China’s Employing A Timeless Strategy – Using “Price” as a Lever
Historically, the market acquisition price for nitrile gloves – the price at which large buyers could purchase finished goods from an Asian manufacturer – held steady at a predictable level. Unprecedented demand during the pandemic drove pricing to record highs, which are now barreling to record lows. Glove import pricing is dropping rapidly, and arguably falling below actual manufacturing costs. It looks to be a race to the bottom and China appears determined to win.
Old Strategy, Still Effective
Chinese PPE manufacturers expanded rapidly during the pandemic and appear to be capitalizing on a simple code: the low-cost seller is often rewarded. Their market share has surged over the last two years – rocketing from roughly 10% to over 40% (based on U.S. import volumes). Large importers of products such as nitrile exam gloves are then drawn to the lowest price and shift the importation landscape in China’s favor. For U.S. buyers of nitrile gloves, it simply means we are now even more reliant on imports from China for products.
Why Does it Matter and What Can We Do?
Increasing reliance on a tenuous trading partner always comes with risks such as potential disruptions and lack of leverage on pricing and terms. Some of this risk must be accepted when cost control is a key deciding factor – as it is for most buyers in the healthcare sector. However, some of this risk must also be mitigated. The status quo entails putting “more eggs into the same basket”. By proactively shifting a percentage of these purchases to nearshore or domestic manufacturers, a “hedge” can be formed that offers a higher degree of control to guard against risks of disruption. This strategy might come at a slight premium, but that feels like a solid investment compared to the alternative: full reliance upon risky foreign manufacturers.
Written by William Benton