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In today's Supply Chain, you may want to reconsider China

Reconsidering China

              Business pressures to limit labor costs and improve production efficiency are never ending. Worker demands for higher wages led Edward Drummond Libbey (1854-1925) to relocate his glass manufacturing business from Massachusetts to Toledo, Ohio, where raw materials (particularly sand) were plentiful, and labor was abundant and inexpensive. He built a demonstration glass plant at the Chicago World’s Fair of 1893, where H.J. Heinz showcased his ketchup and George Westinghouse lit the fairgrounds with 100,000 incandescent light bulbs, proving electricity had arrived for the masses.

              China has been a similarly transformational experience for many American businesses in the last 35 years for the same reasons: low cost labor and raw materials, and production efficiency of newly constructed manufacturing plants. One client company CEO recently compared the China expedient to cocaine. “We are hooked and cannot shake the habit.”

              Geopolitical winds, though, are making executives rethink their commitment to Asian supply chains. China is the focus. Both the U.S. and China are “racing to secure their own supply chains and to reduce dependency on each other—a reversal of 40 years of economic integration,” according to experts interviewed by The New York Times.[1]

              The newspaper quoted the Pentagon’s top official for Asia, Ely Ratner, and the White House Asia policy coordinator, Kurt Campbell, saying America “underestimated China’s willingness to directly take on the United States, or use its economic might to rewrite the rules of trade and technology in its favor.”

              Military technology and strategic resources, like rare earths, hold center stage. But the consumer goods economy remains the largest sector affected by changes in the two nations’ relationship. What could you buy at Walmart if Chinese-made goods were banned? Groceries, period.

For companies that source products or components in China, it is high time to create post-Asia optionality. Renaissance Partners is here to help with that process.

  1. Renovate.         We designed our Renovatesm product specifically for this purpose. Renovate harnesses the world-leading product design and development skills of Nottingham Spirk Design Associates. NS founders hold more U.S. patents than anyone in American history, including Thomas Edison. >1,300 in total. Renovate brings the NS vertical innovation process to existing products, making it possible to quickly and efficiently redesign and improve them. Those actions can boost sales and margins in addition to reducing dependency on foreign suppliers. Consider making Renovate part of your business plan.
  2. Operational Excellence.           Subpar product quality is a frequent complaint levied against Chinese sourced goods. Fifteen years ago we worked for Pennsylvania’s Governor in an effort to save Pennsylvania House furniture. Last year, a client furnishing her Florida winter home said to the furniture salesman her family had 40 years of good service from Pennsylvania House furniture in their Philadelphia home. “Don’t buy the Pennsylvania House stuff,” the salesperson said, “it’s now from China and falls apart in a few years time.”

              Renaissance Partners has a bench of executives with many careers’ worth of experience helping American businesses do what they do best: produce quality products at affordable prices. Often, the biggest hurdle our clients face is breaking from the crowd. We regularly tell them, “Asian sourcing is not a panacea. You can make it work in America—it just requires rethinking what you do and how you do it. We can help.”

  1. Public Financial Support.         The two dirty little secrets of government economic development funding are (i) the payback time is remarkably short and (ii) retaining jobs is always less expensive than attracting new ones.

              The current pandemic reminds us that widespread unemployment is an enormous drain on government coffers. Reemployment produces tax revenues that pay back economic development grants and loans in months rather than years. Political actors are reluctant to admit their dependency on taxpaying citizens. They also fear backlash should they financially support businesses that later fail. Our expertise through 40 years is to build business cases that attract government financial support. It’s not magic; it’s a discipline: do what is economically rational and serves every taxpayer’s economic interest. It works, and we have dozens of examples in our portfolio to prove the point.

 

Our new motto, Maximizing Potential, Delivering Growth, is a call to arms for American business. We can, we must, keep our place as the world’s leading economy. Please consider how we can help you remain an essential business and a winner in that race

 

[1] “As Biden and Xi Begin a Careful Dance, a New American Policy Takes Shape,” The New York Times, March 18, 2021.

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