Factory Sourcing – Tariff Avoidance
Service Area Sourcing - Factory
Challenge - Avoid 25% China Tariffs
Key Attributes - Sourcing Plant and Workers
Result - Reduced China 25% Tariff to 0% ($1.2M)
Product Line - Resin Garden/Statuary Products
The Problem:
Beginning in 2018, the Trump Administration introduced new tariffs on specific lists of China-produced products. On that specific list (301) were the HTS numbers for items made of resin. Since our primary product line fell under this HTS number, our duty rate increased from 0% to an additional 25%, severely eroding our margins. While we were able to increase our retail prices slightly, it was not nearly enough to cover the additional tariff without losing a significant portion of our customer base.
The Solution/Added Value:
After extensive discussions with our factories in China, one factory agreed to explore the possibility of relocating outside of China. Vietnam was identified as the best option. I worked closely with the factory owner to develop a relocation strategy.
The first step was for the factory owner to meet with the Vietnamese government to secure approvals and address legal requirements. Once clearance was obtained, he identified a suitable factory building that could accommodate both our production needs and his other product lines. We then hired a local HR professional to recruit qualified workers for our product line.
Next, we transferred a percentage of our molds to the new location and began training workers. Since our products are hand-painted, proper training was essential to maintaining the quality of our products. Several staff and workers from China relocated to Vietnam to assist with setup and training. This entire process took approximately 18 months to complete.
The Result:
This transition allowed us to avoid the 25% tariff, resulting in an estimated savings of $300K within a 12-month period.
Another key aspect of this transition was logistics. Since we were shipping from a new port in Vietnam and had no other suppliers in the area, it was crucial to produce enough items/MOQs to fill containers, as no consolidation factories were available.
Side Note:
At the time of writing this case study, this factory has successfully replicated this process to begin production in Thailand, which, as of today, is a non-tariff country.
