Ms. Heady Wu is the Global Vice President and General Manager of Blackford Capital. She has also served as General Manager and Global Vice President of Sourcing at Aqua-Leisure Recreation. Prior to 2016, she was a Senior Merchandising Manager at Horizon Group USA. With extensive experience in global procurement, she excels at accurately predicting and managing various situations in an increasingly volatile global trade environment. She has honed exceptional negotiation skills across multiple sectors, including sports products, pool products, furniture, outdoor patio items, toys and crafts, and stationery.
This interview was first published in Chinese in Chief Executive China, in June and July 2024.
CEC: What's your take on the trend of manufacturing shifting to Southeast Asia? And where do you think would be the ideal location to establish a Southeast Asia sourcing office and why?
Heady Wu: Actually, in line with the changes in global product demand mentioned earlier, it's a general trend for Chinese suppliers and manufacturing sectors to relocate to Southeast Asia or even other countries. Besides Southeast Asia, numerous companies have also set their sights on South America or Europe. For example, some new energy vehicle firms have opened new production facilities in southern Italian towns to circumvent various old and new policies. Take Kuka Home, a relatively traditional export-oriented enterprise, which officially started production in Mexico as early as 2020, after at least 1 to 2 years of preparation and planning beforehand. This shows that the phenomenon of shifting abroad - not just to Southeast Asia - is, I believe, a general trend.
On this point, we can compare and contrast the response of Japanese enterprises with that of the United States 30 years ago when the US cracked down on Japanese firms. A common point is that if companies move overseas, they need to make great efforts for cost control, which is more challenging but also necessary. Of course, China's demographic dividend period is essentiallyover now. Moreover, the repositioning of new production bases can also help production-oriented companies gain better access to their target markets.
The new energy vehicle industry I mentioned earlier is looking to directly access target markets by moving production from China to Europe. Some suppliers will go directly to the US to open factories or build logistics warehouses, which is also more conducive to their access to the target markets they aim for, avoiding unstablestable logistics or policy restrictions.
However, Chinese suppliers differ from other countries in terms of industrial transfer.
First is the difference in destination. When Japanese companies went to the US, the main goal was to produce in the US, with firms like Toyota, Honda, Nissan, Sony, and Panasonic directly heading to the US mainland. This was related to geopolitics and pressure from above. Now, Chinese suppliers pay more attention to diversification, not just considering the US, but more inclined to start from Southeast Asia, mainly because it's more conducive to enterprise control and the culture is closer, which is the first difference.
The second difference is the scale of the transfer. China is known as the "factory of the world", excelling in manufacturing all categories, from textiles, electronics, daily consumer goods to medical products. Therefore, the scale of the product industry involved in the industrial transfer will be larger.
The third distinction pertains to the pace of relocation. Chinese manufacturing enterprises boast top-tier efficiency globally, hence their overseas transfer speed and efficacy are the swiftest and most proficient I've witnessed. From leasing a factory in a local industrial park to procuring equipment, a company can commence operations within just nine months, inclusive of local staff recruitment and training. This is incomparable to Japanese firms.
The overarching trend of China's manufacturing exodus, I believe, extends beyond Southeast Asia, gravitating globally towards locales nearer to target markets.
Regarding the siting of a sourcing office, industry nuances, business geography, and corporate strategy are pivotal.
For general consumer goods, Vietnam is my focal point in Southeast Asia. Vietnam's consumption power now mirrors China's 25 to 30 years ago. Over the past five years, a significant portion of our manufacturing shift initially targeted Vietnam, particularly Ho Chi Minh City. Within a three-hour drive from Ho Chi Minh City, a multitude of Chinese manufacturers in furniture, textiles, footwear, and toys have congregated. Some entrepreneurs planted roots there 12 years ago when land cost merely around US$1 per square meter, now it's escalated over 100 times. Hanoi, the northern capital, abuts China's Yunnan Province, facilitating logistics. Currently, most industrial transfers rely on mainland China for primary raw materials and technology, with Chinese technicians training local workers to meet quality standards.
Indonesia is also worth considering, boasting diversity as its strength. With the third-largest Asian population, it harbors a vast consumer market. It's competitive in textiles, garments, food & beverages, electronics, and even automotive and chemical industries, thus it could be an option based on the specific product being sourced.
India is another major favorite. Now the world's most populous country, it's attracted numerous companies. Foxconn, for instance, has invested billions to establish a local supply chain. Due to geopolitics, India leans towards the US but also plays both sides between China and the US to leverage favorable conditions. However, in the past six months, Chinese firms developing in India faced a significant hurdle: local policy restrictions made it extremely difficult for mainland passport holders to obtain Indian visas, impeding the normal schedule of many technicians or trainers. With Modi's re-election as Prime Minister, I hope this predicament dissipates swiftly.
I've observed Indian workers' productivity. Notably, India's demographics significantly outshine China's aging population. You'll encounter many young individuals in their late teens and early twenties. In terms of efficiency, there's minimal difference between training them to a certain level and scale compared to workers in Shenzhen; about 95% can perform adequately. In the long run, establishing a sourcing office for large enterprises in India is feasible, contingent on the specific industry.
Lastly, Mexico is worth considering. Thanks to the USMCA, Mexico enjoys tariff-free access to the entire North American market, a significant advantage. Consequently, many companies, including BYD, have set up factories there, making it a viable location for a sourcing office.
CEC: Do notions like environmental protection and carbon neutrality affect suppliers? What challenges and opportunities do they entail?
Wu: They certainly have an impact. In fact, we're increasingly aware of the prevalence of extreme weather events. Numerous countries have set goals to achieve zero emissions by 2050.
Regarding specific figures, China currently leads global carbon emissions at over 11 billion tons, with the US following at 4.5 billion tons. China has been quite proactive in recent years concerning environmental and carbon neutrality policies and their implementation.
Firstly, China's carbon emission target is to peak emissions by 2025, then gradually reduce, five years ahead of the 2030 target mentioned two years ago.
Secondly, there's been substantial investment in new and emerging energy sources, with a significant number of sustainable energy facilities constructed. Wind and solar power have reached an annual output of 121.2 billion kilowatts.
Thirdly, there's robust policy enforcement. The government will continue to impose more and more on-the-ground policies and KPI requirements on commercial buildings and production-oriented enterprises. This includes emission reduction targets, the amount of new energy to be utilized, and the quantity of recycled and environmentally friendly sustainable materials that production enterprises should use annually, instead of continuously relying on fossil fuels. Many manufacturers will need to increase investment, which is the "homework" every enterprise must collaborate with the local government to submit.
On one hand, this brings numerous challenges and pressures to enterprises, mainly in the following aspects:
Firstly, there are increasingly complex new rules and regulations. As mentioned earlier, we need to work with local governments to submit energy-saving and emission-reduction "assignments."
Secondly, there will be significant operational adjustments. This includes not only hardware upgrades but also the possibility of double shifts, staggered peaks, reduced energy consumption, or the use of wind and solar power.
Thirdly, the financial impact will be more pronounced. Cost control will inevitably add a lot of pressure, and labor is relatively cheaper in inland cities. We've seen many suppliers gradually move inland from the southeast coast, building factories in Hunan, Jiangxi, Hubei, Hebei, and even Gansu.
Environmental protection and carbon neutrality are beneficial for humanity in the long run, but in the short term, they pose a significant challenge for suppliers. At the same time, we also see opportunities.
We can observe a plethora of new products and industries. For example, solar energy, which is quite advanced in our country, has been included in the US anti-dumping category. Now the mobile battery industry is also rapidly emerging, with growing demand. Another example is in areas favorable for solar or wind energy, local energy storage can be utilized to distribute power to factories with incomplete power facilities. Another option is to deploy mobile energy storage stations for new energy vehicles to recharge, rather than directly installing charging piles. These are all vital new industries.
Environmentally friendly materials, raw material recycling, and their transformation into new environmental applications also see the flourishing of new products and industries.
Moreover, suppliers who can align with new carbon neutrality concepts and clean energy utilization can turn this capability into a competitive advantage. Taking foreign trade as an example, many large buyers, such as Walmart, Target, and Costco, have certain factory inspection qualification requirements for their suppliers, which also include carbon neutrality, clean energy, and other sustainable development tasks. Suppliers capable of meeting these requirements enhance their own advantage in securing larger orders.
CEC: What's your perspective on the future development trend of China's manufacturing industry? And what advice would you offer to suppliers?
Wu: Overall the future development trend of China's manufacturing industry can be outlined as follows:
1. Numerous enterprises are undertaking industrial automation transformations to address labor challenges and enhance supply chain efficiency, which is the most potent approach.
2. There's an emphasis on optimizing the cost advantage across the entire industry chain, bolstering supply chain and product quality control, and showcasing the advantages of production cycles and efficiency.
3. Regarding the industry's future development, product category innovation and industrial upgrading are the overarching goals. Labor-intensive categories will gradually shift overseas, while domestic operations can serve as research and development and innovation hubs.
4. Environmental protection and green production, as previously mentioned, are definitely long-term objectives. ESG, a current global hot topic, has supporting theories and processes in China that different enterprises can learn from.
5. I believe the most crucial aspect is to strive to follow trends, to globalize and diversify, in response to the intensification and deterioration of global geopolitics. Although achieving diversification and globalization is truly challenging, it's the path to promoting the global development of Chinese suppliers and enhancing their competitive edge.
CEC: What advice would you give to Global Sources’ suppliers?
Wu: Nowadays, production enterprises in China that persist in pursuing a globalization strategy, in my view, are highly entrepreneurial. They're genuinely creating jobs and investing significant effort into business development and economic construction. I know many production-oriented entrepreneurs are utterly dedicated to their enterprises around the clock, striving for operational optimization, including how to make their businesses profitable and avoid layoffs.
One suggestion I have for these socially responsible entrepreneurs is to ensure a robust talent supply. Many suppliers have confided in me that their biggest headache is the lack of specialized talent to support them. They say, "I also want to go international; I want to keep this business running, I currently have 1,000 workers to support, I'm already in my fifties or sixties, how can I continue to grow? I know suppliers over 70 who are still managing their businesses. So, talent is extremely important and scarce.
The second point is to persevere and develop. Look globally, embrace the survival of the fittest, and at the same time, seize the trends of the times, such as AI. Utilize tools to optimize internal enterprise management, improve internal efficiency, and apply these improvements to the field of product development to enhance the efficiency of the entire industrial process.
Established in 2022 by Global Sources, the Sourcing Elite Board (SEB) is a collaborative initiative dedicated to advancing the sourcing industry through shared expertise and innovative strategies. Senior executives, from buying offices to retailers and brands, are welcome to join this distinguished community.
