If you’re looking for words to describe the global supply chain at the onset of the 2020s, “complete chaos” are two that immediately come to mind.
Getting goods manufactured and delivered on time during the pandemic era has been a grueling season in retail history. Thankfully, as Q4 2022 comes to an end, shipping and port congestion seem to have finally improved, with shipping rates dropping back to their pre-2020 averages. But we’re not in the clear just yet.
China remains a supply chain speed bump as factories have started shutting down again due to recent Covid outbreaks. In early November 2022, Guangzhou locked down more than five million residents in an effort to stop the outbreak and prevent citywide lockdowns.
If there were ever a time to think seriously about diversifying your supplier base and seeking sourcing alternatives to China, this would be it.
And the good news is that you have solutions! Let’s take a closer look at e-commerce sourcing options beyond China — and the pros and cons of working with suppliers in each listed country.
What We’ll Cover:
- What’s going on with the global supply chain?
- Top questions to ask when vetting global suppliers
- The 7 best alternative sourcing countries sellers should consider
- Funding solutions to ease your transition
What’s Going On in The World of Supply Chain?
With geopolitical turmoil directly affecting supply and costs, China is now a more volatile sourcing destination than it used to be. And with current threats toward Taiwan, the e-commerce community may be in for ripple effects similar to those resulting from the Russia-Ukraine war.
Here’s a snapshot of the international supply chain issues retailers are currently facing:
- Limitations on air freight transportation along the Asia-Europe trade lane
- New COVID-19 lockdowns in China, directly impacting production
- A rail link from China to Europe that is fraught with uncertainty
The Rise of the China + 1 Strategy
Talks of the China + 1 strategy are dominating conference room tables — and for good reason.
After all, the best way to combat uncertainty is to get proactive.
The China + 1 strategy helps retailers smooth their transition to a more diversified supply chain by slowly incorporating China sourcing alternatives methodically over time.
Kamala Raman, Vice-President for Logistics, Customer Fulfillment, and Supply Chain Network Design at Gartner, believes “[The pandemic] exposed these really long global supply chains, and the whole dynamic has shifted . . . China Plus One allows companies to hedge their bets, and hopefully pivot whichever way the world is pivoting.”
US-China Trade War
The US-China trade war is another crucial supply chain topic dominating headlines, but the narrative now is much different from when it first began in 2018.
Sanctions put in place to curb China’s actions toward Taiwan are compounding supply chain inefficiencies in the form of tariff hikes, transportation route disruptions, and retaliatory regulations.
A new law that came into effect in June 2022 called the Uyghur Forced Labor Prevention Act (UFLPA), has imposed bans on goods originating from the Xinjiang region where products are assumed to be made with forced labor.
While this might push China to take big steps toward a humanitarian cause, it has also weighed down the supply chain significantly, an unintended consequence that big brands like Apple and Nike are actively lobbying against.
With all of these challenges in mind, dividing your suppliers across global territories is becoming less of a nice-to-have and more of a must.
Questions to Ask Potential Global Suppliers When Considering China Sourcing Alternatives
Finding new suppliers is easier said than done. As a manufacturing hub that’s both cost-efficient and highly skilled, which countries could possibly fill China’s shoes?
Thankfully, there are many options on the list that are often overlooked.
Before we go over each one, let’s run through some of the must-ask questions to protect your business from potential scams, unreliable suppliers, and low-quality goods.
1. Stock Check-In
The most important question when vetting suppliers covers making sure they have enough of the products you need.
If they have what you’re looking for, move forward and ask:
- How much stock do you have on hand at all times?
- Can you customize products according to my needs?
- How efficiently do you handle, maintain, and document stock volumes?
- Where do you source raw materials from?
- Do you keep safety stock? If so, how much?
Aim to keep your relationship as transparent as possible. No surprises, no disappointments.
If a potential new supplier knows you’re looking to partner long-term, despite getting only a portion of your business, you may be able to negotiate a good deal.
2. Customer Support
When your shipment is delayed and time is running out, your supplier needs to be a reliable emergency contact who can troubleshoot.
Stress the importance of this by asking the following questions:
- Do you offer 24/7 support?
- How can I reach you in case of an urgent issue outside of working hours?
- What’s your crisis communications and management strategy?
- Do you have translators or English speakers available?
- What is your typical response time?
- Can you provide automatic updates in real-time? What systems do you use for this?
- How many other clients are you working with?
- Will I have a dedicated agent for my business?
Make it clear that speedy and engaged customer support is a priority.
3. Experience Supplying Overseas
Your business shouldn’t be your supplier’s first rodeo. When it comes to China sourcing alternatives, you need a supplier that’s experienced and trusted.
Here are some qualifying questions that can help prove that crucial experience:
- What businesses do you usually partner with in my market?
- Have you ever had to navigate a challenging international supply situation? What happened? How did you solve the problem?
- What’s your emergency strategy in case of supply or shipping delays?
- Do you have customs experience in our key territories?
- Are your environmental, social, and governance (ESG) policies in compliance with my country’s?
4. Turnaround, Major Holidays, and Delivery Schedules
Holidays and production schedules clash sometimes. But getting the information on these dates sooner rather than later can save you a lot of time and money.
Here are some questions that can help you figure out scheduling deliveries:
- What does your delivery schedule typically look like?
- When are your major holidays?
- To what extent and for how long do you typically shut down for holidays?
- What is your turnaround time during important events? What is your average timeline?
- Are there any recurring situations that can delay shipping and delivery?
If the supplier checks all of your boxes, be sure to add these dates to your calendar so you can plan your product launches and shipments accordingly.
5. Payment Policies
Money can be complicated, especially when you have multiple currencies and fluctuating exchange rates in the mix.
Here are some questions to help protect you financially:
- What are your payment terms — frequency and total payable amount?
- Do you offer any discounts for large wholesale orders?
- What potential circumstances could increase costs? By how much?
- What payment options and policies do you currently have?
- How can I make payments? What payment methods do you allow?
Answering these questions can help you draw up a mutually-beneficial contract that reduces the potential for increased costs due to delays and currency exchange.
The 7 Best China Sourcing Alternatives to Consider
Now that you’re all set up to interview suppliers, let’s take a look at the different options around the world.
1. Mexico
If you’re a US-based retailer, linking up with suppliers in Mexico may be a practical option for a few reasons:
- The US has free trade agreements with Mexico, thanks to the 1994 North American Free Trade Agreement (NAFTA).
- Close proximity means you save on shipping costs and products ship out faster
- This also allows your supplier to ship in smaller quantities — no more unnecessary hoarding in your warehouses!
- Finally, shorter time differences could mean stronger communication
Not based in the US? Mexico may still be a workable option as it has lower labor costs than China, better intellectual property protection, and a highly skilled workforce.
The main disadvantages at the moment are shipping delays and container scarcity following the aftermath of the pandemic.
Top websites to find reliable partners in Mexico include:
Pros of Sourcing from Mexico:
- Low tariffs
- Affordable shipping
- Fast delivery
Cons of Sourcing from Mexico:
- Limited product options
- Language barriers
- Slow supplier response time
2. Colombia
Colombia is an established exporter of flowers, precious stones, coffee, spices, and machinery.
It’s closer to the US, so accessibility is great and delivery is quick, especially compared to China.
The US and Colombia signed a Free Trade Agreement in 2012, so similar to Mexico, products can be shipped in without a tariff.
The major industrial centers in Colombia are Bogotá, Medellín, Cali, and Barranquilla. Colombia is also an experienced player in the export game with $41.4 billion worth of products exported in 2021.
Top websites to find reliable partners in Colombia include:
Pros of Sourcing from Colombia:
- Well-developed infrastructure
- Relatively stable political environment
- Low labor costs
- Easy access to certain raw materials
Cons of Sourcing from Colombia:
- Mountainous landscape makes domestic business operations difficult
- Not all markets are infrastructurally resilient
3. India
India is the 4th largest manufacturing country, particularly involved in exporting handcrafted products, home decor and furnishings, textiles and apparel, stationery, and leather products.
English is India’s second official language, which significantly reduces the chances of miscommunication.
The Indian government is also growing its manufacturing industry with the Make In India initiative started in 2014. However, there are still quite a few hoops that foreign investors have to jump through in order to register a business in India. If you’re looking to set up your own supply source there, you may have your work cut out for you.
Top websites to find reliable partners in India include:
Pros of Sourcing from India:
- Lower chance of language barriers
- Stable economy
- Excellent tech skills
- Large domestic consumer market
Cons of Sourcing from India:
- Takes a long time to register a business
- Increasing import tariffs
- Regulations vary state to state
4. Malaysia
Malaysia is quickly becoming a sought-after sourcing destination. Penang saw big spikes in manufacturing investments in 2022.
Top products manufactured in Malaysia include electrical appliances, machinery and equipment, chemicals and petrochemicals, rubber, and textiles.
There are already well-equipped and well-invested Malaysia-US and Malaysia-EU corridors in place, setting it up as a “natural base” for manufacturing partnerships.
Unfortunately, Malaysia has recently been under fire for illegal employment and factory worker abuse, which may create roadblocks, delays, and potential shutdowns if the situation escalates.
Top websites to find reliable partners in Malaysia include:
Pros of Sourcing from Malaysia:
- Good political and economic relations with the US and the EU
- Established, high-quality supply networks
- No value-added tax on Malaysian exports (China levies a 0%-13% VAT)
Cons of Sourcing from Malaysia:
- Limited labor pool
- Relatively higher production and labor costs
- Illegal employment in certain factories can increase chances of delays and shutdowns
5. Indonesia
As a part of the Making Indonesia 4.0 initiative, the Indonesian government is focused on increasing employment in the industrial sector to 20% of the country’s workforce — good news for retailers as the labor force expands and becomes more accessible with the help of government backing.
Indonesia’s top products include palm oil, textiles and apparel, rubber, and electronic products with manufacturing hubs in West Java, Central Java, East Java, and Banten.
Unfortunately, the government is also curbing raw material exports, which could pose a problem in the future.
In one exciting update, new governmental policies are looking to reignite the manufacturing sector by integrating cutting-edge AI technology.
Top websites to find reliable partners in Indonesia include:
Pros of Sourcing from Indonesia:
- Young labor force
- Low labor costs (1/5th compared to China)
- Growing domestic market
Cons of Sourcing from Indonesia:
- Infrastructure still needs to catch up
- High levels of bureaucracy and red tape
- Free trade agreements aren’t widely enforced yet
6. Thailand
Thailand’s 4.0 initiative is taking the manufacturing sector by storm, which has resulted in giant strides toward digitization, specifically in the areas of logistics and delivery systems. With its growing priority on AI, Thailand is coming into focus as a cutting-edge manufacturing industry.
Thailand is also one of the biggest adopters of e-payment systems. Its advanced digital payment software makes transactions convenient for retailers.
Historically, Thailand has been focused on producing electronic parts, automobile components, and other materials essential in the supply chain of technological goods. Thailand is known for its home decor, furniture, ceramics, and clothing.
The biggest setback Thailand is facing is labor. Thailand’s manufacturing sector is short by nearly 500,000 workers and is still far from recovering after lockdown.
Top websites to find reliable partners in Thailand include:
Pros of Sourcing from Thailand:
- High Logistics Performance Index (3.41)
- New government initiatives to modernize production
- Reforms that ease online registration, tax filing, and cargo-inspection
Cons of Sourcing from Thailand:
- Higher labor costs, labor shortage
- Government scrutiny and interference
- Increasing tax rates
7. Vietnam
Vietnam has promising trade policies with most countries around the globe — the EU-Vietnam free trade policy, a bilateral trade agreement with the US, and the Trans-Pacific Partnership — which means retailers will have to pay little to no export taxes.
Top product categories manufactured in Vietnam include clothing and textiles, bags, electronics, jewelry, footwear, and agricultural products.
Vietnam is often touted as the “next China” due to its significant rise in foreign trade, efforts to scale manufacturing, and increased interest from US investors.
Top websites to find reliable partners in Vietnam include:
Pros of Sourcing from Vietnam:
- Low labor costs
- Large labor pool
- Quickly developing manufacturing facilities
Cons of Sourcing from Vietnam:
- Logistics and infrastructure isn’t completely in place yet
- Lack of skilled labor
- Finding local suppliers is difficult
Funding Solutions to Help You Find (and Leverage) China Sourcing Alternatives
Compared to China, most of the countries listed come with a cheaper price tag. While many aren’t quite up to par with China’s established systems just yet, the future may be looking brighter as we continue to move toward a more globally sourced supply chain.
Still, navigating change comes with its own set of challenges.
From testing goods before establishing relationships to creating new operational processes with each manufacturer, you’ll need reliable cash flow and currency conversion tools to help broaden your supplier base.
At SellersFunding, our Digital Wallet and Working Capital products were created for growing e-commerce businesses like yours.
With the Digital Wallet, you can easily pay suppliers in their preferred currencies and save money on currency conversion fees by using the real mid-market rate.
And with flexible Working Capital, you can access a low-interest line of credit to invest in the resources you’ll need in order to diversify your sourcing. We can approve credit limits up to $5 million in 48 hours or less, and you’ll only pay interest on the amount you use.
As e-commerce sellers ourselves, we understand what it’s like to face uncertainty. With over 40K users, $4B in annual client sales, and a 4.9 TrustPilot Rating, we can help you move your business forward.
Are you ready to start sourcing beyond China? Let’s go there, together.
