Will China continue to be the world’s factory?

Welcome to the October issue of ValueNotes Connect.

Most businesses have robust supply chains and are able to overcome disruptions, which are either local or regional. Few were prepared for a global disruption such as the one that Covid-19 has caused. The vulnerabilities of supply chains of several businesses have been laid bare.

In a survey that we ran in the second quarter of this year, we found that the pandemic had caused greater disruption to the procurement of inputs by larger companies when compared to the smaller ones. A possible reason for this is that most of the smaller firms depend on local supply chains, while larger companies source from suppliers across the world.

How different will supply chains be post the pandemic? Will China continue to be the world’s factory? Globally, there has been unease over the growing dependence on China. The over-reliance of supply chains in electronics, pharmaceuticals, auto parts and a variety of other industries was made underlined by the Covid-19 pandemic. The immediate task is to identify alternate options – and this requires an understanding of specific industry hubs, capability of suppliers in that geography, along with factors that impact cost-competitiveness and their ability to scale. This will take time and investment. However, the trend is clear – companies must start working on alternatives.

With best wishes to our readers, stay safe and healthy.

Supply chains in disarray

by Rohan Dholam

Almost half the companies surveyed in the ValueNotes Covid-19 business sentiment survey (Q2 2020), said that their procurement of inputs was impacted by the pandemic. Interestingly, larger companies (70% of those with revenues >$500 mn) were worse affected when compared to smaller firms. A possible reason for this is that most of the smaller firms depend on local supply chains, while larger companies source from suppliers across the world.