Southeast Asia ‘Is Not Such a Safe Haven'

Yahoo

29-03-2025

Geopolitical uncertainty looms large and in charge over supply chain professionals' heads this year—and alternative sourcing comes with its own challenges.
Inspectorio's newly released State of Supply Chain Report 2025 shows that, even as supply chain professionals see opportunity for growth in other areas of their business, they feel keeping up with U.S. President Donald Trump's tariff regime has to be the top priority.
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The supply chain management software company's data shows that 95 percent of all executives surveyed indicated that tariffs are a primary disruptor to their businesses.
Daniel Smith, vice president of product marketing at Inspectorio, said, in previous years, sustainability and compliance have emerged as key focus points for supply chain industry professionals. The shift in prioritization marked a deviation from what the industry has expressed concern over in recent years.
'To see the rise of geopolitical strife, and especially tariffs, in the minds of the market as a really important topic that's overshadowing everything else, was a huge shift,' Smith said. 'It's extremely pressing. If you have slim margins as it is, and then you get a tariff placed on [a] piece of your product or material in your product or the finished good itself, that can really erase your margin.'
More than one in five executives indicated that, in response to that threat, their company has looked to diversify their supplier base, and 36 percent of executives said they are looking to either relocate production or shift sourcing to low-risk regions.
So far, the winner for alternative sourcing as some brands and retailers shift away from China has been Southeast Asia. Among respondents evaluating alternative locations for sourcing, about four in 10 executives indicated they've turned their interest there.
Mark Burstein, SVP Americas at Inspectorio, said companies have shown a particular interest in Vietnam, Bangladesh and Cambodia. That's likely in part because those nations have existing manufacturing infrastructure suited to handle some degree of scale.
But that's now becoming an issue, Burstein said, noting that, for brands and retailers looking to enter Vietnam, in particular, factories may not have the availability to create and ship finished goods their way.
'Everyone jumped into Vietnam, and they just don't have the capacity, so it's not like you're going to find a bunch of factories with available capacity,' he said.
And, even if companies can strike deals with manufacturers throughout Southeast Asia, it doesn't mean they've found a fireproof solution; Vietnam, Cambodia, Bangladesh and a slew of other countries could still be subject to new tariff requirements from the Trump administration, Burstein noted.
'Southeast Asia is not such a safe haven—it's [just] a safe haven to get out of China,' he said.
The alternatives don't seem popular among respondents; just over 20 percent said they would look to shift toward South Asia, while nearly 13 percent have an eye on Eastern Europe and about 7 percent are looking toward Latin America. Africa seems to be on the fringes of respondents' considerations on sourcing, with just over 5 percent saying they have prioritized it as an alternate sourcing location.
For Burstein, that feels like it could be a mistake. He recently lobbied legislators to renew the African Growth and Opportunity Act (AGOA) later this year, alongside the American Apparel and Footwear Association (AAFA). That's partly because he believes it could be a viable option for brands looking for a quick exit from China and a new set of long-term manufacturing partners.
But despite the opportunity in Africa, companies don't seem to be biting. That's partially because the continent would need a high degree of further investment to make scalable sourcing viable—and the looming expiration of AGOA could be driving some of the trepidation about sourcing from Africa.
What's more, Smith noted, some of the existing investment in the continent has come from Chinese companies, which could spell trouble if Trump continues to show an interest in bringing the hammer down on China. Effectively, the continent faces the plight of every other region vying for new business: businesses have no way of knowing whether tariffs will soon hit African nations.
'China has been investing heavily in Africa for quite a while,' Smith said. 'If you switch some sourcing over to Africa, you might think you're in the clear, but we know that this administration is using tariffs as a weapon. They have certain outcomes that they're wanting; they want certain nations to feel the pain. There's no reason why they wouldn't say, 'Okay, I see you're importing that from Africa, but that factory was owned by a Chinese company…and we're not cool with that, so we're going to slap the tariff on you anyway.''
That kind of strategy isn't totally out of the question; Trump has already proposed a port tax on container shippers with ties to China—whether because they have China-operated ships, China-built ships or orders with Chinese shipbuilders for future ships. The proposal hasn't been finalized, and has faced heavy backlash from the industry because of the gargantuan cost increases it could see logistics companies paying, but Trump proposed it in a play to bring some shipbuilding to the United States. If the president maintains similar aspirations for U.S. apparel manufacturing, locales with factories associated with China could be susceptible to a similar blueprint.
Those kind of additional tariffs on any alternative sourcing destination could leave brands and retailers feeling defeated, paying higher prices for goods and passing those costs on to the end consumer. But, as the arena stands today, Burstein said he has yet to see movement from some companies whose sourcing strategies could leave them in limbo. In essence, nowhere's safe, but China certainly isn't.
'People are just waiting to see what happens, because things change every day—even sometimes, every hour, they're changing,' he said. 'People don't want to make a rash decision.'