How Can Foreign Trade Enterprises Survive Under the Background of Trade War?

Trade war is here. Did your foreign trade business get affected? Don’t worry, you have options.

Facing the challenges of the trade war, foreign trade enterprises must be flexible and responsive, diversifying their layout and optimizing the supply chain to reduce risks and ensure the continuous development and profitability of the enterprise.

Doing foreign trade is not easy, especially now, with the trade war making things more complicated. I’ve been in this business for many years and have seen many friends run into trouble. But don’t lose heart, there’s always a way.

Diversified Layout¹: Why Do We Need to Consider Setting up Factories in Different Countries?

Is the trade war giving you a headache? Tariffs are high, orders are down? This is not a dead end.

Setting up factories in different countries can help companies reduce the risks brought by the trade war, for example, by producing in non-trade war countries to avoid high tariffs, and also by better serving the local market.

My own company, FUMEI, started building a factory in Vietnam in 2019. At that time, I saw that the China-US trade friction was getting more serious, and I felt that I couldn’t put all my eggs in one basket. Now it seems that this decision was absolutely right. Look, here’s how we do it:

What is the Production Capacity Allocation Between China and Vietnam?

This is how we allocate our production capacity now. We keep 25% of our capacity in China, mainly for preliminary product development and sampling. For new products or small orders, we first produce them in the Chinese factory to see how the market reacts. If the response is good and large-scale production is needed, we transfer the orders to the Vietnamese factory for production and shipment. The Vietnamese factory handles 75% of our capacity.

This approach has multiple benefits.

First, it reduces tariff risks. For many products exported from China to the United States, the tariffs are very high. But for exports from Vietnam, the tariffs are much lower, or even zero. This directly reduces our product costs and increases competitiveness.

Second, it disperses risks. If something goes wrong with either the Chinese factory or the Vietnamese factory, such as a power outage, a workers’ strike, or other force majeure, the other factory can continue production, preventing a complete shutdown. This gives us a lot of flexibility and security.

Finally, it improves service capabilities. Setting up a factory in Vietnam also helps us better serve the Southeast Asian market. Transportation costs are reduced, and delivery time is also shortened.

Look at this table, and you’ll understand better:

So, don’t be afraid of trouble, look at opportunities in other countries. Maybe you can find a new way out.

Supply Chain Optimization³: How to Utilize Multi-Country Supply Chains to Reduce Costs?

Costs are too high, profits are too thin? Supply chain optimization is key.

Utilizing multi-country supply chains can help companies effectively reduce overall operating costs and increase profitability by choosing lower-cost production locations, optimizing logistics routes, and other methods.

As I mentioned earlier, we have factories in both China and Vietnam. This multi-country supply chain model has saved us a lot of money. Think about it, if we produce in Vietnam, the labor costs are lower than in China, and many raw materials can also be sourced locally in Vietnam, which saves on transportation costs.

How Should Each Link of the Supply Chain Work Together?

How does our company’s supply chain work together? It’s like a team, everyone has their own task, and they have to cooperate well with each other.

First is R&D and sampling. This link is mainly completed in the Chinese factory. Chinese engineers have mature technology and strong R&D capabilities, and can quickly turn ideas into products.

Then there is small-batch production. After the product sampling is successful, we will first produce a small batch in the Chinese factory to test the market. We see how the customer reacts and if there are any problems.

Next is large-scale production. If the market reacts well and large-scale production is needed, the orders will be transferred to the Vietnamese factory. The Vietnamese factory is responsible for large-scale production and export.

Logistics and customs clearance are also very important links. We will choose the most suitable transportation method, such as sea freight or air freight, to transport the products to the customers. Customs clearance procedures must also be done in advance to ensure that the products can enter the country smoothly.

Finally, there is after-sales service. Whether the products are produced in the Chinese factory or the Vietnamese factory, we provide the same after-sales service. If customers have problems, they can contact us at any time.

Throughout the entire process, the teams in China and Vietnam must maintain close communication. For example, if the Vietnamese factory encounters any problems during production and needs technical support from China, the Chinese team must respond in a timely manner. The same is true in reverse.

Look at this flowchart, and you’ll understand better:

Through such precise collaboration, our supply chain can operate efficiently, and costs can be reduced.

Risk Hedging: How to Reduce Trade War Risks Through Capacity Allocation?

Worried that the trade war will interrupt your business? Don’t let risk defeat you.

By reasonably allocating production capacity and transferring some production to areas not affected by the trade war, companies can effectively hedge against risks caused by tariffs, policy changes, and other factors, ensuring the stability of enterprise operations.

The biggest risk of the trade war is uncertainty. Today tariffs go up, and tomorrow there may be some new policy. As a company, we cannot just wait and see. By reasonably allocating production capacity, we can prepare in advance.

What is the Purpose of Retaining Chinese Production Capacity?

Earlier I mentioned that we retained most of our production capacity in Vietnam to reduce tariff risks. However, we did not completely abandon the Chinese factory, but retained 25% of the capacity. Why is this?

It is mainly to deal with the risks that may occur in the Vietnamese factory. Although Vietnam has many advantages, it also has its own problems. For example, the infrastructure may not be as complete as in China, the skill level of workers may vary, and the political environment may also change.

If something unexpected happens to the Vietnamese factory, such as too many orders to handle, or a production stoppage for some reason, our Chinese factory can step in and quickly resume production. This is like buying insurance for ourselves.

Moreover, for some products with high technical requirements, or small-batch, multi-variety orders, it is still more convenient to produce in China, and the quality is more guaranteed. China’s supply chain is very mature, with complete supporting facilities, and many parts can be sourced locally.

Therefore, retaining production capacity in China is to maintain flexibility and resilience. This way, no matter how the trade war changes, we can cope with it calmly.

Look at this comparison, and you’ll understand better:

This China-Vietnam collaborative model, like walking on two legs, is more stable.