Outsourcing Companies Are Eyeing North America

Today, 20 months into a COVID crisis that interrupted supply chains and shut down markets, business leaders are learning to adapt.

September 28, 2021

Adapting to the realities of the global market is perhaps the greatest imperative of business management. When supply chains fail, no amount of wishful thinking will stitch them back together. Businesses that build in contingencies and are nimble enough to adjust can survive, while those caught flat-footed will falter. Today, 20 months into a COVID crisis that interrupted supply chains and shut down markets, business leaders are learning to adapt. Some are diversifying their Asian supply chain, while many are exploring the possibility of contracting within North America.

The companies reconsidering China include several global giants:

  • GoPro — The American action camera company had planned its exit from China in 2018, opting to “near-shore” in Mexico.
  • Microsoft and Intel — The tech leaders are withdrawing from China and heading to Vietnam.
  • Under Armour — Diversifying its supply chain, the American sportswear, and casual apparel company plan to reduce its China dependence to seven percent, migrating its workload to shops in Vietnam, Jordan, the Philippines, and Indonesia.
  • Steve Madden — The New York-based fashion company is walking its boots and handbags out of China and into Cambodia, Brazil, Mexico, and Vietnam.
  • Old Navy — The Gap sub-brand shuttered its 10 stores in China in March 2020, returning to its roots in the USA.
  • Google — The world’s most powerful company is moving its Pixel smartphone production from China to Vietnam and will also be doing business in Thailand, Taiwan, and Malaysia.

However, rather than reactively following these large corporations, companies should consider how their exodus creates greater opportunities for firms such as theirs to obtain favorable terms for reliable contract work.

At Genimex, we believe in Eastern Asia and particularly China as viable centers of outsourced manufacturing. But our experience has shown that a global supply chain solution is optimal because it provides the greatest resiliency in times of turmoil. With our clients’ needs foremost in mind, we have spent countless hours investigating supply chain options closer to our base in New York City. As a result of our investigation, we can counsel clients to maintain supply chain inputs from Asia, such as China, Vietnam, Thailand, Malaysia, and other Asian countries, while selectively migrating appropriate services to North America. In each case, we assess our client’s unique needs to create the best solution.

North America is trending as an outsource—or in-source—destination

The recently implemented USMCA (the United States Mexico Canada Agreement) has redefined trade relationships for the three largest countries in North America and is generally regarded as an improvement over NAFTA (North American Free Trade Agreement), which had proven deficient in various respects. Depending on your company’s needs, this change could open the doors to improved opportunities for contract manufacture in North America.

The Thomas Industrial Network Inc., a leading market information source, reported in July 2021 that 83 percent of the 1,000 manufacturers it surveyed “are planning to add North American suppliers to their supply chains within a year.” (This was a startling increase from a Thomas survey in March 2020, which reported that “half of the manufacturers are ‘likely to extremely likely to bring production and sourcing back to North America,” and that 47 percent of U.S. manufacturers were looking for domestic sources of supply.) Of the manufacturers who told Thomas they’d in-source to North America, 94 percent “listed ‘Availability’ and ‘Lead Times’ as the most important factors” when considering suppliers, rather than “price per unit,” which could signal a willingness to pay a premium to ensure delivery.

Canada: Low fuel costs, but expensive labor and questionable facilities

Canada has abundant oil which keeps fuel costs low, but despite a weak dollar, Canada’s labor costs are higher than in Mexico and even the United States. The USA’s neighbor to the north is also not known for having a nimble industrial sector. Jean-Francois Letarte, a partner at the supply-chain consulting firm KPMG, told The Toronto Star in 2020 that the Canadian industry has viable clusters of manufacturing in some subsectors, such as automotive, aerospace, and food processing, but other sectors “would take time to develop.” According to Letarte, Canadian manufacturing does well “in particular sectors revolving around that industrial cluster concept. So, building such clusters that aren’t already existing in Canada would be a challenge in the near term.”

Nevertheless, there are clear advantages to outsourcing to Canada. First, you won’t encounter a language barrier, since even in the French provinces, English is spoken fluently. Time zone compatibility makes for swift workday communication, so you can make a phone call or send an email during the workday and talk to a live person or receive an immediate written response. The proximity to American markets reduces shipping costs and lead time. The workforce is well educated and highly skilled, especially in the tech sector. Finally, the legal structure in Canada is compatible with western nations.

Mexico: Plentiful inexpensive labor and abundant facilities

South of the U.S. border, Mexico beckons with abundant cheap labor, many new facilities, and room to grow. The generally fair weather means few work interruptions due to inclement conditions. As with Canada, proximity to U.S. markets is a plus, cutting down on shipping costs and lead time. Proximity also makes communication and supervision easier, since time zones match and whenever necessary, you can take a quick flight to inspect operations. There is also less of a concern over Intellectual Property issues in Mexico than you might encounter in China.

The U.S. Customs and Border Protection is concerned about contraband crossing the border, which can slow shipments. But with the right security protocols in place, you can obtain U.S. government certification that expedites your passage through security checkpoints, including ports of entry.

Customizing a supply chain that fits your needs

Designing a reliable supply chain requires a knowledgeable consideration of numerous factors. At Genimex, our manufacturing experience in Asia over many decades has given us expertise that transfers easily to other locales. Our goal is to provide options that enable you to consistently meet and exceed your business goals. If your best path to success is through Eastern Asia, we can chart the course. But if your goals are best served with a North American supply chain, we can guide you there as well. Wherever your journey takes you, we look forward to a lasting partnership leading to consistent success.