MBN USA

July 12, 2023

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Asian American-owned businesses are on the mend

The state of Asian American-owned small- and medium-sized businesses in the supply chain is stable, on the mend and on its way toward a strong resurgence — albeit not without its challenges.

In today’s post-pandemic world, Asian American-owned businesses and other small and medium enterprises (SMEs) are among those that operate in a totally different and untested marketplace. The status quo is gone and forever altered.

In its place, a new ecosystem has created a broad overhaul of business infrastructure and processes, where single dependencies have been transformed into multilevel sourcing, and logistics hubs have re-emerged at the local and regional levels to ensure more flexibility and adaptability of the supply chain.

Challenges and solution

The supply [chain] shock and severe disruptions from the COVID-19 crisis across the globe veritably exposed various vulnerabilities in the supply chain network of businesses of every size.

Here in the United States, the challenges among businesses in many sectors were exacerbated by the sustained United States-China trade war, since tariffs were imposed on Chinese imports in 2018 as part of the administration’s “America First” trade policy.

For small and medium-sized Asian American-owned businesses in the manufacturing and retail sectors, critical shortages in the manufacture and delivery of vital medical supplies – from disposable gloves to personal protective equipment (PPE) gowns and N95 respirators – were especially challenging as the U.S. health sector reeled from the pandemic and market demand skyrocketed.

In the technology sector, in the wake of rising inflation, declining digital advertising revenue, corporations holding the reins on “non-critical” expenditures, and consumers curbing spending, many big tech companies – including Google, Meta, Microsoft, Twitter and Zoom – have opted for a leaner workforce in the new economy. With reported combined job cuts of over 100,000 – and counting – in the last several months, this reality has continued to ripple across the staffing industry, further weakening it and impacting a significant number of Asian American businesses operating in this space. 

At the outset of the COVID-19 disruption, it became evident that supply chains that relied on diverse sources proved to be more resilient to the adverse effects of the global crisis than their single-source counterparts.

While there are many U.S.-based businesses and Asian American businesses that source products from China – known as the “world’s factory” for decades due to lower cost – there are other enterprises that rely on local or regional businesses for faster turnaround. But this paradigm comes with its own set of problems, including higher costs of domestic manufacturers.

For businesses that have struggled to get their products to the right place at the right time, the pandemic forced a quick reassessment of their supply chain network.

For some SMEs, however, a review of their supply processes was only part of the battle to be won. For them, the current regulatory environment continues to pose as a barrier to their survival and growth. To be part of the government’s supply chain, SMEs must go through an application that remains cumbersome, complex, time-consuming (some federal agencies take an average of six months for approval) and cost-prohibitive (a single application can cost upwards of $100,000).

SMEs found it difficult to meet the stringent requirements of government agencies and compete with suppliers based and operating outside of the U.S., which oftentimes end up being awarded the lucrative contracts due to lower cost and past performance.

On the macro level, one lesson to be learned is that if the U.S. wants to bolster its domestic capacity to mitigate pandemic-like disruptions, then a broader national strategy is needed to integrate SMEs into value chains and boost a sustainable domestic production model.

On the micro level, SMEs must adopt innovative supply chain management (SCM) practices to improve their efficiency, augment productivity, ensure product availability, reduce costs, meet market demand and optimize customer satisfaction. 

While China continues to hold its dominant position in the global supply chain, India and other Asian countries (e.g., Malaysia, Taiwan and Vietnam) are emerging as suitable alternatives, boosting their competitiveness in the logistics sector and trying to position themselves as the next hub for global manufacturing.

This is good news for firms that want to hedge and diversify their supply chains outside of China. The major disruption in the production of goods caused by China’s zero-COVID policy was a significant impetus for a purposeful shift: known as “China plus one” strategy, foreign-owned businesses that heavily relied on Chinese supply networks are now reducing dependency on China and adding new suppliers elsewhere in the region (e.g., Indonesia, Thailand, or Vietnam).

Growth through partnerships

In February 2021, President Biden signed an Executive Order (E.O. 14017 “America’s Supply Chains”) that aims to bolster the country’s value chains to promote economic and national security, and to ensure the creation of local jobs.

The E.O. directed government agencies to coordinate with each other and assess vulnerabilities in the country’s “critical” supply chains — pharmaceuticals and related ingredients, semiconductor manufacturing and advanced packaging, large capacity batteries (e.g., for electric vehicles) and critical minerals and materials — and how to make them more resilient amid the disruptions.

On the private sector front, large U.S. corporations have been increasing their partnerships with SMEs in the supply chain in recent years, as part of a strategic shift to fuel innovation and growth.

This partnership works both ways. Smaller suppliers encourage new, diverse and creative ways of thinking and approach. Their size, compared to the leaden and complex structure of their larger counterparts, makes them agile and flexible to easily and quickly adapt their operations to meet specific and specialized requirements. On the other hand, large corporations provide smaller suppliers financial support, enhanced brand reputation and the chance to grow and scale.

To achieve further growth going forward, Asian American-owned businesses in the supply chain can seek out partnerships with large corporations to improve their efficiency, promote skills development, benefit from technology transfer and other learning opportunities. Innovation and keeping up with new technologies are key to a successful participation in the regional and global value chains.

In addition, Asian American-owned businesses that have strong cultural ties with the Asia and Indo-Pacific region, should continue to leverage and work on further strengthening these linkages — language, culture, guanxi (business connections or relationship) — and turn these into their unique competitive advantage.

Beyond the horizon

The outlook for Asian American businesses and other SMEs is bright. The pandemic has upended the marketplace and reconfigured value chain paradigms. Now the focus should be on helping minority suppliers embark on a development path that would put them as players in the global and regional value chain.

To do this, SMEs must innovate, strengthen linkages, use technology, develop lean and agile systems, and seek out the assistance of government programs and business development organizations, among others.

Meanwhile, U.S. policymakers and the broader business community must have the resolve to work closely with SMEs so that they could be resilient and reach their optimum level of performance as economic growth engines and laboratories of innovation.

For the foreseeable future, the wider business community will face mounting pressure to increase domestic production and rethink strategies for growth by reducing heavy dependence on sources outside the U.S.

The stark reality, however, is that global sourcing is here to stay, because the benefits far outweigh risks. What is more pressing, especially in the post-pandemic marketplace, is for businesses to be able to anticipate and prepare for the next crisis, nurture their domestic capabilities and be nimble to cope with a protracted crisis.

At the end of the day, every supply chain network should have the recourse to re-evaluate, restructure and explore opportunities to thrive – but not at the expense of losing its competitiveness.

To learn more about USPAACC, visit uspaacc.com.