4 Factors to Consider When Relocating Your Production
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By: Olivia Barrow
The falling value of the Chinese currency against the U.S. dollar is making it almost impossible to turn a profit in exporting to China. But the swarm of discussion around the challenges that currency translation brings on U.S. manufacturers has clouded out an important counterpoint.
A strong U.S. dollar means it’s the perfect time to import from China, says Joe Jurken, senior partner of The ABC Group LLC, a Milwaukee firm that helps manufacturers set up and run business partnerships in China.
“This is the first time in a long time that companies should be rejuvenated about doing business in China,” Jurken said in an interview.
Most large-scale manufacturers already have some kind of supplier relationship with Chinese companies, but many of them established those relationships 10 or 15 years ago, with a “set-it-and-forget-it mentality,” Jurken said. The current economic environment means it’s time to reevaluate those relationships, and look for opportunities to upgrade to a higher quality supplier or to save money.
Here are Jurken’s top three things to know about importing from China:
1. The economic environment is actually a perfect storm for importing from China for three reasons. First, the U.S. dollar can buy 6 percent more product for the same price than before, and some banks estimate that the Chinese currency may drop another 20 percent. Second, because of the slowing Chinese economy, many suppliers have excess capacity, so they’re dropping prices and improving quality to try to compete. And third, because the imbalance between U.S. imports and exports to China has started to even out, freight prices are much lower that they used to be.
2. If you’re an established company that doesn’t import from China, don’t start now. “If anyone has not sourced from China at this point, there’s probably strong company culture reasons for why not and they should stay true to themselves,” Jurken said.
3. The opportunity comes with a risk. The overcapacity that is driving down prices could also drive the supplier you partner with out of business. “You should keep an eye on your suppliers’ financial stability,” Jurken said.