A coronavirus update; China reported that over sixty percent of small firms are back at work, but demand from the US and Europe is dropping as a result of COVID-19. Other factories are concerned that this pandemic will cause larger companies to stop relying on manufacturing in China.
Concerns
Quarantine and transport restrictions forced the closure of businesses across China and are gradually being lifted as the number of new infections drops. As a result, Beijing’s unprecedented control helped slow down the spread of the virus. This allows Chinese firms to ramp up production. However, some manufacturers have begun to slow down production as the virus affects the global economy. The main concern is the outbreak will prompt many companies to reduce their dependence on Chinese manufacturers.
This potential shift to alternative manufacturing destinations puts a lot of Chinese manufacturers at risk. Currently, manufacturers only have a limited work force due to the virus and quarantine restrictions. When their full workforce returns and their payroll increases, maintaining their factory will be more difficult and strenuous.
Thom Zhong
Tom Zhong, a factory owner in China, is concerned about his factory. He makes small parts for bags and suitcases for US and European brands. He expects a boost in revenue with the upcoming olympics but that is unfortunately doubtful. Other potential revenue streams are closing as well, and Thom is considering changing his factory’s focus or closing down permanently.
Things will only get more complicated for US businesses if they placed an order and their factory closes down. They might never be able to recover the money they invested in the production of their products. Small US businesses will also have a very difficult time vetting their manufacturer and making sure they are financially viable. Traveling to China right now is not recommended and/or possible.
Due Diligence
A manufacturer who is struggling will not reveal this to a potential new client. Despite the difficulties, your team should try to do as much due diligence as possible. Ask your manufacturer what other projects they are working on and how busy they are. Be careful when choosing your manufacturing partner because they can make or break your business.
If you are concerned about your factory or product, or need someone local to China to visit your factory, please contact us.