Amid rising tariffs and geopolitical uncertainties, companies are increasingly prioritising supply chain resilience and operational efficiency over simplistic cost calculations, revealing a nuanced landscape for relocation decisions.
In today’s complicated global trade environment, many companies face pivotal decisions about whether to maintain their supply chains in established locations like China or to relocate to emerging markets such as Vietnam or Mexico. While tariffs and geopolitical pressures often drive the conversation, recent insights from procurement specialists and industry leaders make clear that the calculus goes far beyond headline tax rates.
Consider the example of a U.S.-based consumer electronics company, which after years of sourcing from southern China, weighed the prospect of moving production to Vietnam. At first glance, the lower labour costs in Vietnam and the double-digit tariffs imposed on Chinese imports to the U.S. appeared to favour relocation. However, a more detailed assessment by their procurement team revealed a complex picture. The company’s Chinese suppliers were deeply integrated in the supply chain—providing battery cells, printed circuit board modules, and specialty plastics all within close proximity—offering speed, reliability, and superior logistics efficiency. Relocating final assembly to Vietnam would have introduced additional freight, customs, and quality control challenges, eroding the potential tariff advantage. Faced with these operational realities, the company chose to remain in China, opting instead to restructure contracts and enhance supplier transparency and risk-sharing.
Similarly, a Tier 1 automotive supplier assessing whether to shift engine control unit sourcing from China to Mexico discovered that initial cost savings from tariff avoidance were offset by the technical and operational excellence of their existing Chinese supplier. Having co-developed the parts over five years, with customised tooling and industry-leading yield rates, the Chinese partner’s consistent quality and reduced requalification costs meant the overall total cost, including potential warranty risks, favoured staying put despite tariffs.
These examples underscore a broader truth: tariff implications, while critical, are often only part of the decision matrix. According to procurement experts, relocation makes strategic sense primarily when companies face regulatory or intellectual property risks that threaten core operations, when suppliers cannot meet environmental, social, and governance (ESG) or compliance standards, or when the incumbent region no longer supports cost, quality, or innovation objectives. Even then, relocation is a careful, deliberate process, not a knee-jerk reaction. Companies must consider full landed costs, supply chain replication feasibility, lead times, quality impacts, embedded knowledge loss, and regulatory compliance before making such transitions.
This nuanced perspective resonates with broader industry trends. U.S. truck makers, for example, are leveraging manufacturing facilities in Mexico to mitigate the impact of Trump-era tariffs—a 50% levy on imported steel and aluminium components—that have driven costs up significantly. Daimler Truck and Traton have found cost advantages through compliance with the US-Mexico-Canada Agreement (USMCA), while some U.S.-based manufacturers face substantial tariff-related damages. However, even within this seemingly clear incentive to relocate, complexities remain. The head of Mexico’s Auto Industry Association has publicly criticised certain tariffs as ‘unsustainable,’ highlighting ongoing barriers such as stalled investments due to tariff uncertainties and bureaucratic challenges that delay refunds on eligible vehicles. The absence of negotiated lower auto tariffs for Mexico, unlike agreements Japan and the EU have secured, continues to hamper the country’s full potential despite it being the world’s fifth-largest auto manufacturer.
Vietnam, often positioned as a low-cost alternative to China, comes with its own trade-offs. Labour costs in Vietnam are markedly lower—approximately $3 an hour compared to $6.50 in China—making it an attractive destination for labour-intensive sectors like textiles, footwear, and electronics assembly. Trade agreements further enhance Vietnam’s appeal by providing tariff advantages and access to global markets. Yet, its manufacturing base is still developing relative to China’s mature, integrated supply chains, which excel in high-complexity, high-precision manufacturing such as electronics and automotive components. China’s environment also benefits from vast scalability, reliable logistics infrastructure, and extensive upstream suppliers for raw materials. The challenge for companies is to balance lower unit costs with risks associated with supply chain fragmentation, lead time variability, and quality control—areas where China’s ecosystem remains a formidable benchmark.
An informed report on the China versus Vietnam sourcing dilemma summarises that Vietnam is better suited for small to medium batch production with lower minimum order quantities, ideal for startups and SMEs, whereas China’s capabilities in rapid scaling and consistent quality keep it dominant for large-volume, high-technical production. Meanwhile, companies considering relocating to Mexico are similarly weighing tariff savings against supply chain maturity and operational reliability.
In a landscape shaped by tariffs and trade tensions, procurement leaders advocate for a balanced approach that weighs total costs, operational complexities, and supplier capabilities. Moving supply chains may sometimes be necessary, but staying and optimising the existing ecosystem could offer greater strategic value. As Louis Carval, a Principal at procurement consultancy Efficio, emphasises, “Moving your supply chain is not a cure-all. Sometimes, staying where you are—and doubling down on what’s working—is the boldest, smartest move you can make.”
The evolving dynamics of global supply chains, shaped by tariff policies, geopolitical shifts, and material realities of manufacturing ecosystems, require companies to be astute in their strategic sourcing decisions. The examples from electronics, automotive suppliers, and truck manufacturers illustrate that in-depth evaluation, beyond face-value cost comparisons, is essential to sustainable competitiveness in today’s interconnected marketplace.
Source: Noah Wire Services
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