In a reflection of increased optimism from Western brands and shoppers, global procurement is climbing. But the supply side of the equation is see-sawing, with some markets trending up and others down, according to QIMA’s Q3 2024 Barometer.
The quality control and compliance firm released a report this week showing that brands and retailers are finally restocking after subdued sales in 2023. While this has been a boon to manufacturing locales like Vietnam, Bangladesh and India, which needed a business revival, some markets that showed strength last year, like Indonesia and Cambodia, are backsliding.
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According to QIMA analysts, China isn’t on the same rollercoaster ride as its Asian counterparts. The country laid the foundations for recovery in 2023, and has built upon that during the first and second quarters, clawing back 1 percent of EU and U.S. market share for QIMA audits and inspections year over year. China now accounts for 51 percent of QIMA business from companies in those regions, up from a low of 49 percent in 2022.
Inspections and audits ordered by German businesses for Chinese suppliers grew 27 percent from the same period a year ago, while the UK also showed a high and growing demand for China sourcing, with inspection and audit commissions up 32 percent.
But the sourcing superpower isn’t immune to Western market fluctuations stemming from the continuation of Russia’s war on Ukraine, as well as the uncertainties of the upcoming U.S. presidential election. Discussions about the U.S.-China trade relationship—and the escalating tension therein—have been ramping up in recent months, and are likely to remain central to both candidates’ platforms in the lead-up to November.
U.S.-based buyers were a bit more conscientious in their approach to China sourcing in the second quarter, with diversification and de-risking remaining strong priorities and nearshoring and friend-shoring among their continued objectives.
Demand for inspections and audits from U.S. brands and retailers grew by 13 percent in Q2 from the year-ago period, with apparel, toys, homewares and electronics among the leading growth categories. QIMA said the figures could point to a “normalization” effect as consumers become more comfortable with spending and the market rebounds, but China’s significance as a partner for Western companies shouldn’t be discounted given its strong share of their supplier portfolios.
Emerging economies, too, are upping their partnerships with Chinese suppliers; QIMA data showed clients across Central America, South America and Mexico in particular were eager for audits and inspections.
Mexico’s place in the headlines has largely centered on its role as a supplier for U.S. brands interested in bringing business closer to home, but QIMA said inspection and audit data show that it is becoming a more vibrant consumer market, too.
The country’s procurement has been “booming” during the first six months of the year, with China seeing a 69-percent spike in inspections and audit requests from Mexican buyers. Trade with Vietnam and Cambodia, too, has grown.
“While U.S. nearshoring initiatives undoubtedly contribute to this trend, a notable portion of Mexico’s purchasing volumes likely caters to its own domestic market—especially given the evidence that US nearshoring in Mexico may not be expanding as rapidly as anticipated,” analysts wrote.
While American brands and retailers indicated elevated interest in nearshoring in QIMA’s 2024 Sourcing Survey, with nearly two-thirds of businesses across the globe—including 54 percent in the U.S. and 50 percent in the EU—saying nearshoring and reshoring are a part of their 2024 supply chain strategy, demand has actually been tepid, the group wrote. Companies have pointed to the limitations of Mexico’s energy grid as well as governmental bureaucracy as barriers to growth.
Europe’s efforts at nearshoring are going a bit more smoothly, QIMA data revealed.
Over the past two years, European buyers have upped their demand for inspections and audits in Turkey, with demand up 27 percent from 2023. About one-quarter of EU businesses said Turkey was one of their top three sourcing partners. Egypt, Tunisia and Morocco have also seen growth, along with the Mediterranean, which QIMA said now accounts for more than 8 percent of European buyers’ global procurement portfolios.
“The diverse selection of supplier hubs in the region and the effective utilization of well-established trade links may account for the fact that European brands and retailers have been more active in executing their nearshoring strategies compared to their American counterparts,” analysts wrote.
Beyond nearshoring and supply chain diversification, one of the biggest factors driving demand for inspections and audits is ESG legislation.
The EU’s Corporate Sustainability Due Diligence Directive (CSDDD), finalized in May, has elevated and codified standards for social compliance across the globe, QIMA said.
And China, which has been the subject of much scrutiny over allegations of forced labor, is making “incremental progress,” the group added. More than half (59 percent) of China-based factories inspected by the firm were ranked “green,” or compliant, marking a five-year record.
However, the number of “red” or critically non-compliant suppliers has held firm over the course of several years, showing a continued resistance to global regulations.
Worse, QIMA’s audit results revealed that the frequency of child and youth labor has actually been increasing in recent years, with 6 percent of audits revealing red-level violations in the first half of this year. Worker safety, too, is a “pressing concern”—15 percent of audits showed critical health and safety violations during the first six months of 2024, and more than three-quarters of factories were found to have structural issues or weaknesses in fire or electrical safety.
There’s “no room for complacency,” even as audits reveal that suppliers are largely on a positive trajectory, the report said. “These findings make clear that despite the notable progress in ethical compliance, continued vigilance and ongoing corrective action are essential to address persistent ESG challenges in global supply chains.”
