Are Companies Leaving China?
A recent survey from the American Chamber in China shows that companies are not packing up and leaving China. Indeed, over 70% of respondents say they have no plans yet to relocate production and supply chain operations or sourcing outside of China due to COVID-19.
Companies have been reassessing their supply chain strategies for the last several years, and in certain industries that means diversifying away from China or even expanding operations in the US given the current climate.
Yet, in the annual China Business Climate Survey Report from the American Chamber, 21% of surveyed members reported a drop in revenue in 2019, compared with only 7% in 2017, and the proportion of members describing their financial performance as ‘profitable’ has dropped from 73% in 2017 to 61% in 2019 – the lowest percentage in almost two decades.
But despite the financial pressures, including trade tensions and the COVID-19 outbreak, most companies are still profitable. China is a historic market opportunity, and companies will continue to invest.
The China +1 strategy is a way to diversify supply chains and operations by adding a new location, typically in Asia. Many Western companies have adopted this in recent years to control costs, and mitigate against rising wages, supply chain issues, tariffs and so on. So while companies show a commitment to stay the course in China, we can expect to see more companies adopting the China +1 strategy. This is a way to diversify their risks and control costs, while still tapping into China’s market opportunities.
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