China de-coupling? It needn’t be a messy divorce

For over twenty years, China has experienced an export boom, powering through the early 2000s and overtaking the US as the world’s biggest exporter in 2009. Today, exports stand at a massive USD 2.7 trillion, however things are starting to cool.

The impact of Covid on production has been met with reduced global demand amid a cost-of-living crisis. At the same time, rising fuel prices have led to an exponential rise in shipping costs. This is before considering market specific factors such as the Shanghai port blockade and the impact of recent extreme weather.

Ongoing disruption in a single market will cause a headache for even the most experienced Chief Procurement Officer, but is it enough to nudge them towards the unthinkable and begin the process of de-coupling from China?

It is certainly up for discussion. Supply chain resiliency is a hot topic and risk mitigation is a crucial element to ensuring a robust flow of business-critical goods. Gone is the risk counterbalance that Chinese trade enabled the flow of low-cost goods into Europe. With ever increasing costs, the concentration risk of single country-of-origin sourcing is weighing on the mind.

Of course, it’s not straightforward to onboard a new supplier, let alone source from new markets. There are many considerations to weigh on such a decision. Cost of entry into new markets and establishing new buying relationships requires time and capital. The reality is that perhaps a complete de-coupling is unnecessary, however establishing new sourcing markets may well be prudent.

A two-pronged approach to de-risking your supply chain could be advantageous. For example, putting provision in place to switch sourcing to an alternative market in the event of trade restrictions. Leveraging pre-shipment finance would enable diversification to new suppliers enabling them to gear up to source raw materials and fulfil orders without having to raise capital in expensive local markets. In addition, a working capital programme for these and existing suppliers can position a corporate favorably and put them at the front of the queue in the case of shortages.

Talk to us

At Crossflow, we have created a marketplace for working capital funding that can transform procurement by supporting a supplier’s cash flow as well as benefitting the corporate’s balance sheet. We are already engaged with a range of leading organisations, who are looking to act decisively to build additional resilience into their supply chain. If you are looking at improving your supplier relations or start sourcing from new markets, get in touch and we can share how our free-to-corporate platform can transform your working capital.