A long long time ago, my law firm was pretty much known as West Coast law firm for the Russian Far East. We ate, drank and slept Russia and Russian law. If there was a mining deal, an oil and gas deal, a timber deal or a fishing deal between an American company and a Russian company in the Russian Far East, there was a good chance our law firm was a part of it. Then came 9/11 and our Russian practice fell off a cliff, almost overnight. American companies found doing business with Russia too complicated and difficult and vice-versa.
Fortunately for us, it was around that same time that our China phone lines started ringing incessantly. I can remember telling our lawyers that for every ten hours spent trying to get China matters work we got ten such matters and for every ten hours spent trying to get Russian matters we would get just one. It made sense for us to pivot from focusing on Russia to focusing on China and that is what we did, and we never looked back.
Well not exactly. I say “not exactly” because the changes with Russia seared into my mind that it is never good for a company to focus too much on one country and so our firm has always strived to take on as much Vietnam and Thailand and Cambodia and Indonesia and Spain and Germany and France work as possible, along with our China work.
I am writing about this today because I have been in airplanes for 13+ hours and that has given me a lot of time to read. And I read two very interesting articles that highlight the risks of a one country focus. The first was by BBC News, and it is titled, “If the factory closes what could I afford to eat?” This article is how nearly 50% of Cambodia’s exports are clothing to the EU but the EU has given Cambodia six months to get its political act together or it will end Cambodia’s tariff free access to the EU. and Cambodia’s economy will suffer greatly. Interestingly, though not terribly surprisingly the reverse is not so true:
George McLeod, an economic and political risk analyst based in Bangkok, says that Western clothing firms could easily switch production to Bangladesh, Vietnam or Indonesia.
For Sao Run, who has a three-year-old son to support, this is now a real concern. “The local union in our factory told us that the factory could close if the [EU] taxes are high,” she says.
“For me, if the factory closes, what could I afford to eat?”
I also read a Wall Street Journal article, U.S. Soybean Farmers Work to Loosen China’s Grip on how American soy bean farmers had become too dependent on China;
U.S. soybean farmers worked for decades to make China their biggest foreign customer. Now they face a tougher challenge: weaning themselves off the market.
As trade tensions cut deeply into exports, U.S. soybean farmers, industry groups and government officials are seeking a stronger foothold in international markets beyond China, including Europe and Southeast Asia.
“While we’ve enjoyed the market share, has China become dependent on us or have we become dependent on China?” Agriculture Secretary Sonny Perdue said at an industry event last week. “That’s not a healthy economic balance.”
Is your company “too” dependent on China? On any one country? What are the risks from this? What are your risks? What are you doing about it.
Is it just me or are you too hearing the word “diversify” more often these days?