world have outsourced their manufacturing needs from a single country — China. Whether it is apparel businesses or technology companies, China tends to the manufacturing needs of every business today. As businesses, we cannot deny that we are collectively responsible for giving the outsourcing monopoly to this country.
While there had already been a debate about the matter of dislodging China as an outsourcing magnet of the world, there was no real action involved in doing so. But, the year 2020 changed that — well, to an extent. Businesses from around the world realized the harm of single-country sourcing of manufacturing operations when it came to a halt. However, the stopping of operations was not the only threat that the businesses who availed of China’s outsourcing services faced. There are many more risk factors involved, some of which I have listed below.
Risk Factors Involved with Single-Country Sourcing from China
Paying High Tariffs During Imports
High tariff costs are also the reason why businesses are not profiting as much from outsourcing operations in China anymore. The rate of tariff imposed is currently as high as 25% on total costs for importers. This rate will reportedly not come down in the near future because of the ongoing US-China trade war. Businesses will have to move away from outsourcing from China, sooner or later.
The Inevitable Threat of Data Theft
Data theft is a serious concern that can lead to major intellectual property losses for businesses. This is also the reason why the trade ware between countries such as the U.S. and China began in the first place. Reverse engineering of products or straight-up theft is a common problem that businesses are facing today at the hand of manufacturers.
Wage Increment for Outsourcing Services
China’s economy has benefited significantly in the last few decades from the outsourcing services it provides. It has also resulted in increased wages for the same services. Today, the manufacturing wages in China are a lot more than the wages for the same wages in other countries in the world, like Mexico, Latin America, India, and other Asian countries. It is estimated that on average, the hourly labor wage has increased to $6.50 in China as compared to $4.82 in Mexico.
As Indians, we have our own reasons to think beyond China and instead, explore the possibilities of -
- Establishing India as the next big outsourcing services provider to global businesses
- Look out for the next best alternatives to China for our own outsourcing requirements
With the idea and campaign of “Made In India” going strong in the country, the idea of being self-sufficient and capable as a nation is to be revered. In the last few years, businesses in India have thrived after acting up to this idea of being self-sufficient. With continued zeal and effort, we can together create many opportunities for job-seekers while contributing to India’s economy and helping it climb the ladder to becoming the next big world economy in the future.
One concept that holds much potential to get our outsourcing requirements fulfilled is nearshoring. Nearshoring is essentially taking your business operations out to a nearby country with optimum conditions instead of a far-off country. Countries in the third-world — South-East Asia, Mexico, parts of Africa, can allow for better outsourcing conditions than China. As businesses, we must embrace this possibility and give it a chance.
The Conclusion
It is going to be a challenge to reverse the 30-year old trend of outsourcing manufacturing operations from China. However, it is reported that a high percentage of businesses are exploring the idea of reshoring and nearshoring after the 2020 collapse of operations in China. No single country should have a monopoly for outsourcing as there are many other third-world countries that could benefit from the potential of becoming the next best outsourcing market. Moreover, by uprooting manufacturing operations from China, the possibilities that can open up in emerging markets can benefit the world economy.
