After two months of lockdown in Shanghai, leaving millions of dollars of designer perfume and cologne unsold, the CEO of a U.S. firm decided to break away from China and move its production line back to the U.S. 

Jean Madar, founder and chairman of Inter Parfums Inc., told the Wall Street Journal, “We’re doing this even though China is way cheaper.” 

Madar’s company is one of many U.S. firms that want to shift their production lines back to the U.S., nearby countries, or elsewhere outside China. 

Many CEOs are considering moving some or all of their businesses out of China. 

For years, cheap labor has been the key factor for multinationals to set up their factories in China. But due to the pandemic, executives choose between cheap labor and shipping costs, among other factors.  

The Wall Street Journal cited a survey from McKinsey & Co from supply-chain executives, showing that nearly 20% want to shift their productions to nearby countries, double from last year. More than 30% have added suppliers from neighboring countries, compared to 15% last year.

The bad news for China is that longer-term shifts from the country are currently underway. Rising labor costs, higher taxes, intellectual property theft, soaring ocean shipping cost, factories shutting down, and delays at ports are all attributed to their decisions to move production. 

Bloomberg shows data backing the U.S. reshoring move. New manufacturing facilities construction in the U.S. has soared 116% over the last year. Among those, big-scale factories in semiconductors or aluminum and steel top the list.

The Wall Street Journal reported that Inter Parfums is moving most of its production lines from China and other countries to the U.S. The company still plans to keep some of its suppliers in China.

The number of U.S. suppliers has been increasing in the company’s vendors’ list, helping it eliminate China’s glass, metal, and pump suppliers. Now, nearly 70% of its parts are from U.S. firms, double from a year earlier. 

Inter Parfums, with annual revenue of 1 billion dollars, has operated about 70% of its filling and assembly operations in the U.S., up from 30% a year earlier. The company plans to have all operations in the U.S. by 2024.

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