Hello Adam, thanks for the updates. Awsome insights. I have a question. How easy would it be to transfer the production o products from china to south america? Safer transport routes, shorter routes and stabilization of the south and central american economic situation.
Hi Humberto - It depends on the product. Supply chains can be incredibly complex and China controls significant portions of the global raw material markets due to its role as the world's largest manufacturer. This makes decoupling a slow process, even with geopolitical upsets and rising labor costs contributing to a strong desire to move production out of China. People in the manufacturing business I've spoken to in places like Vietnam and Cambodia tell me that it's still technically cheaper to produce items like sneakers in China, even despite higher labor costs, but that some companies are willing to spend a little more for the stability as Chinese firms continue to face many challenges. Electronics are much more complicated, but we are increasingly seeing components for these manufactured in Vietnam and India for this reason. Textiles already largely left China well before COVID and are mostly done in cheaper markets in South and Southeast Asia, particularly Bangladesh. Automotives are a real problem, particularly for the Germans, who have come to rely on China for outsourcing and market share, but are being increasingly squeezed out by the Chinese government - these companies face serious threats to their success moving forward.
The US has been steadily moving production to Mexico for the past several years with considerable success, particularly following the new NAFTA agreement, which was very advantageous for Mexico (not so much for Canada). However, the brewing war between and within the Mexican cartels could pose serious risks down the road. Nonetheless, reshoring and friendshoring is moving forward at a remarkable pace and it is likely that the Mexican labor market will become saturated this decade or so, especially with its ageing demographics. At that point, American and Mexican firms may look to South American partners like Colombia to produce goods for the North American market. Until then, I suspect American manufacturers will primarily focus on Mexico, and elsewhere in Asia, although some South American countries could benefit to some degree from friendshoring.
Hello Adam, thanks for the updates. Awsome insights. I have a question. How easy would it be to transfer the production o products from china to south america? Safer transport routes, shorter routes and stabilization of the south and central american economic situation.
Hi Humberto - It depends on the product. Supply chains can be incredibly complex and China controls significant portions of the global raw material markets due to its role as the world's largest manufacturer. This makes decoupling a slow process, even with geopolitical upsets and rising labor costs contributing to a strong desire to move production out of China. People in the manufacturing business I've spoken to in places like Vietnam and Cambodia tell me that it's still technically cheaper to produce items like sneakers in China, even despite higher labor costs, but that some companies are willing to spend a little more for the stability as Chinese firms continue to face many challenges. Electronics are much more complicated, but we are increasingly seeing components for these manufactured in Vietnam and India for this reason. Textiles already largely left China well before COVID and are mostly done in cheaper markets in South and Southeast Asia, particularly Bangladesh. Automotives are a real problem, particularly for the Germans, who have come to rely on China for outsourcing and market share, but are being increasingly squeezed out by the Chinese government - these companies face serious threats to their success moving forward.
The US has been steadily moving production to Mexico for the past several years with considerable success, particularly following the new NAFTA agreement, which was very advantageous for Mexico (not so much for Canada). However, the brewing war between and within the Mexican cartels could pose serious risks down the road. Nonetheless, reshoring and friendshoring is moving forward at a remarkable pace and it is likely that the Mexican labor market will become saturated this decade or so, especially with its ageing demographics. At that point, American and Mexican firms may look to South American partners like Colombia to produce goods for the North American market. Until then, I suspect American manufacturers will primarily focus on Mexico, and elsewhere in Asia, although some South American countries could benefit to some degree from friendshoring.