Companies Moving Away From China

Mid-sized American companies are already moving away from China
American blue chips such as Caterpillar and Deere and consumer companies like toy giant Hasbro and Roomba maker iRobot have all been hit hard by trade tensions between the United States and China.
But many midsized US companies are realizing that they need to diversify away from China and have already begun to take action.
Middle-market companies have started to shift their supply chains to other parts of Asia and are selling more to other countries to make up what they can’t sell to China.
That’s according to a survey released Wednesday by Portland, Oregon, based regional bank Umpqua. Umpqua (UMPQ) surveyed 550 executives at companies with between $10 million and $500 million in annual sales in October and found that 72% reported levels of uncertainty about the future of their businesses due to trade tension with China. As a result, more than half said they are looking to diversify their supply chains — both domestically and to other international markets. And nearly 20% of the respondents said they are searching for new customers in other markets, primarily in Europe, and other parts of Asia, Latin America, and the United States.
Dale Darling, founder and president of Summit Premium Tree Nuts, an Umpqua commercial lending customer, told that until a few years ago, China was the company’s largest market. But the tariffs have changed that. The Chinese tax on almonds and other nuts imported from the United States jumped from 15% to 50%, Darling said. So Summit had to look for new customers fast and has made up for lost sales to China by selling more almonds, walnuts, pecans, and hazelnuts to India, the Middle East, and Spain.
Mid-sized companies able to respond faster
Umpqua chief banking officer Tory Nixon said mid-sized companies like Summit are more nimble than larger Fortune 500 firms.
So he was not surprised to hear that some of the bank’s corporate clients are looking for other countries to manufacture their goods and targeting new end markets for them.
Nixon added that the decision to diversify beyond China is less about politics and the trade war and related more to diminishing advantages of making products in China.
“The cost of labor has been going up in China for years and there also have been some quality control issues,” Nixon said. Darling shares that assessment. Even before the Trump administration’s trade war, China has subjected US farmers to extensive inspections, regulations, and customs checks.
“There have been more hurdles in place with China. It has taken longer to get paid, too,” Darling said. “China had already made things more complicated, but now the trade war is heightening things.”
That’s why mid-sized companies must stay agile. Nixon said mid-sized firms can move more rapidly than their larger rivals because their CEOs, CFOs, and other high-level executives have more detailed knowledge of their organizations.
“There is a greater emphasis on efficiency and a need to make good sound business decisions,” he added. “Every penny matters. It’s less about politics and more about commerce.”
Still, Nixon said he was surprised by one finding from the bank’s survey — many mid-size companies said they are eager to embrace Europe as a bigger customer to help offset lost sales from China.
Nixon speculated that American firms still view Europe as a relatively stable region that’s closer than Asia for many firms. And that may offset concerns about Brexit and sluggish growth in Germany.

By Paul R. La Monica


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