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Supply chain resilience—in China and everywhere else
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their existing China manufacturing strategies?</div></div></div><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f mdc-c-link-container--align-left mdc-c-link-container--display-column___X0HDD_2734c4f mdc-u-grid-gutter-sm"><a data-component="mdc-c-link" href="#" class="mdc-c-link-icon___SEKyg_2734c4f" role="button" aria-label="Share on linkedin" data-layer-event-prefix="CTA Link" data-layer-action="click" data-layer-category="share" data-layer-subcategory="social" data-layer-subcategory2="linkedin" data-layer-text="Share on LinkedIn"><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mdc-c-icon--radial___y3csX_2734c4f mdc-c-icon--size-xl___3BEee_2734c4f mck-linkedin-thin-icon"></span></a><a data-component="mdc-c-link" href="#" class="mdc-c-link-icon___SEKyg_2734c4f" role="button" aria-label="Tweet on X" data-layer-event-prefix="CTA Link" data-layer-action="click" data-layer-category="share" data-layer-subcategory="social" 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sectors</p></div></div></div><div class="mdc-u-grid-gutter-lg BlogAuthors_mck-c-blog-authors__author-bio__bygEJ"><div data-component="mdc-c-avatar" class="mdc-c-avatar-enhanced-author-1 mdc-c-avatar___kVSTP_2734c4f mdc-c-avatar--image___levct_2734c4f mdc-c-avatar--size-6"><style> .mdc-c-avatar-enhanced-author-1 { --mdc-avatar-size: 48px; } </style><a href="/capabilities/operations/our-insights/operations-blog#/author/eric-cheung"><img src="/~/media/mckinsey/business functions/operations/blog profiles/bio-eric-cheung.jpg?cq=50&mw=128&car=1:1&cpy=Center" alt="Eric Cheung headshot"/></a></div><div class="mdc-u-ts-10 BlogAuthors_mck-c-blog-authors__description__0BmaA"> <a data-component="mdc-c-link" href="/capabilities/operations/our-insights/operations-blog#/author/eric-cheung" class="mdc-c-link___lBbY1_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Eric Cheung</span></a><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f"><p>Advises clients on a wide range of strategy, operations, supply-chain and procurement topics, in sectors including high-tech, retail, apparel, private equity, banking, and telecoms.</p></div></div></div><div class="mdc-u-grid-gutter-lg BlogAuthors_mck-c-blog-authors__author-bio__bygEJ"><div data-component="mdc-c-avatar" class="mdc-c-avatar-enhanced-author-2 mdc-c-avatar___kVSTP_2734c4f mdc-c-avatar--image___levct_2734c4f mdc-c-avatar--size-6"><style> .mdc-c-avatar-enhanced-author-2 { --mdc-avatar-size: 48px; } </style><a href="/capabilities/operations/our-insights/operations-blog#/author/franck-le-deu"><img src="/~/media/mckinsey/our people/franck le deu/franck le deu_2247_fc-mask_headshot_988x741.png?cq=50&mw=128&car=1:1&cpy=Center" alt=""/></a></div><div class="mdc-u-ts-10 BlogAuthors_mck-c-blog-authors__description__0BmaA"> <a data-component="mdc-c-link" href="/capabilities/operations/our-insights/operations-blog#/author/franck-le-deu" class="mdc-c-link___lBbY1_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Franck Le Deu</span></a><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f"><p>Helps healthcare multinationals capture opportunities in China, Asia, and emerging markets, with a focus on improving commercial operations and business expansion</p></div></div></div><div class="mdc-u-grid-gutter-lg BlogAuthors_mck-c-blog-authors__author-bio__bygEJ"><div data-component="mdc-c-avatar" class="mdc-c-avatar-enhanced-author-3 mdc-c-avatar___kVSTP_2734c4f mdc-c-avatar--image-placeholder___BX3C4_2734c4f mdc-c-avatar--size-6"><style> .mdc-c-avatar-enhanced-author-3 { --mdc-avatar-size: 48px; } </style><a href="/capabilities/operations/our-insights/operations-blog#/author/dana-zhan"><span class="mdc-c-avatar__hide___rnSnd_2734c4f">placeholder Image</span></a></div><div class="mdc-u-ts-10 BlogAuthors_mck-c-blog-authors__description__0BmaA"> <a data-component="mdc-c-link" href="/capabilities/operations/our-insights/operations-blog#/author/dana-zhan" class="mdc-c-link___lBbY1_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Dana Zhan</span></a><div data-component="mdc-c-description" class="mdc-c-description___SrnQP_2734c4f"><p>Based in Shenzhen, Dana has over 15 years of experience in enterprise management consulting and digital transformation in the consumer products and retail industries.</p></div></div></div></div><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f mdc-c-link-container--display-column___X0HDD_2734c4f BlogEntryContent_mck-c-blog-entry-content__tag-container__b0iuz mdc-u-grid-gutter-xxs"><div class="BlogEntryContent_mck-c-blog-entry-content__tag-link__fxyON"><a data-component="mdc-c-link" href="/capabilities/operations/our-insights/operations-blog#/tag/manufacturing" class="mdc-c-link-icon___SEKyg_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Manufacturing</span></a></div><div class="BlogEntryContent_mck-c-blog-entry-content__tag-link__fxyON"><a data-component="mdc-c-link" href="/capabilities/operations/our-insights/operations-blog#/tag/supply-chain" class="mdc-c-link-icon___SEKyg_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Supply chain</span></a></div></div></div><div class="mdc-o-content-body"><p><span class="BlogEntryContent_mck-c-blog-entry-content__display-date__vCR9M"><time dateTime="2023-08-23T00:00:00Z">August 23, 2023</time></span>For global companies, China’s skilled labor force, extensive supplier ecosystem, and fast-growing domestic markets have long acted as a magnet for manufacturers. As a result, complex, tightly integrated supply networks now link China with the rest of the world.</p> <p>But now, some of those companies are asking themselves whether the attractions that made so much strategic sense over the past twenty years still do—and what might come next. The economic and operational impact of the COVID-19 pandemic, for example, highlighted the risks inherent in manufacturing networks that rely on long-distance supply chains and geographic concentration of key suppliers.</p> <p>The global economic landscape is also changing, as many governments seek to preserve and develop their own countries' manufacturing capabilities, complicating global sourcing strategies. Rising tariffs, constraints on technology transfer, and financial incentives (often concentrated in sectors deemed strategically important) only add to existing pressures.</p> <p>Meanwhile, in the eyes of Chinese consumers, strong local competitors have eclipsed certain once-powerful Western brands, making China a tougher market for multinational players. Those trends are also intensifying competition for top manufacturing talent in the country.</p> <h2>Time to revisit?</h2> <p>In the face of these shifts, foreign multinationals are reassessing the role China plays in their supply chains. Almost every multinational will likely need to make strategic decisions about its manufacturing footprint over the coming years. The critical question: How can China best fit with our sourcing strategy?</p> <p>For many companies, answering that question will mean reevaluating their entire global production network. Five key criteria provide an objective means for assessing the suitability of any location for manufacturing operations:</p> <ul> <li><strong>Intellectual property (IP).</strong> Does the location offer the necessary technologies, R&D capabilities, and manufacturing knowhow to produce the goods?</li> <li><strong>Resource availability.</strong> How available are skilled labor, robust infrastructure, and a suitable upstream supply base?</li> <li><strong>Cost efficiency.</strong> How do capital, operating, and logistics costs compare with alternative locations?</li> <li><strong>Market adjacency.</strong> Can products be delivered quickly and cheaply enough to meet market demand?</li> <li><strong>Regulatory requirements.</strong> Do goods produced in the location face tariffs or other restrictions in their intended markets?</li> </ul> <p>The significance and impact of these criteria are different for every sector and every organization. As a result, multinationals have evolved four basic archetypes for manufacturing in China (exhibit).</p> <div data-component="mdc-c-module-wrapper" data-module-theme="default" data-module-background="transparent" data-module-category="" class="mck-c-inline-module-container mck-o-md-center"><div class="mdc-u-grid mdc-u-grid-gutter-lg mdc-u-grid-col-sm-1 mdc-u-grid--align-start mdc-u-mb-3 GenericItem_mck-c-generic-item__sGwKL"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-xs GenericItem_mck-c-generic-item__content__gq1m0"><div class="mck-c-eyebrow mdc-u-ts-10"><span> </span></div></div></div><div class="mck-u-inline-module-border-top mck-u-inline-module-border-bottom"><picture data-component="mdc-c-picture" class="Exhibit_mck-c-exhibit__image__pyIDm"><source media="(min-width: 768px)" srcSet="/~/media/mckinsey/business%20functions/operations/our%20insights/operations%20blog/supply%20chain%20resilience%20in%20china%20and%20everywhere%20else/svgz-supply-chain-resilience-ex1-v4.svgz?cq=50&cpy=Center"/><img alt="Based on four archetypes, multinationals can consider strategic options for enhancing supply chain resilience." src="/~/media/mckinsey/business%20functions/operations/our%20insights/operations%20blog/supply%20chain%20resilience%20in%20china%20and%20everywhere%20else/svgz-supply-chain-resilience-ex1-v4.svgz?cq=50&cpy=Center" loading="lazy"/></picture></div><div class="mck-u-sr-only"></div></div> <h2>The road to resilience</h2> <p>Taking a fresh look at manufacturing networks means assessing how each criterion has changed in recent years—and how it is likely to evolve in the future. That involves significant uncertainty, but there are strategies that could help each of today's manufacturing archetypes become more robust and competitive under a wider range of scenarios.</p> <p>Companies that produce in China for China (archetype 1), for example, can increase the breadth and depth of their local supply chains. That would mitigate supplier concentration risks, and also allow multinationals to benefit from the capabilities of competent and cost-effective emerging players. Similarly, companies with customers but no production in China (archetype 2) could explore the localization of some manufacturing. This could give them cost and agility advantages, while providing a degree of insulation from future regulatory shifts or logistics challenges.</p> <p>Companies that produce goods in China for the rest of the world (archetype 3) may want to explore diversification. “China+N” strategies can involve the sourcing of new suppliers in other regions, or working with existing Chinese suppliers to develop additional manufacturing capacity in overseas locations. Either way, this strategy mitigates a range of risks, including uncertainty about regulations, tariffs, and the impact of supply chain disruptions due to natural disasters.</p> <p>Finally, companies with little to no presence in China (archetype 4) may want to consider whether the market is really as impenetrable as they think. Setting up a new, China-specific business or brand, designed to serve Chinese customers while being fed by regionalized supply chains, could prove more viable in both economic and regulatory terms.</p> <h2>Where next?</h2> <p>For each of these approaches, decisions about manufacturing location are about much more than just “China or not.” Determining the best place to produce depends not only on the five criteria outlined above, but also on how well each location integrates into an organization’s wider manufacturing and supply networks. That calls for careful analysis against a range of performance measures, including cost, risk, and alignment with the organization’s environmental, social, and governance goals.</p> </div></div><aside class="mdc-u-grid-col-lg-start-11 mdc-u-grid-col-lg-span-2 BlogEntryContent_mck-c-blog-entry-content__side-bar__YsMpJ"></aside></div></div></div><div data-component="mdc-c-module-wrapper" data-module-theme="light" data-module-background="lightest-grey" data-module-category="StandalonePromo" class="BlogPromo_mck-c-blog-promo__hSsYu BlogPromo_mck-c-blog-promo--full-width__pKXqL mck-u-animation-slide-up BlogEntryContent_mck-c-blog-entry-content__promobar___qKLu" data-layer-region="blog-one-click-module"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-lg"><div class="mck-o-container"><div data-component="mdc-c-content-block" class="mdc-c-content-block___7p6Lu_2734c4f mdc-u-grid-gutter-lg mck-o-container--wrapped mck-o-container--mobile-spacing BlogPromo_mck-c-blog-promo__content__31yfC BlogPromo_mck-c-blog-promo__content--center__JdBp3"><div class="mdc-u-align-center"><h3 data-component="mdc-c-heading" class="mdc-c-heading___0fM1W_2734c4f mdc-u-ts-3">Connect with our Operations Practice </h3></div><div class="BlogPromo_mck-c-blog-promo__form-wrapper__bLL16 BlogPromo_mck-c-blog-promo__form-wrapper--width-auto__6v1YB"><div data-component="mdc-c-link-container" class="mdc-c-link-container___xefGu_2734c4f mdc-c-link-container--align-Center"><a data-component="mdc-c-link" href="/capabilities/operations/contact-us" class="mdc-c-link-cta___NBQVi_2734c4f"><span class="mdc-c-link__label___Pfqtd_2734c4f">Contact Us</span><span data-component="mdc-c-icon" class="mdc-c-icon___oi7ef_2734c4f mck-link-arrow-right-icon"></span></a></div></div></div></div></div></div></div></div></div></main></div><script id="__NEXT_DATA__" type="application/json">{"props":{"pageProps":{"locale":"en","dictionary":{},"sitecoreContext":{"route":{"name":"Supply chain resilience in China and everywhere else","displayName":"Supply chain resilience in China and everywhere else","fields":null,"databaseName":"web","deviceId":"fe5d7fdf-89c0-4d99-9aa3-b5fbd009c9f3","itemId":"cbc6764a-0927-4f7e-afa3-9c377f953989","itemLanguage":"en","itemVersion":1,"layoutId":"ae753eb4-a035-40b4-83bf-4b4438df6742","templateId":"d929136a-019a-4786-8072-3e3a60b2f31c","templateName":"Blog Entry","placeholders":{"jss-main":[{"uid":"e18e4703-f541-45d8-89c1-d5d8407f1708","componentName":"BlogEntry","dataSource":"","fields":{"data":{"blogEntry":{"title":{"jsonValue":{"value":"Supply chain resilience\u0026mdash;in China and everywhere else"}},"sEOTitle":{"value":""},"description":{"jsonValue":{"value":"How can overseas multinationals balance the benefits and risks of keeping their existing China manufacturing strategies?"}},"sEODescription":{"value":""},"displayDate":{"jsonValue":{"value":"2023-08-23T00:00:00Z"}},"body":{"value":"\u003cp\u003eFor global companies, China\u0026rsquo;s skilled labor force, extensive supplier ecosystem, and fast-growing domestic markets have long acted as a magnet for manufacturers. As a result, complex, tightly integrated supply networks now link China with the rest of the world.\u003c/p\u003e\n\n\u003cp\u003eBut now, some of those companies are asking themselves whether the attractions that made so much strategic sense over the past twenty years still do\u0026mdash;and what might come next. The economic and operational impact of the COVID-19 pandemic, for example, highlighted the risks inherent in manufacturing networks that rely on long-distance supply chains and geographic concentration of key suppliers.\u003c/p\u003e\n\n\u003cp\u003eThe global economic landscape is also changing, as many governments seek to preserve and develop their own countries' manufacturing capabilities, complicating global sourcing strategies. Rising tariffs, constraints on technology transfer, and financial incentives (often concentrated in sectors deemed strategically important) only add to existing pressures.\u003c/p\u003e\n\n\u003cp\u003eMeanwhile, in the eyes of Chinese consumers, strong local competitors have eclipsed certain once-powerful Western brands, making China a tougher market for multinational players. Those trends are also intensifying competition for top manufacturing talent in the country.\u003c/p\u003e\n\n\u003ch2\u003eTime to revisit?\u003c/h2\u003e\n\n\u003cp\u003eIn the face of these shifts, foreign multinationals are reassessing the role China plays in their supply chains. Almost every multinational will likely need to make strategic decisions about its manufacturing footprint over the coming years. The critical question: How can China best fit with our sourcing strategy?\u003c/p\u003e\n\n\u003cp\u003eFor many companies, answering that question will mean reevaluating their entire global production network. Five key criteria provide an objective means for assessing the suitability of any location for manufacturing operations:\u003c/p\u003e\n\n\u003cul\u003e\n \u003cli\u003e\u003cstrong\u003eIntellectual property (IP).\u003c/strong\u003e Does the location offer the necessary technologies, R\u0026amp;D capabilities, and manufacturing knowhow to produce the goods?\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eResource availability.\u003c/strong\u003e How available are skilled labor, robust infrastructure, and a suitable upstream supply base?\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eCost efficiency.\u003c/strong\u003e How do capital, operating, and logistics costs compare with alternative locations?\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eMarket adjacency.\u003c/strong\u003e Can products be delivered quickly and cheaply enough to meet market demand?\u003c/li\u003e\n \u003cli\u003e\u003cstrong\u003eRegulatory requirements.\u003c/strong\u003e Do goods produced in the location face tariffs or other restrictions in their intended markets?\u003c/li\u003e\n\u003c/ul\u003e\n\n\u003cp\u003eThe significance and impact of these criteria are different for every sector and every organization. As a result, multinationals have evolved four basic archetypes for manufacturing in China (exhibit).\u003c/p\u003e\n\n[[exhibit 1]]\n\n\u003ch2\u003eThe road to resilience\u003c/h2\u003e\n\n\u003cp\u003eTaking a fresh look at manufacturing networks means assessing how each criterion has changed in recent years\u0026mdash;and how it is likely to evolve in the future. That involves significant uncertainty, but there are strategies that could help each of today's manufacturing archetypes become more robust and competitive under a wider range of scenarios.\u003c/p\u003e\n\n\u003cp\u003eCompanies that produce in China for China (archetype 1), for example, can increase the breadth and depth of their local supply chains. That would mitigate supplier concentration risks, and also allow multinationals to benefit from the capabilities of competent and cost-effective emerging players. Similarly, companies with customers but no production in China (archetype 2) could explore the localization of some manufacturing. This could give them cost and agility advantages, while providing a degree of insulation from future regulatory shifts or logistics challenges.\u003c/p\u003e\n\n\u003cp\u003eCompanies that produce goods in China for the rest of the world (archetype 3) may want to explore diversification. \u0026ldquo;China+N\u0026rdquo; strategies can involve the sourcing of new suppliers in other regions, or working with existing Chinese suppliers to develop additional manufacturing capacity in overseas locations. Either way, this strategy mitigates a range of risks, including uncertainty about regulations, tariffs, and the impact of supply chain disruptions due to natural disasters.\u003c/p\u003e\n\n\u003cp\u003eFinally, companies with little to no presence in China (archetype 4) may want to consider whether the market is really as impenetrable as they think. Setting up a new, China-specific business or brand, designed to serve Chinese customers while being fed by regionalized supply chains, could prove more viable in both economic and regulatory terms.\u003c/p\u003e\n\n\u003ch2\u003eWhere next?\u003c/h2\u003e\n\n\u003cp\u003eFor each of these approaches, decisions about manufacturing location are about much more than just \u0026ldquo;China or not.\u0026rdquo; Determining the best place to produce depends not only on the five criteria outlined above, but also on how well each location integrates into an organization\u0026rsquo;s wider manufacturing and supply networks. That calls for careful analysis against a range of performance measures, including cost, risk, and alignment with the organization\u0026rsquo;s environmental, social, and governance goals.\u003c/p\u003e\n\n\u003c!--\n\u003chr /\u003e\n\n\u003cp\u003e\u003ca href=\"/our-people/didier-chenneveau\"\u003e\u003cstrong\u003eDidier Chenneveau\u003c/strong\u003e\u003c/a\u003e is a partner in McKinsey\u0026rsquo;s Taipei office; \u003cstrong\u003eEric Cheung\u003c/strong\u003e is a consultant in the Hong Kong office, where \u003ca href=\"/our-people/franck-le-deu\"\u003e\u003cstrong\u003eFranck Le Deu\u003c/strong\u003e\u003c/a\u003e is a senior partner; \u003cstrong\u003eDana Zhan\u003c/strong\u003e, based in Shenzhen, is a manager with Lanyue, a McKinsey company.\u003c/p\u003e\n--\u003e"},"hidePromoBar":{"boolValue":false},"hideDek":{"boolValue":false},"mobileReady":{"boolValue":true},"selectedModalSubscriptions":{"targetItems":[]},"hideFromSearchEngines":{"boolValue":false},"parent":{"id":"3BA1E092092E43E99DAFBE8E04042AB2","name":"Operations Blog","title":{"value":"McKinsey Talks Operations Blog"},"description":{"value":"Join the conversation, with short, sharp insights on all aspects of Operations"},"url":{"path":"/capabilities/operations/our-insights/operations-blog"},"heroImage":{"alt":"Computer network concept of lines curving and snaking off into the distance","src":"/~/media/mckinsey/business functions/operations/our insights/mckinsey talks operations/blog-mck-talks-ops_hero_1536x864-middle.jpg","description":""},"heroBackgroundColor":{"targetItem":{"displayName":"Deep 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