How to Transfer Production Out of China: Best Practices for Manufacturers

For years, China has been the world's manufacturing powerhouse, offering an unbeatable combination of low costs, skilled labor, and established supply chains. However, the landscape is shifting. One of the most significant reasons companies relocate production is the imposition of tariffs. For example, the U.S.-China trade tensions that began in 2018 introduced steep tariffs on goods and we expect additional tariffs of 60% or more to come from imports from China.

Some economists suggest that it’s too soon to predict what will happen in 2025. While the future remains uncertain, businesses cannot afford to wait idly. Transferring production is not an instant result but a strategic process that requires extensive planning and execution. Whether driven by tariffs, supply chain disruptions, or geopolitical risks, the time to start preparing is now.

This blog outlines the essential steps manufacturers need to take when changing suppliers, from conducting feasibility studies to running pilot production. Whether driven by tariffs, geopolitical risks, or the need for supply chain diversification, these best practices will help ensure a smooth and successful transition.

Transfer Production Out of China

Before making any decisions about transferring production, it’s essential to evaluate whether the move is practical and beneficial for your business. While there is a lot of uncertainty now, it’s easy to get carried away and make a decision that negatively affect your business.

A thorough assessment will help you understand the challenges and opportunities involved, ensuring you make informed decisions. Here are the original areas you should focus on

Cost Analysis

Compare the total costs of production in the new location, including labor, raw materials, shipping, tariffs, and potential tax incentives. Understanding the full cost impact will help you avoid unexpected expenses.

To avoid surprises, conduct a comprehensive cost analysis of these points:

Initial Setup Costs: Expenses for equipment relocation, new machinery purchases, or factory retrofitting.
Ongoing Operational Costs: Labor rates, utilities, and maintenance costs at the new facility.
Shipping and Logistics: Freight costs, transit times, and customs fees for exporting goods to your target markets.
Tariffs and Taxes: Consider what the proposed tariffs will be for the new location.
Exchange Rates: Currency fluctuations can affect your costs over time, so assess how exchange rate risks might impact your bottom line.

Infrastructure Evaluation

Ensure the new location has the necessary infrastructure to support your production needs. This includes access to reliable utilities, transportation networks, and technological capabilities that align with your operations.

Most manufacturers do not have deep enough pockets to make these investments. Go where the infrastructure is set up already. The top things to look for will be ports and transportation, utilities, and a skilled workforce.

Supply Chain Readiness

Investigate the availability of local suppliers for raw materials and components. Consider the logistical implications of sourcing these inputs and their proximity to your new production facility. Remember that the entire does not need to be fabricated in the new country of origin, just part of it. Therefore, you can still leverage the supply chain of China and other countries if necessary.

To get started, identify and vet local suppliers for raw materials, components, and other inputs. You should confirm their ability to meet your quality, volume, and lead time standards.

Define Your Goals

At this time, the reason why manufacturers are looking to migrate their supply chain is obvious, the threat of additional tariffs. For manufacturers, this has become a tipping point, forcing them to consider relocating production to mitigate rising costs and protect their competitiveness. While the number one goal is obvious, get around tariffs, there are also some additional goals that you should not forget about as well.

Minimizing Tariff Impact

The main driver is to reduce the financial impact that tariffs have on your business. However, remember that China is not the only country with proposed tariffs so there should be other reasons to transfer production.

Avoiding Supply Chain Disruptions

Relocating production requires planning to ensure your supply chain remains uninterrupted during the transition. Any disruption could lead to delays, missed deadlines, and strained customer relationships, so maintaining a steady flow of goods and materials should be a top priority. A well-thought-out approach combines proactive inventory management, phased transitions, and clear communication strategies.

Building Buffer Inventory: One immediate step, but also mostly only for the short-term, to avoid disruptions is increasing inventory levels for critical materials and finished goods. This temporary solution acts as a cushion, allowing you to fulfill orders even if the introduction of additional tariffs threatens the supply chain and pricing.
Implement a Phased Transition: A phased approach to relocation can significantly reduce risks. Instead of shifting all production at once, consider gradually transferring production. This overlap allows the existing facility to continue supporting current orders while the new site starts with smaller, manageable production runs.

Addressing Supply Chain Resilience

Relocation presents an opportunity to build a more robust and adaptable supply chain. While the immediate goal may be to address challenges such as tariffs, focusing on long-term supply chain resilience ensures your business is better positioned for the future.

Diversifying Suppliers and Facilities: One key strategy for enhancing resilience is reducing dependency on a single supplier or region. Establishing relationships with multiple suppliers across different geographic areas protects your business from potential disruptions, such as geopolitical tensions or natural disasters.
Aligning Relocation with Strategic Growth: A resilient supply chain should support broader business objectives, such as market expansion or sustainability initiatives. For instance, relocating to a region closer to key customers can reduce shipping times and costs, while investing in energy-efficient technologies at the new facility can align with environmental goals. Use the relocation as an opportunity to implement process improvements, adopt advanced manufacturing techniques, and enhance operational efficiency.

Choose the Right Suppliers

To build a resilient and adaptable supply chain, companies need to look beyond the initial supplier and consider additional options. Relying on a single supplier, even a great one, can expose your business to risks like delays, quality issues, or supply shortages. Diversifying your supplier base ensures continuity and strengthens your ability to respond to unforeseen challenges.

Assess Potential Secondary Suppliers

The next step is to identify additional suppliers who can serve as backups or complement your primary supplier. Start by evaluating the capabilities of potential candidates with the same rigor you applied to your initial selection. Secondary suppliers should meet similar quality and capacity requirements while offering flexibility and reliability. Look for suppliers who can step in if demand increases, if issues arise with your primary supplier, or if your production needs diversify over time.

Just as with your first supplier, it’s important to visit secondary suppliers’ facilities, if possible, to verify their operations and ensure they align with your expectations. The secondary supplier should meet the same standards as your primary supplier to avoid introducing variability into your production.

Reduce Risk Through Supplier Diversification

Tariffs can significantly impact the cost structure of your products, especially if they are suddenly imposed or increased on goods exported from your production country. While a single supplier might be meeting your current needs, relying solely on one location for manufacturing leaves your business vulnerable to abrupt changes in trade policy. Diversifying your supplier base across different regions enables you to adapt quickly to shifting tariffs and maintain competitiveness in global markets.

Having suppliers in multiple countries gives you flexibility when tariffs are imposed or adjusted. For example, if a tariff makes exporting from your current production location prohibitively expensive, you can shift production to a supplier in a country with more favorable trade terms. This agility minimizes disruption and ensures you can continue delivering products at a competitive price point. Diversification effectively acts as a hedge against geopolitical and trade uncertainties.

Investing in supplier diversification not only prepares you for immediate tariff changes but also supports long-term resilience. By building a network of suppliers across different regions, your business gains the ability to pivot rapidly, minimizing exposure to external trade shocks and maintaining consistent production.

Building Long-Term Relationships

Finding a secondary supplier is not just about having a backup, it’s about fostering a network of reliable partners. While your primary supplier may handle most of your production, having strong relationships with other suppliers ensures flexibility in adapting to changing business needs. This diversified approach positions your business for long-term growth and mitigates risks associated with supply chain disruptions.

Pilot Run: Test a Small Number of Units

Once you’ve evaluated and chosen a new supplier, running a pilot production is an essential step in ensuring a smooth transition. A pilot run involves manufacturing a small batch of products in the new facility to test its ability to meet your quality standards, production timelines, and operational requirements. This step provides valuable insights into the facility’s capabilities while minimizing the risks associated with a full-scale move.

A well-executed pilot production allows you to assess how effectively the new supplier or facility replicates your current production processes. During the pilot run, carefully evaluate the quality of the products to ensure they meet the required specifications. This stage is also an opportunity to test equipment, workflows, and raw material sourcing to identify potential bottlenecks or inefficiencies in the production line. Any issues uncovered during the pilot can be addressed before scaling up, saving time and resources in the long run.

In addition to quality and process evaluation, a pilot run tests the supplier’s ability to meet deadlines and respond to unexpected challenges. Monitor their responsiveness to feedback, communication clarity, and willingness to collaborate on improvements. These factors are critical for establishing a reliable partnership and ensuring that the supplier is prepared to handle larger production volumes.

Another important aspect of pilot production is gathering data. Analyze production metrics such as yield rates, defect rates, and cycle times to compare the new facility’s performance against your existing operations. Use this data to fine-tune processes and determine whether the new supplier or facility is ready for full-scale production.

Pilot production also serves as an opportunity to align internal teams, including design, engineering, and quality control, with the new manufacturing setup. Their involvement ensures that all aspects of the production process are optimized and integrated into your broader supply chain strategy.

By conducting a thorough pilot production, you reduce the risk of costly errors and delays when transitioning to full-scale production. This careful testing process ensures that the new facility is equipped to meet your needs, giving you confidence in the next phase of your relocation journey.

Purchase More Inventory: A Short-Term Solution

One of the simplest ways to mitigate risks during a production relocation is to purchase additional inventory. Building up stock ensures that your business can continue meeting customer demand even if unexpected delays arise during the transition. While this is not a long-term solution, it provides a critical buffer that buys you time to navigate the complexities of setting up operations in a new location.

Increased inventory levels act as a safety net against potential disruptions, such as production delays, longer shipping times, or challenges with quality control during the early stages of relocation. By having extra stock on hand, you can maintain consistent delivery schedules and uphold customer satisfaction, even if unforeseen complications arise. This approach is particularly effective for high-demand or seasonal products, where delays could lead to lost sales or damaged customer relationships.

However, purchasing more inventory requires careful planning. Businesses must balance the benefits of a buffer stock against the costs and logistics of storing additional goods. Warehousing space, for instance, may be limited, especially if your existing facilities are already operating at capacity. It’s essential to assess available storage options and ensure the additional inventory is stored under appropriate conditions to avoid damage or degradation.

Another consideration is forecasting. Accurately predicting how much additional inventory is needed, and for how long, helps avoid the risks of overstocking or underestimating demand. Analyzing historical sales data, seasonal trends, and lead times for your new production facility can guide your inventory planning.

While purchasing more inventory can temporarily ease the challenges of relocation, it’s not a substitute for addressing long-term supply chain resilience. The goal is to use this strategy as a short-term measure, providing breathing room while you finalize operations at the new facility. By pairing inventory buffers with strategic planning, you can ensure a smoother transition and minimize disruptions during the relocation process.

Building a Resilient Future

Relocating production is more than just responding to immediate challenges like tariffs or rising costs, it’s an opportunity to design a more resilient supply chain for the future. A well-planned relocation can strengthen your business's ability to navigate uncertainties, seize growth opportunities, and maintain a competitive edge in the market. Building resilience involves thinking beyond the present move and creating a framework that can evolve with your business needs.

One of the most critical elements of resilience is diversification. Relying on a single country or supplier leaves your operations vulnerable to geopolitical shifts, trade disputes, or natural disasters. By establishing a network of suppliers and facilities across multiple regions, you reduce these risks and create options for scaling or pivoting as circumstances change. This diversification not only enhances stability but also allows you to respond more flexibly to market demands, such as entering new geographic markets or adjusting production volumes quickly.

Technological investment is another cornerstone of resilience. Leveraging advanced manufacturing techniques, such as automation and data-driven production planning, can optimize efficiency and reduce dependency on manual processes. Additionally, robust supply chain management software provides real-time visibility into inventory levels, logistics, and supplier performance, enabling proactive decision-making and faster responses to disruptions.

Collaboration also plays a vital role in building resilience. Strong partnerships with suppliers, ensure better coordination and shared problem-solving in the face of challenges. Transparency and open communication foster trust, making it easier to negotiate favorable terms or secure support during times of uncertainty.

Finally, resilience requires forward-thinking contingency planning. Regularly reviewing and updating risk management strategies ensures your business stays prepared for potential disruptions. This includes identifying alternative suppliers, maintaining a baseline inventory, and building financial buffers to manage unexpected costs. By embedding flexibility and adaptability into your operations, you position your company not only to withstand external shocks but to thrive in an unpredictable global environment.

Building a resilient future is not a one-time effort but an ongoing process of assessing risks, refining strategies, and investing in your supply chain’s strength. By approaching relocation as a strategic opportunity rather than a reactive necessity, you create a foundation for long-term stability and success.

Conclusion

The ongoing imposition of tariffs has fundamentally reshaped the global manufacturing landscape, forcing companies to adapt quickly to rising costs and shifting trade policies. These changes are not just temporary hurdles, they are driving businesses to re-evaluate their supply chains and build strategies that can withstand future disruptions. For many, this means relocating production to mitigate tariff impacts, reduce costs, and regain competitive advantages.

While the process of moving production is complex and requires significant planning, it also presents an opportunity to build a more resilient and flexible supply chain. By conducting detailed feasibility studies, setting clear goals, diversifying suppliers, and testing production with pilot runs, businesses can ensure a smoother transition. Short-term strategies, like increasing inventory, provide additional breathing room, but long-term resilience comes from creating a supply chain that can adapt to an evolving global market.

Ultimately, tariffs serve as a wake-up call for manufacturers to future-proof their operations. Companies that approach this challenge strategically will not only weather the current storm but also emerge stronger and better prepared for whatever comes next.