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Supply Chain - Transformation Changing supply chains in the leather industry
16 December 2019

 

 

Dr Michael Redwood writes on ILM that China has just instructed all its government organisations not only to buy Chinese software and computers, but to remove foreign ones. It is one of the clearest signs yet that the tariff battles initiated by the U.S. are set to leave a legacy long after any change in administrations in both or either countries. 

The implications of this next step in the “decoupling” of these two huge economies lie deep in the supply chains of our leather industry, which has been global since the times skins were first traded. We go back to the valleys of the Tigris and the Euphrates thousands of years ago, through the famous Moroccan leather industry that crossed the Sahara, the movement of Russian leather around the world and even the founding of New York as a Dutch trading post exporting skins and furs to Europe. The leather industry has always been hugely dependent on International Trade, and the easier that trade the more manageable matters are.

Supply chains were already under scrutiny long before the tariff issue arose. The relentless rise in costs in China as it moved from a low cost manufacturing country to a middle class consumer one had already catalysed an ongoing supply chain re-examination with closeness to market, environmental and other matters like the impact of the Belt and Road initiatives all in the mix.

To confuse an already busy subject, Vietnam, a favoured destination replacing China, has another minimum wage rise coming in January 2020 that is already pushing a move into Cambodia. And “reshorers” experimenting with manufacturing back in their home countries have not been finding it easy. Adidas have decided to close their acclaimed “hyper flexible and localized manufacturing” Speedfactories and both the USA and Germany will be closed by April 2020. They will return to Asia “where the know-how and the suppliers are located”, according to their not very convincing argument. Similarly, Clarks have closed their newly built Desert Boot plant in the U.K. before it really got going, although it is not clear whether this is for good commercial reasons or a new management team clearing out all the remnants of their predecessors.

Whatever the rationale, it demonstrates that modern supply chain structures are complex and hard to manage, and will not be helped by unpredictable individuals making ad hoc decisions on applying and removing punitive tariffs.

Perhaps for the future, the leather industry needs to re-examine the trade routes from Marco Polo’s time and the sea routes used by Zheng He in the 15th century. For example, we should not ignore the future significance of places like Ethiopia, which has a big Chinese presence in its leather and footwear industry, and now has good sea and air connections back to China.

Future supply chains will be more complicated, and they will certainly be different.

 

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