Mercury Ecommerce Newsletter: Shifting Supply Chains

Welcome to the Ecommerce Newsletter.

Every month, we’ll report the stories, trends, and tools that are shaping ecommerce today. We’ll share insights from our conversations with some of the sharpest minds in the industry so you can keep pushing your company ahead.

This month, we explore rethinking your product sourcing strategies and supply chains. We hope you find it helpful.

Insider News

• Trade dispute weakens China's manufacturing. The US-China trade dispute has accelerated the move from manufacturing in China to manufacturing in Vietnam. “Chinese manufacturers that produce Crocs have built multi-thousand worker plants in Phu Tho serving only the US market." DW
• Vietnam dominates manufacturing. 2019 US import data shows a seismic shift in manufactured imports away from China to other low-cost Asian countries. Vietnam accounted for almost half of US imports that shifted from China to other low-cost Asian countries. Kearney's 2019 Reshoring Index

• Executives relocate operations. A survey of 150 mostly C-suite manufacturing executives about how they see supply chains evolving found that, of the respondents who have operated in China, 59% have either already withdrawn operations, are in the process of doing so, or are considering it. Thomasnet Insights

Insider Chat

We wanted to determine if there was truth to the influx of headlines about manufacturing leaving China. To help answer this, we spoke with Nathan Resnick, Founder & CEO of Sourcify.

Nathan sat down with us to shed light on why supply chains are shifting now, and what ecommerce companies should consider when thinking about diversification.

1. How did you get involved in sourcing products for ecommerce companies?
   
   I used to live in China in high school and started selling my own products online in 2010. As my ecom business grew, companies began to ask me to help them manufacture. As it grew, I realized I could focus on creating a better sourcing experience full time so started Sourcify in 2017. This year, we will import over $75m worth of goods from China.
   
2. We are hearing more and more about ecommerce sellers moving manufacturing capacity away from China to other countries. Are you actually witnessing this shift taking place at the ground level? Do you think this trend will continue into the future?
   
   China is still the manufacturing epicenter. Some production has moved, but China right now is thriving - they handled COVID pretty much better than any country in the world, so production is back to normal and the vast majority of products we’re going to be buying this season are going to come from China. It’s happening now because of all the political tension.
   
   Though a lot of production has and will continue to shift, we are still very reliant on China from a raw material perspective. The trend will continue until we’re able to be on the same page politically with China.
   
3. Okay so some production has shifted away from China, but why is the world still so reliant on China for raw materials?
   
   The way their country is set up is that they have access to the world’s raw materials, whether it be fabric, steel, aluminum, whatever it may be, they have those factories producing the actual raw material.
   
   A lot of the factories that are based outside of China do not have this capability and still have the raw materials coming from China. For example, Vietnam has many cut and sew factories but its fabric mills are just getting up to speed.
   
4. For the companies that are diverting manufacturing capacity away from China, do you see this across industries, or is it isolated to specific products and categories
   
   We see it across industries but it’s harder to move production in some categories compared to others. The main categories that are moving out of China include fashion, fashion accessories, furniture, and hard goods. The challenge with moving production stems from the capabilities in other countries. This stems into the actual machinery, labor force skills, and materials.
   
5. Are there one or two countries in particular that you think have the highest potential in terms of dethroning China as the world's manufacturing powerhouse? Why?
   
   Vietnam and Mexico. Vietnam because of the growth and development of their economy. Mexico because of its close proximity to America.
   
6. Okay, so it sounds like Vietnam could be the next big manufacturing hotspot in Asia. How would someone actually get set up to manufacture there? Where would they go, who would they talk to?
   
   For most of the time outside of China you’re going to need an agent. There’s not really any marketplaces like Alibaba outside of China so that becomes a challenge for people to figure out where the right factories are, how to communicate and work with them, how to get in touch with them. So a lot of the time outside of China you’re just working with a sourcing agent.
   
7. How would someone find an agent? How would they know if the agent is reputable? How much do agents charge?
   
   Agents can be found on search engines like Google or marketplaces like Upwork. To decide if your agent is good or not, you're going to want to get at least two referrals from them that comes from brands they've worked with in the past that are similar to the products you want to manufacture. Make sure you have transparency with your agent because you always want to know what factory is producing your product. Most agents take a flat fee or percent of production.
   
8. What are some alternative ways to ensure quality control, besides physically going to the product factory?
   
   Get a third party inspection on every production run, this is your insurance. One of the partners we recommend is Qima, formerly known as AsiaInspection, it’s about $300 or $350 for an inspection and full report detailing the percentage of products they inspected. We recommend 3rd party inspections on every production run.
   
9. These are great suggestions. Where should readers go if they would like additional information about sourcing and manufacturing in Vietnam?
   
   Feel free to check out our blog post here: All you need to know about manufacturing and sourcing in Vietnam

TL;DR

Manufacturing is a mixed bag. Media says manufacturing is leaving China, whereas insiders say China is still a juggernaut. Ultimately, it may depend on your industry. Regardless, entrepreneurs will find increasing options to diversify their supply chains.

We'd love to know - where are you currently sourcing your products from? Reach us at [email protected] with any ideas.

Thanks,

The Mercury Team