It seems that every day brings another layer of bad news. The new cases of Coronavirus are growing at a quicker rate than when the virus was mainly contained in China. Serious questions are being asked about the international supply chain, and stock markets are nervous.
However, there are flickers of sunshine from some manufacturers who have been squeezed out of the market because of the intense price competition that came out of China. Across Europe, there are many small, manufacturers who have survived the price competition from China by downsizing and supplying niche markets far and wide. There is an opportunity for these businesses to fill some of the gap created by a slowing in supply from China.
There are some benefits to sourcing locally. The retailer can source the product quickly and given that the manufacturer is local the green credentials are enhanced. There are some obvious marketing benefits too – handcrafted, locally sourced, trusted and reputable supplier and unique product.
So, opportunity, but also challenges to be overcome. The local manufacturer will not be as price competitive and not able to supply the volume sought by larger retailers. Local manufacturers may be able to fill some of the shortfalls with local niche products. Aldi has a reputation for doing just this, especially within the fruit and vegetable space. Aldi source from local farmers and producers and can get the product from ground to shelf very quickly.
Local manufactures can be quick to adapt and change. There are funding issues to be considered. Stepping to fill the gap will require additional working capital, plant and equipment and even employees. These businesses may not have sufficient cash resource available to fund these requirements. Will traditional or alternative funders be willing to step in and support local businesses? What will happen when China gets its production machine up and running again – will the retailers simply revert to the cheaper alternative.
A final thought on the consumers. We have been treated to a continual supply of cheap products from China. However, social attitudes are changing. There is greater interest in environmentalism, veganism and diversity. There are also signs that the consumer may be prepared to pay a little bit more for a product that satisfies their attitudinal benchmark.
The retailers have also been exposed in that the principal source of supply was from China. Retailers did have a Plan B, a backup plan for when thing went wrong. The backup plan often another Chinese supplier. Current events may encourage retailers to be less dependent on a distant, cheaper source of supply. Local manufactures will take fill the entire supply chain. But with funding support, they may be able to fill some of the gaps with local, niche products and contribute positively to their domestic GDP.
Author: Bill Liddell