Coronavirus Outbreak Sparks ‘More Inquiries’ for China’s Sourcing Rivals

Date: Thursday, February 13, 2020
Source: Sourcing Journal

Anxieties over the bitter trade dispute between the U.S. and China dominated last August’s Sourcing show in Las Vegas, but this February, the showroom floor was rife with a different kind of worry.

The Wuhan, China-born coronavirus, which began setting off international alarm bells in mid-December, has since rocked the world and the global supply chain.

The illness has infected 42,700 in China and 393 abroad, according to a Tuesday report by the New York Times, which cited data from the World Health Organization.

About 60 percent of the Sourcing show’s Chinese manufacturing exhibitors were unable to attend last week’s event due to the Trump administration’s hastily implemented travel ban, show organizers confirmed.

The China perspective

Uncertainty and unease over health concerns hung in the air of the small ballroom where the show’s footwear manufacturers gathered to court a modest contingent of buyers.

The Chinese companies that did manage to plant their flags also faced distracting concerns about their overseas operations, which have been shuttered since the start of the Chinese New Year holidays in late January.

Those workers were due to return to factories last week, but the Chinese government extended the holiday to keep people from traveling and spreading the virus.

“As of now, I don’t even know who’s going back to work,” Laurence Tseng, owner of China-based Beluga Shoes, said.

The Chinese New Year holiday often causes supply chain hiccups, with many workers returning to work late or even going AWOL after the celebrations, Tseng said. But this year, things feel very different.

Should his factory’s workforce remain at home over the coming weeks, Tseng will face major delays on the orders he’s gathered for the spring season, mostly out of the Italian market. He will be forced to look into alternate sourcing outside of China.

“I don’t look forward to exploring those options. If I go to Taiwan or Cambodia, I don’t know what’s available,” Tseng said. “I know what can be done in my factory in China—I’ve done it before, and I know what they’re capable of.”

Leaving would invite a whole host of issues, he added. In addition to manufacturing goods in China, Beluga Shoes also sources its materials in the country. “I don’t even know if the material suppliers are working yet,” he said.

“If it comes to be March and I need to figure out a solution to my whole production chain, I’ll be really worried,” he added.

While other Chinese manufacturers predicted setbacks rather than a doomsday scenario, anxieties were still apparent.

“From a business perspective, this year is complicated,” Covaz Shoes’ Antony Lam said.

Chinese workers would not be allowed to return to work in the absence of containment, said Lam, who understands that even the most positive resolution to the outbreak will likely result in losses for his company.

“If the problem continues or gets worse, business will go down,” Lam said. “But what can we do? We are not bringing people back to work to be exposed.”

“We will lose money no matter what,” he added.

Francis Tchao, a seafood company executive from British Columbia, found himself manning a booth at the Sourcing show unexpectedly.

“This is my friend’s company, and I’m here because he couldn’t make it out of Hong Kong due to Trump’s travel ban,” he said.

A former footwear sourcing expert himself, Tchao believes China’s factories could remain closed for quite some time.

“Chinese-made products rely on workers from the provinces, but the transportation between cities and provinces has been shut down,” he said. “How can they go back to work?”

Tchao’s friend, Fender Law, who owns and operates the footwear manufacturing company Allied Industries, will need to manage the expectations of his largely overseas clients.

“He has orders that haven’t been shipped, and he’ll need to ask for an extension,” he said. “He has to negotiate with the customer, and there will be a big impact.”

Despite the widespread acknowledgment of the virus’ complicating effects, some manufacturers expressed hope for the best.

“I think they will come back if the sickness is controlled,” Bob Zhang of BingBing, a men’s shirting manufacturer, said of his factory’s workers.

“There is debate about that, and we are not very sure,” he added. “We just follow what our government says, and we advised our workers to do the same.”

Should factories reopen this week, Zhang said, deliveries for the season won’t suffer. Further delays could be cause for concern but Zhang is confident his company can weather a difficult season.

International opportunities

The Sourcing show’s anemic exhibitor attendance was a topic of conversation among those who did manage to make it to Las Vegas, including manufacturers from countries like Mexico, India, Pakistan and Bangladesh.

Some worried that the modest showing of Chinese vendors would draw fewer buyers to Sin City. But others relished the opportunity to showcase their wares to brands that are growing increasingly desperate to find options outside of China, which has been bogged down by trade concerns for nearly two years.

“I think from now on, our business will grow faster because of the virus,” said Arturo Velazquez of T-shirt manufacturer Hockey Exportprint, which regularly delivers to Burlington Coat Factory, Ross and Macy’s stores in Los Angeles with a three-day turnaround.

The company’s operations are based 30 minutes outside Mexico City in Toluca. That stateside proximity gives Mexican manufacturers an advantage over increasingly problematic overseas competitors.

“In Mexico, we have quick turns and stock available in our warehouse, and we can deliver in two weeks,” Velazquez said. “That kind of service… No one else can do that but Mexico. Not China, not even Central America.”

Hockey Exportprint has taken on a handful of customers in recent months, though last week’s Sourcing show was his first time exhibiting in the U.S., Velazquez said.

While he admitted that the List 4A tariffs on Chinese goods hadn’t exactly been a boon to his business, he anticipates that the increasingly untenable atmosphere in China could open the eyes of U.S. brands to the benefits of sourcing from their neighbor to the south.

“There are taxes on our goods, but no duties like with China,” he added. And, there’s no virus. “From here on out, we might see a positive impact.”

Other manufacturers claimed to have already seen an uptick in business, both at last week’s show and in the months prior.

“Some of our existing clients have increased the business they give us,” said Harsh Agarwal of Suditi Industries, a shirting company based in India.

Indian manufacturing has seen gains since the U.S.-China trade war reached a fever pitch, Agarwal said, and brands hoping those issues would “blow over” are now facing the potential supply chain collapse.

“What’s happening with China builds the need for brands in the U.S. to develop a relevant second source outside of the country,” he said. “Because God forbid something else goes wrong.”

Buyers at the show were enticed by Suditi Industries’ vertically integrated factory, said Agarwal. The company develops everything in house, from fabric to patterns, printing and stitching, and does about 60 percent of its business with U.S.-based private labels and licensees.

Having full control of end-to-end operations eliminates any dependence on foreign manufacturers for the materials and components needed to make their products.

“What’s happening with China has gotten us a lot more inquiries and I see it bringing in more business,” said Agarwal. “As a brand, you have to make sure your value chain is not dependent on just one country.”

“I have been to China multiple times, and they’re very good at what they do,” he added. “But India has a lot to gain.”

Makers in smaller countries like Bangladesh also reveled in their moment in the spotlight.

“When the big countries are fighting, countries like us have to capitalize on it,” said Ariful Hasan of Denimic Limited. “We’re positive that this industry will grow in Bangladesh.”

Still, Hasan said, many of his company’s biggest American customers did not attend the show, and missing the rare opportunity to meet with them face to face was a blow.

While Denimic Limited picked up some small direct-to-consumer brands during its Las Vegas tenure, only three new clients offered substantial, change-making business.

Hasan had planned to meet an important Russian client at another upcoming trade show, but the meeting fell through, he said. Because the show’s Chinese vendors would be unable to attend, his client decided traveling wouldn’t be worth the expense.

“China is the sourcing heart of the world. They’re producing so many of the things the world is consuming in terms of fashion,” he explained. “When they’re not here, it’s a big crisis for everyone, everywhere.”

 

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