Outsourcing Strategies for a U.S.-Sino Trade War

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Outsourcing Strategies for a U.S.-Sino Trade WarThe current global wave of nationalism and a globalization backlash is throwing a wrench into the important-and growing- offshore outsourcing industry. Indeed, over the past decade, China has been seen as the place to go for quality, low-cost prototype, and private label manufacturing. But recent events may be changing the playing field, and agile businesses need to be ready to adapt to a fluid political-economic situation.

According to a recent report by the KPMG, the Global Outsourcing Industry generates $187 billion in annual revenues. Given the “War for Talent” and labor cost differentials, more existing and startup companies all over the World have been turning to Offshore Outsourcing as a go-to solution. From Business Process Operations (BPO) to new product development, lower costs, and international quality standards outsourcing is leveling the playing field. But with each tweet that pops up in the media, the uncertainty for outsourcing to China becomes a consideration and cause for concern for many companies-particularly the Electronics industry in the USA.

With the escalating trade war between USA and China and the latest tariff announcements, imports of electronics machinery, semiconductors and assemblies from China to the USA just got 25% more expensive.

On 6th July, the Trump administration announced $34B in goods tariffs, targeting electronic components among others. And today they announced an additional $19B worth of tariffs affecting an additional 279 products, which will take effect on 23rd of August.

top 20 digital product providersThis is disruptive at every level, from design through manufacture, supply chain, and logistics. The impact for device makers and manufacturers is enormous, and while this continues to escalate, there is a very real threat to many businesses leveraging the China supply chain and an eye on the USA market – which pretty much means everybody.

One way to avoid this supply chain disruption is to turn to other parts of the world. China is not the only economy with a well-established outsourcing industry.

The Philippines is one such place offering seamless design and manufacturing transition to English speaking, well-educated centers. According to KPMG, the Philippines does $23 billion in outsourcing revenue.

The Philippine manufacturing sector is well established and accounts for 25% GDP, with government supported infrastructure upgrades on their way and many “Tier One players,” particularly Japanese and Korean, have been resident for many years.

One key factor that favors the Philippines as an alternative offshoring outsourcing destination is its educated and fluent English speakers. Indeed, the friendliness and work ethic of the Philippine workers is well-known to the growing global business companies leveraging this unique outsourcing resource along with government incentives.

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