Headline on news
Over the past two decades, Chinese supply chains have become a significant force in the global economy, largely determining business models, production and sales development. No matter how you look at it, understanding the changes China is experiencing in global supply chains is critical for most international companies looking to collaborate successfully.
In recent years in particular, a series of disruptive events, from the pandemic to the US-China trade war to the Russia-Ukraine war, have led to a number of major learnings that will change everything in supply chains. For example, as companies hedge the risk of potential scenarios of targeted decoupling of certain sectors’ supply chains between the world and China, many enterprises seems diversify their geographic footprints away from China, sharp increases in tariff rates between the United States and fear surrounding a potential future manufacturing lockdown like those seen at the height of the COVID pandemic have also played a role.
Without a doubt, this “trend” is caused by many other factors. Rising costs and changing regulatory environments in various markets have forced companies to look for ways to diversify their supply chains and production locations. Many companies rely on the China+ strategy. They need to think about how to balance profitability, growth and risk.
For eyewear industry, similar stories are going like others. Judging by endless headlines about supply chain diversification and reshoring, it would appear that the “Made in” label has switched from China to Southeast Asia like Vietnam and South Asia like India. Widely known facts in the China industry also seems to prove this news. Some influential domestic eyewear players in Shenzhen, Wenzhou and even foreigner investors like Inspecs, have been building manufacturing base outside of China.
But contrary to what many believe, after detailed and thorough research, the numbers tell a very different story than the headlines suggest. In fact, Asian supply chains have remained virtually unchanged. Although there has been some diversification since China, the “change” is not really that noticeable. China’s status as a world-renowned manufacturing power r doesn’t waver much in the face of such an economic turmoil.
Reality
The electronics and engineering sector represents the largest category of global trade in terms of value. Therefore, it could be a useful indicator for studying changes in supply chains. It is also an industry where China has an advantage in both production and exports, having established supply chains in Asia.
On the surface, for example, Chinese electronics exports to the United States fell 10 percentage points between 2018 and 2021, with Southeast Asia making up much of the decline. China appears to be losing out at the expense of Southeast Asian countries, especially Vietnam.
However, the benefits for Southeast Asia are relatively small. It is true that some products move from China to Vietnam because the very bottom of the value chain, final assembly, moves to Vietnam. But China’s overall output remained stubbornly high even amid the global recession caused by the pandemic. Compared to China’s overall output, the shift towards Southeast Asia is small globally (see Figure 1).
Most companies have moved only final production and assembly out of China, but raw materials and large quantities of intermediate products still come from Chinese suppliers. So when the export amount figure is rising evidently in these beneficial countries, their import value from China is also increased sharply.
On the other hand, yet while having a manufacturing base outside of China has been good, many of them have no plans to move away from the country. In fact the experience of staff at the factory in China is an advantage when moving into new markets and technology. “We continue to invest in automated machinery in China to keep the employee numbers at around the same level but expand capacity,” Inspecs CEO wrote in full-year results.
“The Chinese factory is also the source of technical expertise with over 20 years of manufacturing knowledge that has allowed the group to develop in Vietnam and I am grateful for the technical skills that they bring to the group as whole.”
Why
According to incomplete statistics, there are about 6,000 glasses manufacturers and more than 30,000 eyeglass retailers in China, which is the largest country in terms of production, import, and export of eyeglasses and sunglasses. The distribution of China’s glasses manufacturers is relatively concentrated, mainly in four regions: Shenzhen of Guangdong; Xiamen of Fujian; Wenzhou of Zhejiang and Danyang of Jiangsu. The above regions have complete industrial support and have formed a huge scale. What’s further impressive is more districts spring up such as Yingtan of Jiangxi, Rongchang of Chongqing etc.
Various factors can be attributed to China’s emergence as a center of the eyewear industry. The availability of cheap labor, skilled workforce, abundant raw materials, efficient manufacturing processes, and well-established supply chain infrastructure contributed to the growth. In addition, the Chinese government’s support and preferential policies further stimulated foreign investment and promoted industrial development.
The transition of the eyeglass industry to China not only brought economic benefits, but also led to the formation of an industrial ecosystem. The concentration of producers in specific regions creates a cluster effect, allowing for knowledge sharing, cooperation, and specialization. This ecosystem has helped improve the efficiency, innovation, and overall competitiveness of sectors around the world.
China’s industrial ecosystem and long manufacturing history make it difficult and highly unprofitable for companies, especially eyewear manufacturers, to exit China completely or on a large scale. Even just a single frame requires at least 40 steps in manufacturing, making it too difficult to actually “reproduce” all of them.
More importantly, commercially available glasses are usually customized according to different prescriptions as well as face shape, size, material, lens function, usage scenario, etc. Products constantly change according to trends and people’s tastes. As a result, production volume is less than 100,000 units of each model. It’s like 1000 pieces in this style, 1000 pieces in that style. Meanwhile, many factories have already started developing new models and producing batches that can be delivered to customers within a week. All of this requires highly effective collaboration across the industrial ecosystem based on even a tiny screw.
The focus of the eyewear ecosystem is characterized by networking and collaboration. In addition to the manufacturers themselves, this ecosystem includes a wide range of stakeholders such as raw material suppliers, component manufacturers, equipment suppliers, and logistics companies. The proximity of these complementary companies creates a symbiotic relationship, forming a strong supply chain that supports the entire production process.
In addition to the rapid development of the overall technological strength of the entire country, manufacturers and processes are equipped with the best equipment and tools, which increases efficiency and productivity, while at the same time reducing the overall production cost and increasing complexity of product with high quality. Nowadays, you can easily find his 5-axis CNC machines in Chinese eyewear factories.
When it comes to supply chain management, China has already introduced other disruptive technologies such as artificial intelligence (AI), cloud computing, mobile ERP, and 3D printing. These technologies are important innovations in the supply chain space and can significantly improve overall efficiency.
Another important point is that China is the only country that has all industry categories in the United Nations Industrial Classification, which makes it easier for businesses to buy goods. China also has the largest high-speed rail and highway network, allowing for efficient transportation of products.
Future
The pandemic has clearly demonstrated the risks of relying on a single country for supply chains. But companies will not leave countries where they have years of experience producing products. They want to reduce supply chain risk without disrupting the supply chain.
Additionally, China’s proximity to other Asian countries, coupled with strong supply chains and logistics, means that companies can easily establish operations in multiple locations. By locating manufacturing cost centers closer to traditional centers in mainland China, investors can reduce costs without disrupting or delaying current supply chains.
Under more scrutiny and with their vulnerabilities exposed, it is now imperative for companies to transform their supply chains. Businesses must simultaneously manage the challenges of the global supply chain, while harnessing the opportunities it presents.
To achieve this goal, we need to start with supply chain fundamentals, that include, increasing efficiency and cost control to develop more resilient supply chains and rebuild trust within and throughout the supply chain with greater flexibility and adaptability. By focusing on sustainability and trust, we are likely to see more opportunities to create value across the supply chain, particularly in the areas of digitalization, sustainability and transformation.
Managing the complexities of this pivot and diversification is not as simple as redistributing production to new suppliers operating in multiple jurisdictions. It’s not that easy, especially when many supply chains rely on China for key inputs. This requires a digitalization framework to improve efficiency, transparency and traceability while aligning procurement with purchasing and consumer demand patterns.
Find out how to operate more sustainably from suppliers who can help manufacturers reduce Scope 3* emissions targets and meet net-zero emissions commitments, while managing social performance and securing local operating rights. Purchasing opportunities from existing suppliers should be emphasized. Companies that can demonstrate accelerated progress on climate and social challenges (workplace safety, modern slavery, etc.) will be differentiated. Increasing sustainability and trust in the supply chain opens up new opportunities. However, this will not be possible by building walls to strengthen existing supply chains and protect them from short-term risks. To effectively address the complex issue of sacrificing profitability, a long-term perspective and proactive planning are required to create an optimized and distributed supply base in the Asia-Pacific region.
China continues to innovate, adapt to changing market dynamics, and remain a key player in the global manufacturing sector. The country’s relentless pursuit of excellence, coupled with its vast resources and commitment to technological advancement, ensures its continued success. As China develops, it will continue to shape the future of manufacturing, setting new standards and driving industrial innovation.
Post time: Dec-12-2023