Made in Poland: It Could Be Key to Managing Supply Chains?
The idea of seeing "Made in Poland" on a garment label may sound far-fetched, but in the current global economic climate, it could become a reality. Tariff duty rates recently imposed on goods imported into the United States from China are adding up for some businesses. The bottom line is this: there are alternatives for companies looking to manage their long-term supply chain costs.
According to Yahoo Finance, tariffs in total cost U.S. importers $6 billion in June, a 74% increase over last year. Approximately $3.4 billion of that is the result of trade-war imposed duty tariffs.
Changing how and where a company does business takes time, and with the right partners in place, there could be a win for long-term supply chain cost management. Our team has partnerships with businesses importing and exporting goods in over 80 countries around the world. We’re talking to professionals around the world regularly and seeing potential benefits in several regions that are worth Hoosier companies considering.
Eastern European countries including Slovakia, Czech Republic, Hungary and Poland are among the fastest developing countries in the world. In fact, Poland was the fastest growing economy in post-crisis Europe, according to data of the International Monetary Fund. Couple that with the European Union Horizon 2020 initiative for a favorable economic climate for manufacturing.
Horizon 2020 is the biggest ever European Union Research and Innovation program. It kicked off in 2014 and has had over $88 billion in funding made available over seven years (2014 to 2020) not to mention private money that’s also been invested. Sectors touched include health, energy, digital, manufacturing, materials, aerospace, automotive, food and agriculture, security – plus social sciences, humanities, genomics, physics, nutrition, mathematics, economics, AI and more.
A June report produced by Nomura, the Japanese investment bank, estimates that Vietnam gained a 7.9% increase in its gross domestic product from new business seeking alternatives amid the ongoing tariff battle. And Vietnam's exports to the U.S. jumped 33% in the first six months of this year, compared with the same period last year.
Who’s moving product to Vietnam? Apple is planning to make a portion of its AirPods in Vietnam as part of the company’s move to reduce independence on China. This would be the first time an Apple product is made outside of China. And speculation is that up to 30% of production will move from China in three years.
While tech ranks high among goods produced in Vietnam, many other products also are produced and exported including footwear. Nike, Adidas and Puma all have factories in the country. Many of the world’s largest fashion brands also produce in Vietnam. Other goods produced and shipped to the United States for import include furniture/wood products, food/drink (coffee, fruits, vegetables, rice), leather goods and petroleum.
According to the Nikkei Asian Review, “Since last June, 33 listed companies have informed China's two stock exchanges of their plans to set up or expand production abroad…” Malaysia is among the top countries cited in this article for production expansion.
The country has had decades of industrial growth and political stability. It’s the 20th largest export economy in the world. Total exports: are $184 billion with imports at $156 billion for the most recent period. Top export destinations are Singapore, China, the United States, Japan and Thailand.
Top exports include refined and crude petroleum, palm and coconut oil along with aluminum. The country is known for electronics manufacturing for export with products that include integrated circuits, computers, telephones and oscilloscopes. The electrical and electronics sector forms a significant part of Malaysia's economy. Exports from this sector account for about 38% of Malaysia’s total exports and were equivalent to about 26% of the country’s GDP in 2018.
What are the benefits in these countries?
- Price. This is the top reason. Maintaining labor cost is essential to production. According to the Eurostat website the lowest wages in Europe in 2018 were in the Eastern Bloc including Poland, Bulgaria, Latvia and Lithuania.
- Stability. An ING economic forecast published this month says Malaysia is an economy “that surpasses expectations.” The country’s GDP growth improved to 4.9% year-on-year in 2019 from 4.5% thanks to a pick-up in exports and manufacturing growth.
- Tariffs. These countries are not impacted by the current trade war and subject to additional tariffs on goods exported to the United States.
- Resources. These countries have established natural resource availability and infrastructures, and they have been in place for years.
- Infrastructure: Malaysia’s East Coast Rail Link (ECRL) project is back on track in a significant sentiment booster for foreign investors. For Eastern European countries, being part of the EU means easy travel and movement of goods in relatively quick transit times from factories to ports. Think truck, barge and rail established and ready to move goods.
Jefferson Clay is director of global sales for Cargo Services, an Indianapolis-based freight forwarding company founded in 1992.