Episode 59: Navigating China’s Supply Chain

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This is the WealthAbility® Show with Tom Wheelwright. Way more money, way less taxes.

 

Tom Wheelwright:

Welcome to the WealthAbility® Show where we’re always discovering how to make way more money and pay way less taxes.

 

Tom Wheelwright:

Hi, this is Tom Wheelwright, your host, founder, and CEO of WealthAbility®. And today we have a very special guest and we’re talking about a very interesting, I think, critical subject about China and our supply chain with China and how it affects our personal economy, not just how it affects the broader economy. We’ll talk about that, but what can we actually do? So, here’s what we’re going to learn today. Today, how do we deal with some kind of interruption or how do we make sure that whatever interruption there is with China, whether it’s a pandemic or whether it’s an economic crisis or a trade war or something else, how do we make sure that doesn’t impact significantly our personal economy?

 

Tom Wheelwright:

So, we have an expert on China, and we have Brian Miller with us. And, Brian, it is great to have you.

 

Brian Miller:

Thanks for having me on the show.

 

Tom Wheelwright:

So, Brian, if you will, just give us 30 seconds about yourself. I know you’ve got an extensive background in manufacturing, but right now you’re in the logistics game. And give us a little bit of what do you do and why are you in China?

 

Brian Miller:

Yeah. Sure. Just really quickly, so I’m a native of Connecticut originally and I’ve been in China for the last 10 years. I used to work in manufacturing and now I founded a company called Easy China Warehouse. And what we do is we basically help e-commerce companies that make products in China to distribute them from China, all around the world, to their customers. And we are located in Shenzhen, China, which is a Southern city that borders Hong Kong. And that’s where we are basically on the map.

 

Tom Wheelwright:

That’s awesome, that’s fascinating. We actually have a lot of our listeners are e-commerce people. So, I mean a lot and they’re manufacturing in China. So, this is a really big topic for them, and I know they’re going to love to hear your feedback on this. So, first question for you is how concerned are you? You know, you’re seeing it from the other side. So, how concerned should we be about the supply chain interruption? We felt that with, of course, the N95 masks, that supply chain interruption here in the US that was the most obvious in the media, but I know that there’s been a lot of different supply chain interruptions in the last few years. How concerned should we be about that?

 

Brian Miller:

Yeah, I think overall, now there should be less concern than it was before. When we started with the pandemic there basically wasn’t enough manufacturing capacity to make all of the equipment that we needed for our medical workers. And it still does seem to be that we’re a little bit light on the amount of medical equipment that we have for people in the US, however, the supply chain is starting to rebound and kind of market forces are starting to take place where supply and demand, so there’s a large supply, and there’s been an addition of factories that have come online and they’ve increased their capacity in China. And also at the same time, people have been able to put more product on container ships to the US and make it kind of more affordable to purchase a lot of the equipment as well. So, it’s getting back to normal. I hear at least from some of my friends in the US that it’s not perfect, but we’re starting to get better capacity from China, at least for this type of equipment.

 

Tom Wheelwright:

Okay. So, let’s say we have e-commerce people that sell anything from umbrellas to any type of… Anything that’s sold on Amazon, we’ve probably got it in our listeners and our network. So, how concerned should we be about that interruption? Because all of that’s coming from China. All of our manufacturing, if we’re in e-commerce, a lot of it, almost all of it’s coming from China. How do we make sure that that doesn’t get interrupted?

 

Brian Miller:

Yeah. So, I think this has been a big question for everyone during the whole trade war and now that the virus has become a global issue, and I think since the virus has spread around the world, the relations between China and the US have gotten worse and not better since the trade war. So, they kind of escalated worse and worse and worse. And then we’ve gotten from the trade war, definitely significantly worse from where we are before. And I think it’s something that people should be concerned about as far as manufacturing here, like manufacturing is more or less online. So, let’s say capacity for companies that need to buy things from China is okay, and the virus is relatively stabilized in China, meaning that they’ve been able to really control the spread amongst the population.

 

Brian Miller:

And so we’ve seen manufacturing from February, where we had the peak of the virus within China where almost nothing was happening, to March, 50% or more of the production capacity came on, and then in April we saw 80 to a hundred percent back online. So, from now on we’ve seen that the production capacity is here. I think the thing that people should be concerned about is just the relations between the US and China and whether that will affect our ability to purchase product from China. So, that’s what I think people should be concerned about now.

 

Tom Wheelwright:

Okay. So, I’m going to ask you the question, I know you’re not a policy guy necessarily, but if you were emperor, what would you do?

 

Brian Miller:

Yeah. So I think-

 

Tom Wheelwright:

What should we be doing with China?

 

Brian Miller:

This is a great question because I’m very invested in China, so I want people to buy it more from China because we help people ship from China. But I would say overall over the past five to 10 years, lower end manufacturing or low-value manufacturing has already started to leave China. So, that means things like textiles, shoes, anything that has like a very low technology, high labor requirement to make the product has moved to other places in Southeast Asia, India, Bangladesh. And so we’ve already seen that trend happening.

 

Brian Miller:

I think that it’s hard to move the more mid to high tech type products away from China because China has such a strong supply chain. And by strong, I mean that when you make something there’s various tiers of supply chains, you have raw material and then you have a component and then the component gets assembled into the final product. And China basically clusters those factories around each other and they’re able to really efficiently make products. Whereas other places around the world don’t have the efficiency that China has and the infrastructure.

 

Brian Miller:

And by infrastructure, I mean, not only online infrastructure, so like Alibaba that people know where you can find factories, where you can go online and search them easily, but also physical infrastructure, that means the roads to the ports, the ports, the efficiency of the ports, all those things are very efficient. And even though China’s, let’s say, labor cost has gone up, they’ve been able to stay competitive compared to other countries, like lower cost countries, because of all the strong infrastructure that they’ve built over the years.

 

Brian Miller:

So, if I were a buyer of China, I would say that China is still going to be a strong manufacturer in the world into the future, kind of because we don’t have another choice. And I don’t think that manufacturing will move from China back to the US. If it does leave China, it will probably move to another low cost country just because that’s not the way the US is set up to kind of the system basically.

 

Tom Wheelwright:

I’m curious, how does China view the US?

 

Brian Miller:

I would say it’s interesting now. Like, I would say it’s an important market for China. So, in terms of export market it’s a very important market where China makes and sells a lot of goods to the US. I would say that there definitely is tension growing globally. You could say that kind of nationalism has been very popular, whether it be in the US or in Europe, and also in China, everywhere, regardless of which side you are politically. And I think that’s built some tension within the society between China and the US, but they still view the US as an important market for them to export to, and I don’t think the Chinese want to really break that business relationship that they built over many, many years, despite the differences that both sides have.

 

Tom Wheelwright:

So, do you see, I mean, you mentioned that you’re seeing the low tech stuff move out of China already. Are you seeing that, I mean, just on a regular basis? And is the level of tech, is it creeping up so that higher and higher tech is leaving China and going somewhere else?

 

Brian Miller:

Yeah. Actually, we tend to see that China has been winning higher tech manufacturing. So, anything that maybe… Let’s say the Germans were always very good at engineering and building cars, and building components and things like that, and they kind of had a very strong core competency in those components. But we’re seeing over time that China’s capability in terms of a manufacturing technology has improved so much that they’re able to kind of win some of that business away. So, I would say on the high-end of manufacturing, China’s winning business, and on the low-end, they’re losing. So, they’re losing it to other lower cost countries.

 

Tom Wheelwright:

Got it. Hey, if you like financial education, the way I do, you’re going to love Buck Joffrey’s podcast. Buck’s a friend of mine, he’s a client of mine, he’s a former board certified surgeon and he’s turned into a real estate professional. So, he has this podcast that is geared towards high paid professionals, that’s who he’s geared towards. So, if you’re a high paid professional and you’re going, “Look, I’d like to do something different with my money than what I’m doing. I’d like to get financially educated. I’d like to take control of my money and my life and my taxes,” I would love to recommend Buck Joffrey’s podcast, which is called Wealth Formula Podcast with Buck Joffrey. I hope you join Buck on this adventure of a lifetime.

 

Tom Wheelwright:

So, what’s the impact? What’s Tesla’s impact going to be in China as they add… Are they adding factories? Are they going to continue to increase their presence in China?

 

Brian Miller:

Yeah, I think overall, at least Elon Musk has been very kind of friendly with the Chinese and they built a factory in an incredible amount of time within China, and also the car within China is well, respected. I mean, people think highly of the Tesla product and consumers overall respect the product and will pay more for it. So, I think overall in the Chinese market, it will be a good kind of product that people will buy along with all of the incentives that the government has been given. So, a lot of people don’t know that the Chinese government has given tons of incentives to promote green technology, even though they’re always notoriously known as kind of a bad actor in terms of environment. But at least where I live, all of our buses are electric. All of the taxis are electric. If you don’t want to wait… So, they have a waiting line for a license plate, meaning that they want to limit the amount of cars on the road. And in order to jump that line, if you buy an electric car, you get your license plate right away.

 

Brian Miller:

So, they’ve created a lot of incentives and also all light truck in Shenzhen, where I live, needs to be electric by, I believe, this year or next year.

 

Tom Wheelwright:

Oh, wow.

 

Brian Miller:

So, you see a very strong government regulation presence to kind of push this technology. And I think not just in Shenzhen, but all of our China they’re pushing greener cars. And so, Tesla’s definitely going to be a beneficiary of this type of regulation for sure.

 

Tom Wheelwright:

Interesting. So shifting back a little bit to the pandemic, so what’s been the impact in China on the uptake in cases in the US and around the world? I mean, I know China has been able to very successfully… They have a particular society that allows for this I think, to control a virus like that, an outbreak like that. And that’s one part, that’s the supply side, but on the consumption side, how has it affected China for our consumption? Because our consumption’s gone way down. So, how has that affected China?

 

Brian Miller:

Yeah. So, this is a really good question. When the outbreak started in China, we saw basically a constraint on supply. So, factories were not able to get back online in the beginning of the year, right after Chinese New Year, which was in February. And so, buyers were kind of hungry to kind of get products as the virus was not really spreading in their countries. And after the Chinese factories got online around March and April, we saw a very strong spread around the world. And this is where we saw kind of demand drop off as far as buyers willing to make orders at the factories. But one thing important to note, even though I’d say that there is demand, that’s gone down and a lot of factories have actually closed or gone on extended vacation because they don’t have orders. They basically put up a sign that said, “Hey, we’re closed for three months on vacation.”

 

Brian Miller:

So, we’re seeing the effects, but at the same time when the US government provided stimulus in terms of unemployment benefits in a lot of the checks that went out and the Fed buying a lot of, let’s see, jumping into the market, which we haven’t seen ever. Once this happens, actually we saw a very strong uptick in our volume as an e-commerce shipper. So, our business tripled actually during that time, and we think it was because a lot of people are sitting home without work, but they were getting checks from the government. And so, what do you do when [inaudible 00:14:56] nothing to do?

 

Tom Wheelwright:

Well, they’re ordering online.

 

Brian Miller:

Exactly. You’re buying stuff online. And so we saw a massive-

 

Tom Wheelwright:

No kidding, my five-year-old granddaughter has learned how to shop online and actually has a play date with my wife today to do some online shopping.

 

Brian Miller:

Yeah. So, this is what we saw, is free money came out and Americans do what they do best, which is, they spend it, right?

 

Tom Wheelwright:

Right.

 

Brian Miller:

And so, we saw a very strong uptick. We saw factories kind of jump on board and grab all of these orders from people that were buying things. And I mean, for our business, because we focus only on e-commerce, it was heavily concentrated in e-commerce obviously, like retail is taking a beating now, right?

 

Tom Wheelwright:

Right.

 

Brian Miller:

But there is a softness in the amount of demand around the world for sure. But we did see that it kind of lightened a bit from the money that was provided from the government.

 

Tom Wheelwright:

So, basically what you saw is that injection into the economy? Because there’s always the question, “Well, if the government gives helicopter money to the people, does it get immediately into the economy?” And what you’re saying is, “Yes, it depends on whose hands it’s in,” right?

 

Brian Miller:

Right.

 

Tom Wheelwright:

Because I was reading an article this morning that the top 25% of income earners have actually decreased their spending, where the bottom 75% has increased their spending. So, here’s a question for you. So, July 31st unemployment runs out, that $600 a week, which I’m sure, has been fueling a lot of this, right? That $600 a week.

 

Brian Miller:

Yeah.

 

Tom Wheelwright:

You got 40 million people getting an extra $600 a week. That runs out and people are still in many parts of the country, not in Arizona apparently where I am, but in many parts of the country they’re still concerned about going to restaurants, they’re still concerned about going out because not everybody’s wearing mask and that’s not required and et cetera, et cetera. So, if that’s the case and Congress does not extend that or they reduce it substantially, what kind of impact does that have on your business basically and on what’s going on with e-commerce?

 

Brian Miller:

Yeah, I think overall for e-commerce the coronavirus is actually going to be a positive for us. So, it’s forced people to go online and purchase. It’s forced people that have never bought online to sign up for an account and to buy things. It’s forced people that have never bought, let’s say, groceries online to start doing that. And once you create those habits in consumers, they keep doing it. And so, for people in e-commerce, I think actually COVID-19 has actually accelerated the trend that we were already seeing in e-commerce, which is growth in the sector, and it’s kind of pushed it forward a bit faster. Overall for the economy, I mean, I’m not an economist, but I think it’s not going to be-

Tom Wheelwright:

Well, you’re on the front lines of the economy.

 

Brian Miller:

I mean, I do think that it’s in the current administration’s own interest to continue giving money to people until the election, of course. And so, I wouldn’t put it past the fact that they might pass other stimulus measures in the future. And if they do, then we might, let’s say, be okay on the surface for a while. If we don’t, then I think it will hurt more companies that are in retail as opposed to e-commerce. So, I think e-commerce will be, not to say that it won’t be unscathed if there’s no more stimulus, but it will perform much better than any other types of sales methods, let’s say, in the market.

 

Tom Wheelwright:

So, you think that the buying habits, now that people have started buying online they’re going to continue to buy online? So, that’s a shift in how people are going to consume and you think that’s a permanent shift?

 

Brian Miller:

Yeah, I think it’s permanent. And I think, let’s say, at least for a lot of the things that we never thought that we would buy online, I think we’re going to start to buy online, and I think it’s going to push the trend further and faster. So, for our business, our business has been very positively affected from it, the virus. Unfortunately, as bad as it’s been for the health of populations, it’s been very good for e-commerce companies.

 

Tom Wheelwright:

So, we’ve been talking a lot on our podcast over the last couple of months about how you have to shift the way you do business now. So, for example, we saw restaurants in San Francisco who became grocery stores. They were repackaging, becoming grocery stores, and they actually did well. I actually have a client that has a microbrewery and they just bottled all their product, and they actually had a drive-by window and so they kept going because of that because they couldn’t have people come in, the bar was closed, the restaurant was closed, but they could do it that way. So, what I’m hearing from you is, is that if this is a permanent shift, then perhaps one of the things we ought to be considering in every business, even service business, is that there’s just going to be a lot more done online. Is that fair?

 

Brian Miller:

Yeah. And I think how we reach our consumers is also important, not just through products, but also through sales. So, maybe after this time we might realize, “Oh, we don’t really need to travel on a plane anymore,” or, “We can’t, for a long time, to do a sales call. We can’t meet in person.” And so that’s what we saw in China, at least after the virus started becoming a bit better, people still didn’t travel for business. So, everyone’s doing Zoom calls, but maybe we’ll have more of a digital approach to even our sales methods as businesses going into the future for sure.

 

Tom Wheelwright:

Interesting. So, I mean, for example, we run seminars several times a year and normally we would do those in person, but this year we did them on Zoom, and actually it doubled our attendance. So, it’s just so much less expensive and it seems like… And you tell me what you think? It seems like people are finding out it’s not that bad. So, we actually did a survey after our first event and said, “Should we continue in the future? Let’s say you can travel. Do you want to travel?” And it was about 50-50. 50% said, “You know what? There are things you get when you’re in person that you don’t get over a video conference,” which is absolutely true because there’s interaction you can get with an instructor that you can’t get in a video conference. But on the other hand, you save a day on both sides, right? Both sides of the seminar. If you’re going to a three-day seminar, you lose a day traveling there and you lose a day traveling back. And so, you don’t lose that time, you don’t lose that money, and you can do a lot more.

 

Tom Wheelwright:

And it’s just been fascinating to me to watch that. And I’ve seen that over and over again. And what I’ve seen is, just like you, is I’ve seen the people who are really adjusting to this online… It’s almost like the pandemic just accelerated what was always going to happen. But it seems like it accelerated it by maybe three or four or five years even. And now all of a sudden, everybody had to. I mean, I’m not exactly a millennial, right? So, my generation, the baby boomers, hey boomer, we’ve been notorious for not adopting the internet and computers and so forth as fast as say, the millennials have, and so now we’re forced to. So, we’re ordering online because my wife and I are actually both highly susceptible to this virus, so we don’t go out. Instacart is like… We should own shares.

 

Brian Miller:

You should buy, yeah.

 

Tom Wheelwright:

We should absolutely buy shares in Instacart because we’re funding a third of their economy just in our household, it seems sometimes. But, so that’s a shift, and so as we think about the future, as we think about what’s going to happen and how to protect ourselves, what are some things you think that either individual businesses could do, entrepreneurs could do? What are some things we can do to protect ourselves, either from supply chain interruptions or from this whole shift in how people buy?

 

Brian Miller:

Yeah. I’m going to first go on kind of your point that you’ve touched right now, which is I think everyone needs to become more savvy at least in internet marketing. So, that means, take a course online. There’s plenty of courses, learn from your friends. I think the people that are not savvy enough about how to market on the internet will be left behind, and it will be harder and harder for those people to market their products and services to everyone. So, that’s the first thing. And I think luckily as young people like me and probably a lot of listeners, we have an advantage, right?

 

Tom Wheelwright:

Sure.

 

Brian Miller:

Because we’ve kind of grown up with using the internet and being accustomed to it being around.

 

Tom Wheelwright:

It’s very natural for you.

 

Brian Miller:

And it’s very natural, right. And so, especially for older listeners on the show, definitely brush-up on your skills and know that this is an important thing that is taking the world by trend for sure.

 

Tom Wheelwright:

Well, and it’s nice because actually there’s more people online, right?

 

Brian Miller:

Right.

 

Tom Wheelwright:

So, the market’s actually gotten a lot bigger.

 

Brian Miller:

Yeah, exactly. And I’d say as far as like supply chain, it’s always important to diversify your supply chain, whether you manufacturer in China, you should have two factories always, if you can. You should try to keep safety stock in a local US warehouse or a warehouse that’s in the country that you do business in so that you have some extra cushion. I think these are important in terms of just keeping safe as far as your business. And you might need to think about in the future, “Do I try to find a factory outside of China or do I find a local US factory that can produce 20% of my overall demand and 80% is made in China?” And so, you’re probably going to pay more for that 20%, but that security might offer some value in the future, if there is some type of disruption.

 

Tom Wheelwright:

A little insurance.

 

Brian Miller:

Yeah, exactly. And we always recommend that, and it might be something that people consider as tensions get worse, as you know, there are these types of global pandemics that I’m not saying they’re normal, but it could happen again at some time with something else. And so, it’s something that we all need to think about going forward and it’s a good wake up call, right?

 

Tom Wheelwright:

Yeah, for sure.

 

Brian Miller:

This is something that’s kind of like-

 

Tom Wheelwright:

Right. It’s a wake up.

 

Brian Miller:

… Smacked us in the face, and now we’re able to kind of think about the risks in our businesses and the risks in our lives, and how to adjust for those, right?

 

Tom Wheelwright:

Well, that’s the concern I have for the 40 million people who lost their jobs through no fault of their own, right? I mean, you have a pandemic come, you lose your job. Are you going to continue and go back to that and try to do the same old, same old when the world maybe has moved beyond that? And to me is… You know, you talk about e-commerce and going, “There’s never been a better time to start a business as right now.”

 

Brian Miller:

Sure.

 

Tom Wheelwright:

Because you have such a much bigger market because you have old people like me that are actually online buying things, and we’re buying them with our granddaughters. And we are consuming online, though we didn’t use to do that, and so now we have to find it too. So, that’s part of the e-commerce marketing, online marketing, is how do people find you? How do people find your product? I mean, it’s one thing if you’re number one on Amazon, they’re going to find you, but if you’re not, how do people find you? And how do you make sure that they’ve got good product reviews and, and all those basic really fundamentals of online marketing.

 

Tom Wheelwright:

So, final words, Brian, tell us how to find you? I mean, because your customers are listening. So, where would we find you?

 

Brian Miller:

Yeah, so if anyone wants to learn more about us, you can go to our website, it’s easychinawarehouse.com. And if you want to get in contact with me, whether it’s to inquire about our services or to learn anything about China, I love talking about China, you can send me an email at brian@easychinawarehouse.com.

 

Tom Wheelwright:

Awesome. Thank you so much. And thanks everybody for listening. Thanks everybody for watching. Remember that when we can adapt to things like a pandemic, I mean, to me, this is a great opportunity, a great lesson in adapting, innovating, pivoting in our business. And when we do that, we’re always going to make way more money and pay way less taxes. We’ll see you next time.

 

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You’ve been listening to the WealthAbility® Show with Tom Wheelwright. Way more money, way less taxes. To learn more, go to wealthability.com.