Startups That Rely On ‘Made in China’ Need To Read This
The ban on China-made apps is just the tip of the iceberg.
If you’re reading this and you’re a member of a North American startup that has somehow withstood the storm from the pandemic, I tip my hat to you. It’s horrifying how many companies are now out of business, and people are out of work.
I’d love to say things only go up from here, but truthfully, things are going to get even worse before they get better. Similar to a hurricane that has an eerily peaceful eye of the storm.
Current pandemic aside, we’re now seeing how business and politics don’t mix and the fall-out on apps like WeChat and Tik Tok being banned in the USA. More broadly, if you rely on anything from overseas, especially China, your business is still at risk.
So much stuff is still physically made in or sourced from China, including almost all the little nicknacks folks buy at the Dollar Store, clothes and gadgets on Amazon.com, to make-up, tools, and electronic equipment.
Importing Goods to the USA and Canada is Crazy Expensive
Over the past few months, shipments from overseas to North America have been allocated to medical equipment like masks, as well as materials used to make toilet paper and hand sanitizer.
With travel restrictions, flights are even rarer. This means space in airplanes and cargo ships is even more precious, which is just a nice way of saying super expensive. Shipping prices out of China to the USA have increased significantly. Air shipments are up to two times more expensive, and sea shipments are up by 20%. Both types are a lot more challenging to book.
Companies importing goods are faced with these new added costs, which they have to incur to stay in business. Many companies are scared to increase end-product prices. After all, customers are already facing tough times and are generally price sensitive.
Throw the Busiest Holiday Season of the Year in the Mix
As we edge closer to the busiest shopping season of the year, this precious cargo space will only get more precious. Consider sea shipping takes 35 days from Asia to North America, and the holidays are only 100 days away. Not too long after that, China closes for Lunar New Year Spring Festival for 30–40 days (see the world’s largest human migration).
Consumers should be concerned, not only for their own pockets but the bottom line of local startups like you that they care about and support, which rely on sources from China, Taiwan, Hong Kong, and Singapore to conduct business.
For startups, if you source chemicals, materials, manufacturing, and even end-products from China, it’s going to continue to be expensive to ship it. It would be best if you strategized now on inventory needs and these expected timelines.
There’s also a looming risk of government intervention from either side, which could increase material and component prices or make it even more challenging to export/import. It’s no joke that the relationship between major countries is tense right now.
Knowing is Half the Battle and What You Can Do About It
Having an inside track on what’s happening in the countries you do business in is the only way you’ll know what’s going on and what to watch out for. You won’t catch these kinds of insights on some local news channels.
If you have a legal entity or co-op office in a foreign country, it’s much more manageable. With boots on the ground, you also have ears.
If not, consider new media sources and people to follow on Twitter that share these kinds of insights. It’ll take time to curate based on your area of business, but it’ll be worth it. You can also reach out to mentors who may be able to share insights. You can also consider hiring someone locally, as an admin or part-time/hourly rate, so that you gain insights without impacting your burn rate.
The biggest risk of not having a business entity in a foreign country or trusted Allies, is that a startup is at the whim of the companies they work with and government politics even more so.
If you’re a startup and any of this resonates with you, I’m right here with you. I’ve been doing business in China for over six years, and it has only become more nuanced over time. If you have questions or need help navigating, please reach out. Startup folks need to stick together and support each other, especially in these turbulent times.
