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Supply Chain in China: Challenges and Good Practices for SMEs within Industrial Goods

By EU SME Centre | Report      27.02.2022     Tags:

At the beginning of 2021, many did not expect the global supply to receive such pressure from disruptive events worldwide – such as a surge in consumer demand for logistics, container shortages, semiconductor shortages, and continuing COVID-19 related disturbances. Indeed, 2021 turned out to be a very challenging year for many companies with supply chains in China.

The COVID-19 pandemic has exacerbated the importance of applying good frameworks for supplier selection, continuous monitoring of the supply chain on a strategic and operational level, structured risk analysis, and good communication with suppliers. The impact on the operations and financial results of companies has varied significantly depending on their strategic choices, different practices and unforeseeable factors.

Despite this, there continues to be a certain logic for European industrial companies to produce or source within China, both for global markets and for the specific Chinese market where consumers and industrial companies increasingly upgrade their requirements on quality and sustainability.

This report gives an overview of the Chinese supply chain environment relevant for European industrial SMEs. Specifically, it details recent regulatory changes and shows the regional differences among key geographical manufacturing clusters in China. In order to increase the understanding and capability to tackle the challenges originating from logistics and component shortage, the report also provides examples of basic frameworks that companies can use in making strategic choices, and practical advice on common pitfalls to avoid for successful production or sourcing in China. This success depends on applying global good practices, an awareness across the company organisation about the Chinese context, as well as implementing ways of working that are adapted to the company and its objectives with sourcing in China.

The report also provides a series of practical tips to guide EU SMEs to conduct due diligence on Chinese partners will be provided, together with an overview of the European Commission’s proposal for a Directive on corporate sustainability due diligence, released in February 2022.

Table of contents

1. China supply chain in context of overall national development

1.1  Historical overview and basic facts on China

1.2  Selected policies and macro-trends

1.3  China’s city clusters

1.4  Risks for foreign companies

2. Successfully managing production in China in the post-pandemic era

2.1  Setting up local production – possible supply chain models

2.2  Sourcing from local supplier

2.3  Examples of European companies handling supply chain challenges

3. Good practices for European companies with supply chain in China

3.1  Overall facts and outlook for European companies

3.2  Good practices for evaluating supply chain strategies

3.3  Tips for conducting due diligence on Chinese suppliers

3.4  Good practices for negotiation and communication

3.5  Good practices for risk analysis and mitigation

3.6  Looking ahead: EU Directive on corporate sustainability governance

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