Global sourcing with China: the challenges faced by small US manufacturers

Abstract

When the People's Republic of China joined the World Trade Organization in 2001, the US had to contend with an increasing economic trade deficit, as low-cost Chinese manufactured exports poured into its shores. China has since risen from the economic shambles following Mao's failed Cultural Revolution to become one of the world's superpowers, with its economy growing almost 10 percent per year. It has become a haven for multinational corporations and entrepreneurs who were enticed by the prospect of having few worries about minimum wages, pensions, benefits, unions, anti-pollution laws or worker safety regulations.

In the face of the growing trade deficit trend between China and the US, American manufacturers should be asking what they can do to survive the tidal wave of Chinese imported goods. One option that merits consideration is global sourcing with Chinese businesses. Small US manufacturers must understand how to use off-shore capability to their own advantage and to the benefit of their customers. In this light, Sino-US macroeconomic forces as well as the legal and financial requirements of doing business with China must be understood. This article discusses the intense global competitive pressures that many small US manufacturers face and the issues and challenges they must confront in order to survive and even prosper.

JEL classification: F02, O14, O34