Category Archives: China

China is Leading in AI!

And the real reason why? The courts are defending labour rights and NOT allowing companies to replace workers with AI.

As per a recent posting over on “The State Council Information Office (of) The People’s Republic of China” on April 30, 2026: (Source)

“A Chinese court has ruled in favor of a human employee in a labor dispute caused by AI replacement, which experts said may send a reassuring message to labor rights protection efforts in the age of automation.”

Furthermore, this was not the first time!

On December 26, 2025, the Beijing Municipal Bureau of Human Resources and Social Security released a set of arbitration cases for 2025, including a dispute triggered by AI-driven job displacement. In that case, the arbitration panel made it clear that 𝐀𝐈 𝐫𝐞𝐩𝐥𝐚𝐜𝐞𝐦𝐞𝐧𝐭 𝐝𝐨𝐞𝐬 𝐧𝐨𝐭 𝐯𝐚𝐥𝐢𝐝𝐚𝐭𝐞 𝐚 𝐝𝐢𝐬𝐦𝐢𝐬𝐬𝐚𝐥. It found that adoption of AI technology is a voluntary move to stay competitive and not one that is mandated or acceptable as a basis for human replacement and dismissal.

Furthermore, legal scholars in China are emphasizing that 𝐭𝐡𝐞 𝐜𝐨𝐬𝐭𝐬 𝐨𝐟 𝐭𝐞𝐜𝐡𝐧𝐨𝐥𝐨𝐠𝐢𝐜𝐚𝐥 𝐭𝐫𝐚𝐧𝐬𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐛𝐨𝐫𝐧𝐞 𝐬𝐨𝐥𝐞𝐥𝐲 𝐛𝐲 𝐰𝐨𝐫𝐤𝐞𝐫𝐬 and that while 𝐭𝐞𝐜𝐡𝐧𝐨𝐥𝐨𝐠𝐢𝐜𝐚𝐥 𝐩𝐫𝐨𝐠𝐫𝐞𝐬𝐬 𝐦𝐚𝐲 𝐛𝐞 𝐢𝐫𝐫𝐞𝐯𝐞𝐫𝐬𝐢𝐛𝐥𝐞, 𝐢𝐭 𝐜𝐚𝐧𝐧𝐨𝐭 𝐞𝐱𝐢𝐬𝐭 𝐨𝐮𝐭𝐬𝐢𝐝𝐞 𝐚 𝐥𝐞𝐠𝐚𝐥 𝐟𝐫𝐚𝐦𝐞𝐰𝐨𝐫𝐤.

This is the thinking that will allow for actual progress and development.

AI is not intelligent, humans are still needed, and progress will be made when we stop accepting the BS that AI can replace us and instead only listen to and work with companies that state that appropriately designed, implemented, and/or restricted AI can augment us in our jobs and make us 3, 5, and even 10 times more effective — enabling us to be super human workers.

It might be too late for the US, but if Chinese courts continue to make rulings that indicate that 𝐜𝐨𝐦𝐩𝐚𝐧𝐢𝐞𝐬 𝐰𝐡𝐨 𝐛𝐞𝐧𝐞𝐟𝐢𝐭 𝐟𝐫𝐨𝐦 𝐀𝐈-𝐝𝐫𝐢𝐯𝐞𝐧 𝐞𝐟𝐟𝐢𝐜𝐢𝐞𝐧𝐜𝐲 𝐠𝐚𝐢𝐧𝐬 𝐦𝐮𝐬𝐭 𝐛𝐞𝐚𝐫 𝐜𝐨𝐫𝐫𝐞𝐬𝐩𝐨𝐧𝐝𝐢𝐧𝐠 𝐬𝐨𝐜𝐢𝐚𝐥 𝐫𝐞𝐬𝐩𝐨𝐧𝐬𝐢𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬, it won’t belong before China is truly dominating the world (since the US will have no competent employees left when everything goes to hell).

The Tariff Tax Is Coming – And There Ain’t Much You Can Do About It!

Since you have been ignoring the home-shoring/near-shoring that a few of us experts tried to warn you about almost a decade before the first of the predictable tragedies happened (with articles appearing in the late 2000s on the dangers of outsourcing and the advantages of near-shoring — here are 3 SI articles from 2009, 2011, and 2013), you will now have to pay the tariff tax.

(Note that we are now on the fourth predictable tragedy. The first was the COVID pandemic, which the WHO and WEF were warning us about for a good decade [even though they didn’t know what the pandemic would be, they knew a pandemic was inevitable]. The second was geo-political conflicts and sanctions that cut off entire markets. The third was the double whammy of Panamanian droughts and Houthis in the Red Sea, cutting off the fast shipping lanes and forcing a return to routes around the Capes. Now we have tariffs, a predictable result of home-first economic policies that always return in times of tense geo-political climates … and especially in countries run by leaders who believe they have autocratic power, even if they aren’t supposed to.)

So now you will get hit by tariffs. No ands, ifs, or buts about it. And there is nothing you can do to prevent it. Why?

  1. Tariffs are going to be applied across the board. Thus, changing locations isn’t going to prevent them, just minimize them.
  2. In most countries, tariffs on products don’t change weekly. But sales can based on the perceived economic situation, so stocking up on inventory can increase inventory costs beyond expectations as well as logistics costs if you have to expedite shipping.
  3. Locations with cheaper tariffs without supporting supply chain networks will actually cost more, especially if the average competency of the workforce is lower than other locations.
  4. Proclamations are not actualizations. Actual tariffs could be more or less. You could switch from a location expected to see tariff increases to one that sees even more tariff increases.

If you want to protect from tariffs, which are likely only going to get worse as time goes on, there is only one option — re-shore as close as you can! You want to be as close to home as you can to not only protect against tariffs, but to minimize other costs and risks. Logistics risks, and costs, are less. Re-supply times are less. Risk response is faster. And new development and innovation is easier.

So even though costs will increase in the short-term — as you build/upgrade/refine factories and production lines, retrain workforces, build new supply lines, design new distribution chains, and so on. Especially when you re-shore to a location with higher energy or workforce costs. However, over time, the workforce will become more skilled and productive, automation will improve, and supply and distribution lines will optimize. Costs will go down, and they will be more stable than costs half a world away you have no control over.

The key is figuring out what you should re-shore and what you shouldn’t. You should only re-shore what you can do cost-competitively unless you are certain you would lose access to supply otherwise. While the end goal should be that you only outsource for what you can’t get near, or at, home, the reality is that you have to stay in business, and that means staying competitive. So, at least in the short-term, you have to pick-and-choose. So how do you do that?

What-if cost modelling, optimization, and predictive analytics. You need to accurately model the costs associated with pulling acquisition and production back over time. First production batch, 6 months, 1 year, 2 years, etc. Plot the costs over time and if the trend indicates the costs will match the outsourcing/offshoring costs within a few years, you go for it. These costs will require predicting all the component costs with predictive trend analytics, building detailed cost models, and optimizing them against all the different options. A lot of modelling, calculation, and what-if. But if you have the right advanced sourcing platform it can be done. (Although you will need to reach out to platform and modelling experts to figure out how.)

In the interim, for those of you panicking in the USA, just remember that some of the proposed tariffs is just posturing to force American allies to give into other US demands (more defence/border spending, less tariffs for US products). Others are promises to take revenge on countries that didn’t play nice or line certain pockets the last time the administration was in charge, unless those countries do exactly what is asked this time around. Thus, you don’t know exactly what will happen, all you know is that, since not everyone will meet the demands, more tariffs are coming. (And even if the worst don’t come now, who knows what the administration in four years will bring. Tariffs are coming!) That means you can’t select alternative locations ahead of time, or predict when to pre-buy. Moreover, you can only hold so much inventory, and can only get so much here so fast, so pre-buying wouldn’t help much anyway, if it helped at all.

The only sure fire way to minimize tariffs over time is to start re-shoring what you can relatively cost-effectively, as that will protect you no matter what, and even though it will take time, it will payoff in the long run. (And again, to be blunt, you should have started this fifteen years ago when Sourcing Innovation first started echoing the warnings of the inevitable disruptions that were going to come from too much off-shoring if a significant event happened, and now that we have had multiple — COVID, “special military operations” and sanctions, logistics challenges in Panama and the Red Sea, and now anti-trade policies in many countries — it’s time to act before even more disruptive events happen).

A Slow Cautious Approach to Pulling Out of China May Be Justified …

… but the justification has NOTHING to do with geopolitical events or economic factors, as suggested by this recent SCMR article. First of all, those are always in flux. Secondly, neither of these factors are the ones that could be limiting your ability to peel out.

There are two primary factors that could be limiting your ability to peel out of China:

  1. available production capability
  2. source material availability

And these are the only factors you should be considering when you are considering how [do] you reconfigure the global supply chain. Because, unless you are selling in Asia, you HAVE to get out of China if you want stable supply streams.

Available Production Capability

First of all, are there alternative near-shore plants? If not, you’re stuck until you (co-)invest in one, get it built, get it up and running, and verify the quality is acceptable. If there are, can they produce the products you need in the quantities you need, or at least a reasonable percentage? If so, are the quality and service levels sufficient. If there are three or more near-shore suppliers that can collectively meet your needs, you shift a considerable amount of your award to them immediately (depending on existing contracts, the time-frames for the suppliers to fully ramp up to support your business, and the time-frames your organization needs to get ready to support the shift) and start the process of shifting all of your award to them.

Source Material Capability

You also have to consider where the raw materials are coming from, and how easy it will be for your suppliers to get sufficient stacks of the materials you need in steady supply. For example, if you need lithium-ion batteries produced by current processes, you need cobalt. 73% of today’s cobalt comes from the Democratic Republic of Cobalt (DRC). The DRC has considerable trade agreements with Qatar. So while the country has bilateral trade agreements with over 50 countries, its relationship with Qatar could cause you problems if you want to use a producer in the middle east NOT in Qatar if another diplomatic crisis (like the one in 2017) arises.

Also, China is the largest producer of grains, gold, coal, rare earth minerals, and two hundred (200) plus other materials, components, and products, so if your production depends on any of these materials, components, or products, you need to make sure your suppliers are located in countries who have good relations with China or have already locked up enough secondary sources to guarantee your product production will be uninterrupted.

That’s it. Yes, you have to consider the economics, because you can’t pay 50% more and not seriously upset (and lose) your (current and potential) customers with the price increase that will result, but with proper investments in new processes, equipment, and talent, costs can be reduced anywhere in the world, and all it will take for the potential supplier to make these investments is enough guaranteed business from you. (So make it so!)

How Do You Reconfigure the Global Supply Chain? That’s Easy!

Ever since the pandemic, there’s been quite a few articles about this despite the fact we’ve known the answer for well over a decade. (Or at least SI was giving away the answer, for free, over a decade ago, even though it seems no one was listening.) Or at least some of use have known the answer for well over a decade. So why was no one listening? Why is the answer still not well known? Is it not clear? Is the new generation not looking on their own and wanting the answer spoon fed to them? Are the articles with the solution either too generic, too politically correct, too vague or not actionable?

It’s hard to say, but to make sure this article is not too generic, not too politically correct, not too vague, and not inapplicable, we’re going to be very, very specific, as politically incorrect as possible, as to the point as possible, and actionable in our messaging. And we’re going to keep it as short and sweet as possible so that the message will be clearly understood.

 

Unless you are selling the product to China (/Asia), when sourcing,
FUCK CHINA.

It’s that simple.

 

Risk Mitigation 101 for Buyers is to have two sources of supply because risk mitigation 101 in systems design is no single point of failure. But over the last three decades, we have built a global supply chain where all roads simultaneously end in China and start in China. When there isn’t a single product you buy where a component or raw material doesn’t get produced or processed in China, it doesn’t matter that you use two different distributors or manufacturers for the product as the choke point is still China. Thus, if the factories or ports shut down because of China’s ridiculous “zero tolerance” policy to an unstoppable epidemic (which is not even as lethal as the bird flu if a large majority of your population that can be safely vaccinated is vaccinated); if the shipping industry gets overloaded due to a lack of ships, workforce (see yesterday’s article on how strikes are going to be your biggest source of supply chain disruptions for the next decade), or containers (which happens, especially since there are way more ships carrying goods from China than carrying goods to China, semi full ships will not load containers to take back until completely empty, and this results in many ships sailing back mostly empty); or critical commodities or utilities expected locally become temporarily unavailable to the factory, you, and everyone else in the world relying on that product, are shut down.

There’s a reason that North America used to primarily source products not made in the USA from Mexico or South America. If there was a disruption, you found out sooner. If a factory had a fire, you could fly in, assess the damage, and send in your engineers to help fix it — quickly. If not, you weren’t far from alternate suppliers you could fly down to assess, and if suitable, negotiate with. If there was a transportation backup, it was easier to clean up — you weren’t waiting for ships, you just sent down more trucks or ordered more rail cars.

And the answer should now be obvious:

  • Home-source anything that can be grown / mined / produced at reasonable economy of scale in multiple geographically separated locations in your home “region” (i.e. multiple states in the US; multiple connected countries in the EU)
  • Near-source anything that can grown / mined / produced at reasonable economy of scale in a relatively near-by country or region connected by land where the product can be shipped by rail and truck (Mexico / Central America / Northern parts of South America for the US)
  • Far-(Over-Sea)-Source only what can’t be home-sourced or near-sourced, which should just be raw materials or small components (i.e. there’s no excuse to be manufacturing and importing washing machines, refrigerators, and cars which are super bulky and weighty when there are only a few core components that need extreme specialization [where it would be hard to find another / build a new factory] or materials that need to be processed pre-transport

Which means that if you are sourcing for the Americas, the amount of sourcing that you should be doing from China is likely about 10% of what you’re actually doing, which, at the end of the day, gave you short term savings in exchange for long term debt including, but not limited to:

  • customer churn and angst
    (happy customers seeing value fork over $$$ a lot faster and in greater amounts than those that aren’t, and they aren’t happy when they don’t get their products on time)
  • constantly increasing transportation costs …
    containers went from < 5K to > 30K during the height of COVID, and while they have come back down, they’re still 30% to 50% more on average, and since most ocean going vessels still use HFO (the dirtiest oil there is, FYI), and the global port strikes are resulting in significant wage increase (partially due to significant inflation in many countries), they’re going to keep going up, especially once you factor in those
  • high carbon taxes
    (everything you make in China is dirty and the shipping is even dirtier)
  • high IP theft …
    even if most of the products don’t make it out of China, everything you produce in China is copied … everything … and some of the copies are now so good, even high end stores in the US are getting fooled!
  • limited options …
    many of your best options went out of business over the last two decades as you believed the overpriced consultants with their false promises that the savings would last forever (but nothing lasts forever …)
  • increased disruptions
    due to the soon to be three-fold increase in natural disasters annually since the China craze began in the late eighties/early nineties (which is projected to be five fold within a decade or so)

On the flip-side, many of the factories you used to use are still where they were. The workforce is still there. The potential is still there. All you have to do is invest in it. It may mean a partial return to the vertically integrated company where you own (part) of your supplier, as you may have to re-enter into co-opetition through conglomerates where you and a group of your peers each minority invest in a new entity to bring that factory back online (or build a new one), but nothing is stopping you. And it might take a year or two (or three) to bring it back, but you can do it, and greatly reduce your supply chain risk in the long term. And, to make it a bit more personal, when you do this, just like Justin, you will have brought SexyBack

In short:

Unnecessary Outsourcing, especially Unnecessary Overseas Outsourcing, broke the supply chain. If you want to fix it, JUST STOP!

To be fair, we should point out that this article is aimed at the primary readership of this blog, which is North America / (Western) Europe as well as the continents of Australia, South America, and Africa. This article is NOT aimed at Asia, because China is part of Asia, which means if you are buying to support an Asian market, in this situation you should be buying from China (and Fuck the Americas), as per our qualifying assertion near the beginning of this article.

2030 is too late for Center-Led Procurement!

Especially since 2020 was too late! And organizations should have been there by then since center-led procurement was being discussed as the next generation model in the mid-2000s and, more importantly, as the futurists were predicting that the future of work, and companies, was remote and distributed last decade, every company should be “center-led” by now.

(Note that we mean “center-led” and not “centralized” where one central office handles all major procurement projects globally. We mean center-led where a centralized function determines the best procurement path for each category — which could be centralized, distributed, multi-level, or mixed — and provides guidance to all of the global teams and makes sure they build the right procurement — and supply chain — models up front.)

In fact, by now, all organizations should be working off of a virtual center-led model where the “center” is the Procurement A-Team, where the members could literally be spread out over the 6 continents to “locally” absorb the situations in each geography before making decisions and to always have someone available to answer questions on not just a follow-the-sun but follow-the-local-business hours model.

And while virtual / remote / distributed work still seems to be an entirely new thing that most companies didn’t think of before the pandemic and that most companies are trying to eliminate entirely now that the pandemic has been declared over (even though the next pandemic is just around the corner and, yet again, no one is prepared for it), those of us in IT and Supply Chain have been doing it for two decades (and the doctor has been primarily been working remote for the past 19 years — the tech has been there, and has worked, for two decades … and now that high speed is in just about every urban area globally, there’s no reason a hybrid/virtual model cannot work and work well).

The reality is that the pandemic not only brought global supply chains crashing down but brought to light the high risk embedded in them a few of us saw a decade ago, which went beyond the obvious risks of “all your eggs in one basket” (even though Don Quixote was published in 1605) and “The Bermuda Triangle“*1, but also included the risks of relatively centralized procurement where one team in one part of the globe made the all-our-eggs-in-the-China-basket and managed the relationship with one team at one factory in another part of the globe; so if either team got completely locked down with little remote/virtual support (and we saw some countries limit people to 1KM from their homes and China lock down entire cities and not even let people leave their apartments), the entire chain was shut down even beyond the worst case that some of us were envisioning a decade ago (and made our definitions of bad — which was factory goes out of business, shipping lane closes, or ship sinks — look good by comparison because, at least then, you could still go to work and travel to find a new factory, organize a new lane, or spin up the factory 24/7 until you remade the order).

However, with virtual center-led, you not only have a team that knows how to work distributed and remote, and who knows how to use that setup to better mitigate operational risks, but who also has a risk-mitigation mindset that any supply base should also be distributed and different locations remote from each other (two factories in the same town is not risk-mitigation; an earthquake destroys the roads, the entire town gets quarantined, or political borders shut and its effectively one cut-off source of supply) and will help the different parts of the organization design more risk-adverse, or at least risk-aware, supply chains — tapping into local expertise in each part of the world to make the best decision and allowing the organization to move management of the chain around as needed and local teams (because you’re not sourcing your Canadian snow-plow and igloo building services from India, for example) to always have remote access to guidance and best practices in snow-removal services RFP construction (and know how from Norway and Japan).

In other words, center-led procurement (of which you can find a lot of guidance on in the archives here and over on Spend Matters, especially since, now retired, Peter Smith of Spend Matters UK was a guru on this as well as sustainability) of the virtual kind is what you need to be doing now if you want to last until 2030.

 

*1 which, while statistically no more dangerous than any other part of the oceans, exemplifies the fact that even the biggest ships, with an entire year of your inventory on board, can sink, especially when oceanographers have finally realized [even though mathematicians working with wave models understood this concept decades ago] that rogue waves are not a once a in decade occurrence, but a DAILY occurrence on this planet, it’s just that the ocean is so big that the fraction ever covered by ships is so microscopic that the chances of any ship encountering a rogue wave are infinitesimal on a ship-by-ship basis)