Will Manufacturers Leave China In Droves?

Is it practical for manufacturers to move away from China in droves, or is this just an emotive knee-jerk reaction to the current situation. Today's we'll discuss the likely outcome of all this fuss and what I think on the matter.

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Video Transcription:

A bit of a change of scenery today with coronavirus and property investors. Today I'm undercover our people gonna leave China in droves and I think that's an interesting one because you know there's lots of talk on the internet about you know China cause this and all the conspiracy theories and I'm sorry to disappoint you today but we're not dealing with any conspiracy theories.

Not only that I really want what I really want to do too is just talk through practical you know economics and practical approaches to this because it's all good to say in a knee-jerk reaction you know China cause this China had a delay in there you know in the supply chain and therefore lots of people are going to realize that they can't rely on China and going to move away. The reality is that simple doesn't play out in economics basic economics of supply and demand and price in elasticity and all these sorts of concepts which don't worry about them now.

The reality is why I think people now lots of people to talk about it and lots of people will say yes I'm going to I'm not gonna rely on one supplier I'm not gonna rely on one country I'm not gonna you know I'm gonna spread it out. But here's the reality yeah the fact is it is bloody expensive to get things manufactured and to get things built you know overseas because when you think about it it's not just a case of going actually what I'll do is I'll do half over the in China and half in Vietnam or Indonesia or wherever it is India you know. The reality is as soon as you do that and you split your thing and whether it's 20 and a 50 50 20 80 whatever it is it doesn't really matter.

The fact is you're now going from one country supplying you which means legal for one. Which means tariffs and duties and you know contracts and all these sorts of things and as well as you know economies of scale you know all of a sudden you're splitting you don't year your economies of scale. All of a sudden you know you've got your various risks with different businesses and you know so as well you've got to have people who know that market and also the other markets.

So when you start adding that up what you're gonna find is those costs will start to skyrocket and when those costs start to skyrocket one of the whole things about supply chain is yes you can say well actually this is a risk. But the reality is when you sit down you go yeah you know what we've been in business for 50 years and this has never happened before it's never really been an issue before and this was a once in a hundred-year thing and actually you know what it wasn't that bad maybe what we need to do is rather than pay all this additional money to try and run two countries supplying us. Maybe what we need to do instead is actually focus on having more inventory on hand.

And that's the initial reaction will be is well maybe we just focus on having more inventory at hand. And then what will happen is give it a year or two and you know the manager and director will go hold on why are we stocking so much inventory. We want just-in-time and all of a sudden they'll start dropping the inventories in 100 years time or back in the same situation.

I don't see lots you know, some countries I mean some companies sorry will. They will change from China or they will you know change their entire thing. But the reality is they're you know ahead of the fire and into the cauldron sort of thing. What China has is an amazing unique selling proposition from a marketing perspective you know it is an amazing place right now and the reason is is it because it has such a massive pool of talent to pull from. Now it can do cheap stuff it can do high-tech stuff it can do pretty much the entire you know spectrum of things and that's what's amazing about it.

The reality is where do you find that you know and where do you find that where they're very pro-business and pro friendly and yes you have to get used to the way Chinese do business which might be different the way from Aussies or the UK or Americans whatever do business. But the reality is a lot of those lines and a lot of those relationships are already built. Are you just gonna up and say write 50 percents out of China and now 50% is going across to Vietnam oh who speaks Vietnamese in the country in the company you know no one. Okay fair enough let's hire somebody in. Ok, so we need all we need solicitors we have to get a law firm who can read the contracts. When you start looking at all these sorts of things you realize the practicality the knee-jerk reaction is one thing. The practicality is something altogether different.

And when you start factoring in that the practicalities of going well actually I'm gonna split my supply lines. It just isn't it just doesn't hold up in you know in practical sense emotions 100%. Yeah you know we need to do that we need to get rid of risk but very quickly you realize that when you've got a choice of risk or reward. The risks soon get rationalized away and the reward becomes them the motivator and that's just human nature.

So you know are we actually going to see a massive exodus from China I don't think so. What we'll see actually is China you know China is becoming more and more the go-to guys right now just like Japan was you know post-world War II you know and when I say post-war built or not maybe immediately after because obviously I had to rebuild it. But then it becomes the very cheap manufacturing high-tech manufacturer initially Japanese goods were the worst in the world and what happened very quickly they got their supply chains worked out and they were the high-quality place. If you want high quality that's where you went.

You know but look there will be some people who leave and some people move over so places like Korea and Vietnam and Indonesia and these places that have you know really high tech high quality and low you know the low-wage sort of places they're gonna benefit from this. But that's not gonna be so much you know I mean that's a general trend that we're seeing anyway is that as China becomes more expensive we're gonna start to look at cheaper places and that's why we're looking at Vietnam's and the and Indonesia's because they have a large pool of young people who can actually you know become technical and operate these sort of things which is good news.

So guys, yeah I mean it's a quick one today I just thought I'd get that out because I think it's really important that the headlines if you just read the headlines you're gonna get sucked into all sorts of crap. It was interesting because you know I called this Will people leave China in droves or will manufacturers leave China and droves and then I thought about or thought actually you know what if I want to get more views I should be writing something shocking you like everyone's leaving China in droves yeah because that negative headline pulls more people than a positive headline you know or a question.

So you know and unfortunately that's the world we live in unless we garner much more you know alarmist headlines we don't get the views so in YouTube you know it's hard to sit there and go should I do what I feel right or should I do what gets more views you know and it's that's the dilemma that a lot of YouTubers facing and not just YouTubers all marketers in fact because there are so many messages out there. And they're so sensationalized when the reality behind it is something totally different I find that with you know a lot of the when I look at a headline and then I go deeper to the headline and I look at the headline think wow hold on a sec and then I read the actual article and I find out that's just a ridiculous headline but nothing to do with the article and that the headline comes from one line in an 80-page document. When I go through that 80-page document and I look at the data it actually said something totally different but we took the sensationalized and we blow the sensationalize up and unfortunately as humans have an ability to be suckered in you know it's a little you a failure in our you know evolution if you believe that or whatever you know there are these gaps in our brains that people can use and we're gonna be aware of that. but I'm yeah so that's a little bit off-topic but I thought I won't expand on that a bit.

But guys you know stay safe stay healthy thought I'd get out and not come out for a bit of a show I've got to have a mask on so I got my mask here because obviously coronavirus in full swing now Singapore's been locked down for another month. So that will make about two and a half months in total that I will have been locked down and quarantined and but all that sort of thing so quite interesting.

But anyway you guys stay safe, stay healthy and stay at home still. But things are looking much better things are looking like we're getting over there you know to the top of that hump which is great news. So people are studying countries are starting to talk about leaving. Which is great and if you've got business right now start thinking about how you're gonna bring your business back online because I think depending on where you are certainly for the UK things are going to you know they'll be there'll be a lull for a while as people ease back into some things but actually you know other ones will be booming.

I mean I chatted last night to actually Banfield who does service accommodations you know what they're talking about is a lot of domestic tourism, staycations and you know booming because international travel won't happen for a while but in internal travel will so you know if you're in an industry that potentially is going to bounce back great news. If you're an industry that isn't then you need to be getting in there and our sorting that out now.

Same if you're an employee you know if you're employed by a business like that you need to be prepared either for the long game or get ready to run you know so hopefully your businesses already got what it needs in place for that. Right guys yeah went a bit on but then I talk later I see you bye

Brett Alegre-Wood
April 24, 2020

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