As businesses grow and expand their operations, the modern trend is to establish various processes internationally and take advantage of lower labor and material costs. Yet for emerging companies on the cusp of going global, there might be a strong case for keeping the supply chain local; here’s why.
Build local support
A good supply chain goes well beyond being a mere series of transactions; entrepreneurs know that just as in any aspect of the business, it’s essential to have strong relationships with your suppliers. This is undoubtedly one of the reasons why today’s international companies manage to succeed while having various suppliers and operations hubs dispersed across the globe; if you maintain a good relationship with these partners, you can effectively leverage their strengths to improve overall performance.
This benefit can extend both ways; however, a global business outsourcing some of its processes to countries such as China where labor is inexpensive will boost its economy. By keeping the supply chain within a domestic level, businesses can bring this synergy closer to home. An automotive manufacturer in Detroit, for example, can work with a coil spring manufacturer in Michigan for local supplies, creating more jobs in the process and generating goodwill with the community. The brand becomes more recognizable, and even likable, because of the support it’s giving back.
Limit exposure to disruption
Recent years have shown us that the global political scene can be incredibly volatile. President Trump’s trade war with China escalated from July 2018 until the signing of a Phase One Deal in January 2020, resulting in the imposition of tariffs on both sides amounting to hundreds of billions of dollars. Similarly, the UK finalized its withdrawal from the European Union in January 2020, and the full impact of ‘Brexit’ is still yet to be seen as the transition period winds down.
In such an era of unstable international relations and rapid, far-reaching political changes, there’s a disproportionately high chance that any global business will suffer adversely from any potential shake-up. Supply chain disruption is nearly impossible to predict but can be avoided by working as much as possible with local suppliers. Reducing dependence on the model of global outsourcing and stretched supply chains as early as now will protect businesses from any sudden tariff hikes or material shortages.
Drive sustainable practices
When you work with local suppliers, you reduce the distance required for the transportation of materials and finished products, as well as personnel traveling to meet with partners or inspect facilities. Shorter distances and fewer trips equate to reduced carbon emissions, especially when the majority of transportation is accomplished overland. This is also an excellent way for companies to reduce their logistics expenditure.
Currently, many businesses are still hesitant to localize their supply chain for sustainability, partly due to the labor savings available in other countries; yet those same businesses often don’t correctly quantify the long-term costs they incur through unsustainable practices – these can easily offset whatever gains are made in labor costs. Sustainability also fosters better consumer relationships; many consumers will pay more for a product or service when the brand is associated with responsible practices.
The modern standard of operating with a base of international, outsourced processes exists because it made sense for many years; however, conditions have changed, and there are many factors now which incentivize businesses to have a local supply chain. Being an early adopter will give any organization a competitive edge in the uncertain future.