World’s over-dependence on china
The corona virus pandemic is forcing global companies to diversify their manufacturing away from China to other emerging and frontier markets. This pivot became particularly urgent since the outbreak of COVID-19 wreaked havoc on China-based supply chains, exposing the world’s over-dependence on China. The supply shock has hit corporate revenues hard due to lost output, sparking a recession.
In this article, we describe why the World wants to move away from China, and can it be done?
China has been the world largest exporter of goods since 2009. The world is dependent on China for manufacturing. Many developing and developed countries like European Union, USA, India, Hong Kong are deeply reliant on Chinese supply chains not only for medical supplies but it’s also for electronic, textile furniture, toys, and a lot more.
China has a large number of dominant industries that create products and materials for export. The most prominent amongst the finished products exported from China are electrical goods, data processing technologies, clothing, and other textiles, and optical and medical equipment. China also has the world’s biggest new car market and exports a significant amount of raw materials, particularly steel. These raw materials are exported to other countries to be processed and reassembled.
For reference here is a brief description of China’s export across the world:
In 2019, the total value of Chinese exports amounted to about $2.58 trillion. This indicated approximately 3.4 percent growth compared to the previous year.
China’s international trade relations :
In 2012, China surpassed the United States to become the world’s largest trading country in terms of exports and imports of goods.
China ranked first in global exports with an export value of some 2.5 trillion U.S. dollars in 2018.
According to the National Bureau of Statistics of China, the European Union was the most important export partner of China as of 2019.
the United States was the second most significant export partner of China with a share in total exports of about 17 percent.
China’s Trading Partners – Top Countries Where China Exports the Most
United States: $ 481 billion.
Hong Kong: $ 304 billion.
Japan: $ 148 billion.
South Korea: $ 110 billion.
THE COVID-19 PANDEMIC
Now, with the current Covid-19 pandemic in its full flow, Currently, many countries are trying to avoid doing business with China and No country wants to contain China.
Some countries have already found ways to move away from China by tightening the rules around foreign investment.
Issue and challenges :
Traders may have to face many challenges to restart their business at a new location. Consumer electronics companies are among those.
Here are some common challenges that consumer electronics brands will need to solve to move their final assembly out of China.
1- Location challenge:
companies will first need a good place to shift their business from China to where they can easily do the production and supply it.
countries in the sea and ASEAN belts have a real opportunity to surged ahead and try to catch up with China in this new world order.
In the global manufacturing sector, China will see tough competition from smaller nations like Thailand, Bangladesh, Vietnam, and the Philippines because of their lower labor costs.
2- Loss of local knowledge with existing factory partners :
Traders will need prior experience to start trading in another location. Companies will work with a different local team with different prior experiences.
3- Retooling for the new language skills required:
Chinese language skills coupled with engineering competency is prized and sought after by leading consumer electronics brands. But when companies move to Thailand, Vietnam, Indonesia, or the Philippines, new language skills will be needed. Most manufacturers provide bilingual teams to support their customers in English, but nothing beats native speaking proficiency to overcome the inevitable issues that arise during development and early production.
4- Sourcing large numbers of operators in a new location:
A complex product like a smartphone might have 200 or even 300 people who touch it during the assembly process. The immediate demand for thousands of operators in far-flung locales that haven’t had that kind of demand in the past will be a challenge.
5 -Longer supply chains means less agility and higher costs:
One of the cardinal rules of supply chains is to make them as short as possible.
Moving out of China will have a huge impact on the supply chain of these companies.
6 -High capital equipment costs and rebuilding data pipelines:
To start trade in a new location requires a large amount of capital equipment and have to rebuild the data pipeline.
An opportunity for India :
Recent UBS market report marks India as one of the top destinations for companies that are shifting out of China.
India has most things that China possesses, and is a nation with friendlier ties with the United States.
At the same time, India will also be trying to attract companies looking to shift out of China and use this as a viable opportunity to speed up growth in the post-COVID season.
Many companies, reports suggest, are already engaging with the Indian government at different levels to explore opportunities.
Way forward :
If this pandemic has taught us anything, it is that excessive dependence on China needs to be reduced to a great extent.
1- countries that have a common agenda, which are democracies can get together to discuss the resolution.
2-countries can gradually build sorter and reasonable supply chain and enhance its capabilities
3-Immediate resolution of the South China sea must be taken.
4-There should be an expansion of G7 groups including Indo-Pacific countries(India, South Korea, and Australia).
And Russia can be added as well as because Russia is a big energy exporter and a major military power in the region.