While we are well aware that the coronavirus has been taking a tremendous toll on the population in China… One key thing that we must be mindful of is the toll the coronavirus may soon start taking on China businesses. The economic impact on small and medium size businesses may soon result in significant numbers of China suppliers filing bankruptcy.
It is well known that 85% of small and medium size businesses in China operate on only a three-month cash flow. More than half of the Chinese manufactures are still on shutdown due to travel restrictions and waiting for permission from the local governments to reopen. And many that have reopened are operating at less than 50% capacity due to lack of returned workers. For the workers that have returned – many must remain in quarantine for 14 days before they can return to the assembly lines.
Suppliers in China have already been shut-down for nearly two months – and have no cash flowing in. The factories must continue paying rent, salaries, and utilities – with the cash continuing to flow out. The next month will be very tenuous for many suppliers to remain cash solvent.
If your supplier files bankruptcy – all your payment deposits, work-in-process, and finished goods will immediately disappear. Your molds, your tooling, and your fixtures will all be locked up and inaccessible. A Chinese supplier filing bankruptcy may result in your global company filing bankruptcy. The domino effect can be dramatic.
It is vital to remain in close communications with your suppliers to understand their financial situation and cash flow strength. It is also recommended to not wait for eventual end of the coronavirus situation to begin sourcing new and alternative sources of supply – in China and importantly other Asian countries.
With the travel restrictions placed on us as global buyers – one of the most immediate actions that you can take is to partner with a local Chinese sourcing partner. One with a network of employees already living and located in most major Chinese manufacturing areas. We at Victure Group can make the factory production audit, financial audits, social audits, and quality inspections on your behalf. Please contact us today. Let us help you to assess your supply base – allow you to have our trained and unbiased understanding of each supplier’s strengths and weaknesses. We are ready to be the eyes and ears your China business.
Here are some useful LinkedIn groups to recommend for China and Asia Sourcing-
- China Sourcing, Import, Export- https://www.linkedin.com/groups/4462099/
- Phone Accessories- https://www.linkedin.com/groups/4420760/
- Wearables- https://www.linkedin.com/groups/6798191/
- Gifts and Premiums- https://www.linkedin.com/groups/4421652/
- Bluetooth- https://www.linkedin.com/groups/4692512/
- IFA- https://www.linkedin.com/groups/4796982/
- Wechat- https://www.linkedin.com/groups/5123967/
- Shenzhen Business Networking- https://www.linkedin.com/groups/5063375/
- Asia Sourcing- https://www.linkedin.com/groups/8909383/