Supply Chain Challenges for US Companies in China

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April 17, 2020AmCham China and AmCham Shanghai today released the results of two joint surveys conducted in collaboration with PwC China (PwC) that study the supply chain impacts of recent events on American companies operating in China. The overwhelming majority of the surveyed companies have had a presence in China for at least a decade and have widespread operations nationwide.

The first survey, which was conducted in October 2019 and comprised 70 companies, shows that 90% of US companies’ supply chains were affected by the US-China trade dispute, mainly through diversification of supply base, risk management, and cost control. However, the adoption of “in China for China” manufacturing and sourcing strategies has mitigated some of these impacts. Most respondents expected continued healthy commercial relations between the US and China and looked forward to potential improvements in the regulatory environment as a result of the trade disputes.  

The second survey, conducted in March 2020 with a subset of 25 companies from the original group, shows a focus on returning to full production after the COVID-19 outbreak, with concerns shifting from factory closures to logistics, and 68% of respondents seeing a return to normal activities in China within the next three months.

Download the Survey Results

Due to the rapid spread of COVID-19 and the ensuing operational constraints, around half of the respondents said they were running below normal capacity, with 68% reporting that demand for products and services was below normal. Logistics-related challenges were the greatest anticipated challenge over the coming month, while resources impacting capacity was the next most critical challenge. In the short term, over 70% of companies say they have no plans yet to relocate production and supply chain operations or sourcing outside of China due to COVID-19. In fact, twice as many (24% vs. 12%) planned to shift sourcing as were planning to shift production. Meanwhile, one in five respondents said they believed that COVID-19 would accelerate the process of economic decoupling.

“In contrast to some global narratives, our China-based data suggests that the majority of our members will not be packing up and leaving China anytime soon,” said Alan Beebe, President of AmCham China. “Of course, certain companies in certain industries may diversify away from China or even expand manufacturing operations in the US given the current climate. But this is a costly, time consuming, and largely irreversible process. It is worth emphasizing that China appears ahead of the global curve when it comes to restarting the economy following months of lockdown, and many of the reasons why companies are in China in the first place still hold true today. As a result, we expect to see companies adopting a “China + 1” strategy as a way to diversify supply chain risks while tapping into China market opportunities.”

“The American business community in China has always been dynamic and resilient,” said Ker Gibbs, President of AmCham Shanghai. “Our survey results show that companies are considering adjustments to their business strategy, but there is no mass exodus as a result of COVID-19. Still, there is no escaping the fact that the current crisis adds a new and unwelcome dimension to the conversation about decoupling. This will be part of the discussion for months to come.”

“The survey results are a reflection of the resourcefulness and flexibility of the American business community in China in recovering from the recent challenges. The views of American executives navigating production recovery in China can give hope and guidance to territories who have yet to begin their transition back to growth,” said Jan Nicholas, Consulting Partner at PwC China. “As we look at global supply chain footprints across larger US MNCs, while several months ago the focus may have been on China reliance and cost across some sectors, COVID-19 has broadened the spotlight as more territories around the global are impacted – through both supply and demand. This is driving the need for a more holistic analysis of supply chain diversification.”

Conducted last fall, the first survey provides additional, longer term context for supply chain issues experienced by US companies in China. On the cost side, the imposition of tariffs by the US and China typically increased supply chain costs of US companies, with 47% of respondents seeing increased costs of up to 10%, and an additional 16% seeing cost rises of up to 30%. However, fewer than 20% of the responding companies had begun relocating manufacturing outside of China over the prior two years for the purpose of mitigating the negative impact of increasing tariffs, mostly due to the use of “in China for China” strategies for domestic Chinese demand.

Instead, most US companies are focusing on operational improvements, digital transformation, and strategic supply chain transformation. For example, 63% of surveyed companies say they are investing in new technologies to automate manufacturing and improve competitiveness. The survey also lists expected improvements in China’s regulatory environment – once the COVID-19 outbreak is in the past – that would encourage companies to invest more in China.

 

About AmCham China

The American Chamber of Commerce in the People’s Republic of China (AmCham China) is a non-profit, non-governmental organization whose membership comprises 4,000 individuals from 900 companies operating across China. The Chamber’s nationwide mission is to help American companies succeed in China through advocacy, information, networking, and business support services. In addition to our headquarters in Beijing, AmCham China serves Tianjin, Central China, and Northeast China through our Chapters in Tianjin, Dalian, Shenyang, and Wuhan. Across the five offices, AmCham China has more than 30 working groups, and holds more than 150 events each year.

About AmCham Shanghai

The American Chamber of Commerce in Shanghai, known as the "Voice of American Business" in China, was founded in 1915. AmCham Shanghai was the third American Chamber established outside the United States, and now has 3,000 members from 1,500 companies. As a non-profit, non-partisan business organization, AmCham Shanghai is committed to the principles of free trade, open markets, private enterprise and the unrestricted flow of information.

AmCham Shanghai’s mission is to enable the success of our members and strengthen U.S.-China commercial ties through our role as a not-for-profit service provider of high-quality business resources and support, policy advocacy, and relationship-building opportunities.
Visit www.amcham-shanghai.org for more information about us.

About PwC - Globally

At PwC, our purpose is to build trust in society and solve important problems. We are a network of firms in 157 countries with more than 276,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.

PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.

 

For media inquiries, please contact:

Mark Dreyer (AmCham China) mdreyer@sowza.com, +86 13260198737

Ian Driscoll (AmCham Shanghai) ian.driscoll@amcham-shanghai.org, + 86 13621723735

Hana Hu (PwC China) hana.hu@cn.pwc.com, +86 21 2323 3829

Julia In (PwC Hong Kong) julia.jh.in@hk.pwc.com, +852 2289 8687