The reason for writing this letter to you is that a lot of friends and customers have often asked me recently about one question:

The COVID-19 has led to the bankruptcy of millions of manufacturers in China. Are my procurement projects and supply chain in China still safe?

And their concerns are not unfounded. According to authoritative official data, from the outbreak of COVID-19 in China in 2019 to the end of the epidemic in 2022 in China, more than 4.5 million Chinese enterprises have closed down, including millions of manufacturers. In addition, since the end of the epidemic, more than 460000 companies and enterprises have gone bankrupt, including tens of thousands of manufacturers and raw material suppliers, and even more are still on the path of bankruptcy.

The real data above shows that the impact of the COVID-19 epidemic on the Chinese manufacturing industry is far from over, which will also seriously affect the security and stability of procurement projects and supply chains for a large number of companies and brands around the world.

1. Is my procurement and supply chain in China still safe?

2. How can I ensure the safety of my procurement and supply chain in China?

3. What if the manufacturer I am currently collaborating with suddenly encounters problems? 4. How can I find a better supplier? How can I ensure the future supply chain's safety and stability in China?

These are also questions that many of my friends and clients are very concerned about now. Because of this, I have decided to share with you, all my friends and customers, my practical experience in international procurement and supply chain risk management over the past decade and solutions and suggestions for various problems based on some real-life cases I have experienced. The purpose is to help minimize the risks that your supply chain may face due to the severe impact of the epidemic, as well as potential risk factors that have already emerged or may arise in the future in your procurement and supply chain management processes in China, which may bring catastrophic consequences to your business development and brand reputation.

Perhaps you think those supply chain risk events are far away from us. Then, next, I will tell you about a real-life case that I just experienced recently that such a tragedy is happening around you and me.

In May of this year, I got a phone call from a friend who is a smart home product dealer in the United States. In the phone call, he told me that the epidemic in China had finally come to an end and that he could vigorously carry out market sales to recover the profit loss during the epidemic because the epidemic had already made his company's financial situation very poor, unable to make ends meet. Next, he contacted a manufacturer located in Zhejiang Province, China, who had been cooperating for many years and requested that they arrange sea freight for the orders that he could not deliver due to the sudden outbreak of the epidemic at the end of 2019 as soon as possible. On the same day, he also paid a deposit of approximately $250,000 for a new mass order to the manufacturer and asked them to put production and delivery out as soon as possible. That manufacturer readily agreed, and my friend went on to confidently invest in market development work after that. Everything seemed to be going smoothly.

However, three weeks had passed without receiving any information from that manufacturer regarding the transportation of the inventory before the epidemic or any news about the production progress of his new order. When this friend tried to contact the manufacturer's foreign trade sales personnel again to inquire about the progress, there was no response, whether by email or phone. At this time, my friend realized something was wrong and quickly contacted me, hoping I could help him find out what was going on with that manufacturer.

As expected, after careful investigation, I found out that this factory had already experienced serious issues, such as insufficient capital flow. In April of this year, the month before my client contacted them, they had already filed for bankruptcy with the government. When my friend contacted them, they were already in the stage of corporate debt liquidation, and the goods they had previously ordered had already been sold at a low price by that manufacturer. Not only that, the deposit of $250000 my friend paid for his new order was also used to repay their original debts to raw material suppliers, bank loans, and workers' wages, and since the owner of this company was in a disconnected state, no one could find him.

Although I am still helping this friend follow up and protect his rights in China, I have made some encouraging progress and may be able to recover part of his financial losses of nearly 700,000 US dollars. In addition, we also helped him find a safer and more reliable manufacturer with the help of our very helpful supplier screening system. However, the loss of a large number of orders and the loss of customer trust caused by the inability to deliver the products on time to customers who have already signed contracts cannot be compensated for in any way. This result is truly regrettable.

However, my friend's experience is only one of the many cases I have seen since the end of the pandemic in 2023. Similar cases of supply chain disruptions caused by sudden events such as supplier bankruptcy, etc. have occurred frequently since the end of the pandemic, and this is the first time in my 13 years of career in international procurement and supply chain risk management that I have seen such a large scale. Therefore, I feel it is very necessary to remind you:

Although the epidemic has passed, the impact on China's manufacturing industry is far from over. Based on the large number of actual customer cases we have accumulated over the past 12 years, it has been shown that the large number of suppliers in China leads to a serious phenomenon of vicious competition, also because a large number of suppliers and manufacturers lack a good sense of supply chain management and risk management. Moreover, the relevant legal supervision and punishment measures system is not good enough yet, which has led to serious disparities in the quality of services and products provided by different suppliers.

In addition, after studying the actual cases of thousands of overseas companies that had supply chains in China, we found that since the outbreak of COVID-19 in 2019, more than 90.5% of those companies have experienced supply chain disruptions and delays due to the pandemic, which resulted in their unsustainable business operations and led to their market share shrinkage or even termination.

And among those seriously affected companies, more than 85% did not conduct adequate risk investigations of their Chinese suppliers before cooperating with them. Therefore, there was no effective risk control in the procurement project operation and supply chain management process, especially for those companies that paid more attention to low prices while ignoring potential but significant risks in their procurement process. (These risks include: product regulation compliance risks; risks of lax procurement contracts; risks of suppliers in terms of the financial crisis, legal person violations, bankruptcy, fraud, logistics risks, etc.)

More regrettably, those companies simply did not make any emergency sustainability plans, and once these risks occurred, they directly caused serious damage to their brand reputation and market benefits, even termination.

On the contrary, many companies, including most of our customers, had accurate risk awareness and positioning during supplier selection and procurement processes and had prepared adequate emergency strategies and business continuity plans, which helped their businesses avoid being affected. Instead, they had taken advantage of the situation in which their competitors' supply chain problems had caused the business to become unsustainable. They seized the opportunity to make their business expand rapidly and even exceeded the development speed before the epidemic.

Although the epidemic has passed, its impact on China's supply chain is far from over. There are still a large number of suppliers facing risks such as financial crises, credit crises, and even bankruptcy, which makes the supply market in China additionally more complex. Moreover, the brand and market development of customers who already have supply chains or are planning to purchase in China face significant uncertainty, risks, and challenges.

Therefore, the most important question that a large number of customers urgently need to address after the pandemic is how to achieve safe and efficient cross-border procurement and supply chain risk minimization in China while saving time and cost.

1. If you have invested a lot of time and effort in product conception and design, market research, and development, you are ready to find a reliable manufacturer in China to produce your products.

2. The manufacturer you are currently working with has encountered various issues that are causing you trouble. You are considering changing suppliers, but you are worried about the troubles caused by the previous manufacturer and do not know how to find a better supplier partner for long-term cooperation, as well as how to avoid and reduce potential risks and costs that may harm your business and brand reputation in the future. 3. Although you already have suppliers in China that you are currently collaborating with, due to the instability brought by the epidemic to the Chinese supply market, no one knows if unexpected situations such as sudden supply chain disruptions will occur in the future. Therefore, you need to develop a risk emergency plan and provide a reserve of alternative suppliers to cope with unexpected situations that may arise at any time in the future.

As supplier screening is a complex and systematic work, as well as a series of subsequent impacts caused by the COVID-19 epidemic, it has added more unpredictable variables to the already complex manufacturing industry and supply market in China, which has brought great challenges to our cross-border procurement and the establishment of a safe and stable supply chain in China.

Perhaps you have read many articles before about how to manage risks when purchasing and establishing supply chains in China, but according to the many relevant articles I have read, they are either theoretical or not comprehensive and in-depth enough.

Consequently, as a frontline practitioner with over 13 years of experience in supply chain risk management and procurement who has successfully managed hundreds of international procurement projects for clients in Europe and North America and has worked with thousands of Chinese suppliers across a variety of product categories. I also obtained the Advanced Diploma in International Procurement and Supply Chain Management, certified by CIPS (Chartered Institute of Purchasing and Supply, UK), the largest and most professional procurement and supply chain management organization in Europe.

I will combine the practical cases I have encountered in my career life over the coming period to share with you during the process of purchasing and establishing a supply chain: what potential hazards and safety precautions should you be especially aware of at each step, and how can you successfully avoid these hazards and lessen the harm they will cause?

Additionally, if you have any questions or concerns regarding risk management in your current or future procurement projects and supply chain risk management, please let me know. I am very happy to provide you with free consultation and effective solutions to help you establish a safer and more efficient supply chain in China, laying a solid foundation for your business development and brand reputation.

By: Wesley Liu

(This article is original and the copyright belongs to the author.)