Recap: U.S. Companies Operating in China: The Debate about “Friendshoring”
By Savannah Reape, Senior and Jackson Craig Scott, Graduate Teaching Assistant, Baker School
When people in the United States look at the label of most products in stores, they will see “Made in China.” Thomas J. Goldsby explained why this is a problem for the U.S. and the ongoing debates about “friendshoring” and gives an update on the debate about U.S. companies leaving China to go to other countries, like Vietnam and Mexico. Goldsby is the Dee and Jimmy Haslam Chair in Logistics at the University of Tennessee, Knoxville, Haslam College of Business, co-executive director of the Global Supply Chain Institute, and professor of Supply Chain Management.
Goldsby introduced the lecture by explaining a supply chain – “the network of companies that work together to provide a product, service, or experience for the end-use market.” He identified some of the major interactions between the U.S. and China that have had significant supply chain implications, giving a brief overview of the history of U.S.-China trade. He explained how during the late 20th century, the U.S. adopted Low-Cost Country Sourcing (LCC), which is when products that were produced by the U.S. began to get outsourced to other countries, such as China, that could produce the same product at a lower cost. President Trump, an outspoken critic of China’s trade practices, placed tariffs on products from China. These tariffs began to impact U.S. companies’ cost of doing business, so they began to look to other countries like Vietnam. The most common way that companies dealt with tariffs was by raising the price of their products, which would make the customers, U.S. citizens, pay for the tariffs.
There are many forces that drive U.S. and China business relations today, such as government, geopolitical, technological overtures, and societal concerns. However, Goldsby noted that the reality of consumers’ expectations for low prices has not changed despite other factors.
There are multiple key factors that are taken into consideration by sourcing professionals. Price is a huge factor, and Goldsby finds that companies are trying to migrate away from sourcing professionals only considering the purchase price. Regionalization of supply chains is becoming more of interest to companies. Additionally, companies are looking to diversify their supply chains and not be completely dependent on China. Currently, the most sought after alternatives to China for sourcing materials are the U.S., Mexico, Australia, South America, and Western Africa. Alternative countries for sourcing products are the U.S., Mexico, Vietnam, India, Thailand, Singapore, and Eastern Europe.