Supply Chain Dominance of China

A “Made in China” label has always been problematic in the U.S. In the early years of globalization, companies worried that customers would see Chinese goods as inferior in quality and stay away from it. Political leaders, meanwhile, worried that the sudden ubiquity of the label would expose the scale of the loss of manufacturing jobs in the U.S. These concerns were more than offset by what Chinese manufacturing brought to the table: For price-conscious shoppers, it meant a new golden age of consumption. For companies, outsourcing often meant staggering profits. Bilateral trade allowed both countries to focus on their comparative advantages: China became “the world’s factory.” The U.S. focused more resources on the cutting edge. But the original concerns never went away. Rather, as middle-class wages in the U.S. stagnated, an anti-globalization backlash began to brew. And as China grew richer and more assertive in the pursuit of its core interests, a “Made in China” label began to spark new concerns. U.S. businesses chafed at China’s use of state funding, state-backed technology theft, protectionist trade barriers, and its diplomatic muscle to capture markets and develop home-grown competitors in advanced sectors. U.S. security officials started to worry about things like Chinese telecoms gear being used to spy on Americans or cripple essential networks. The Pentagon began to wonder if China was using U.S. tech to alter the military balance of power. The U.S. public began to wonder if buying from China meant entrenching a dictatorship, funding Uighur concentration camps, and empowering a military rival bent on overturning the U.S.-led order.

The COVID-19 pandemic merely poured fuel on the fire. It underscored the risks of having so many supply chains concentrated in one place. It also sparked a surge in anti-Chinese sentiment in the U.S. Thus, the buzzword in Washington these days is “decoupling.” The U.S. government is urging U.S. companies to leave China for good — and rolling out a mix of sticks and carrots to encourage them to do so. Disentangling the U.S. and Chinese economies will be a messy and painful process, at best. Simply put, China has made itself indispensable to global supply chains. And its advantages aren’t going away. To understand why to consider what goes into making one of the U.S.’ most iconic products: the iPhone. China’s first advantage is the staggering depth of its labour pool. It’s no longer just about low-skill labourers willing to toil away in sweatshops, either. Chinese universities pump out more than nine times the number of STEM graduates each year than the U.S. The foremost reason why Apple doesn’t make its phones in the U.S. isn’t wages; it’s the reality that there aren’t enough U.S. engineers to meet the company’s production needs. China’s second advantage is its tight integration with a vast ecosystem of suppliers — most of them in East Asia — that’s needed to produce something as complicated as the iPhone at scale. In other words, an iPhone has microchips from Taiwan, camera technology from Japan, flash memory from South Korea — plus a zillion other components made in and around China. Apple needs these to be able to ensure delivery of such components in vast quantities on incredibly tight production schedules, so geographic proximity matters. And China is peerless when it comes to providing the infrastructure required to make it all happen.

An estimated five million jobs in China are dependent on Apple’s supply chain alone. A single factory where iPhones are made employees nearly 250 thousand people — larger than all but 83 U.S. cities. So Chinese provincial and local governments, locked in a zero-sum competition with one another to attract big foreign firms, are both incentivized and empowered by Beijing to move entire neighbourhoods seemingly overnight to build whatever they need. Finally, the lure of China’s consumer market compels foreign firms to put up with all sorts of headaches and do whatever is necessary to stay in Beijing’s good graces. While much of China is still very poor, nearly 200 million Chinese people had more than $16,000 in disposable income last year. This was more than double the number just a decade ago. If — and this is a big if — China can avoid an economic collapse, Chinese consumption will quite likely become the foremost driver of the global economy within the next two decades.

It’s no surprise, then, that in 2019, more than 17 percent of Apple’s revenues came from China — and this was a down year due to the trade war. To stay out of the U.S.-China crossfire and make their supply chains more resilient to disruption, many companies and their suppliers are pursuing what is known as “China plus one” strategies — building redundant supply chain links in alternative low-cost manufacturing hubs. Even before the pandemic, Apple, for example, was reportedly mulling moving between 15-30 percent of its hardware production to places like Vietnam, India, Mexico, Indonesia, and Malaysia But no country, or even combination of countries, can replicate China’s advantages altogether. Thus, companies are reluctant to leave. The U.S. and other Western governments have good strategic and economic reasons to at least try to make them reconsider. They can use tools like tariffs, subsidies, and regulatory controls to alter companies’ cost calculations — even if these invariably risk doing more harm than good to U.S. interests. And the growing risks of things like nationalist boycotts and government coercion in China will make foreign firms more willing to pull up stakes. Just don’t expect a mass exodus — or for “Made in China” to disappear from American shelves for good.

 

Reference:

https://geopoliticalfutures.com/category/regional-directory/south-asia/

https://9to5mac.com/2019/02/12/opinion-apple-gone-wrong-china/

https://www.researchgate.net/figure/Chinas-supply-chain-cities-in-apparel-Source-David-Barboza-In-roaring-China-sweaters_fig3_228225090

http://www.supplychain247.com/topic/tag/Tariffs/P75

https://siteselection.com/investor-watch/covid-19-suffocating-the-global-medical-supply-chain-while-breathing-life-into-its-future.cfm#gsc.tab=0

 

Relocating Supply Chain to Vietnam

 

Hello all, my name is Vikas S Menon and I am a 2^nd year MBA student at Amrita school of business. Hope all are doing well. I hope you have read my previous blog. If you haven’t read, type #SCM in the search bar and you will find me.

So let’s begin,

As the pandemic has spread across the countries, this has affected the global supply chain, trading, and slow growth. The factory of the world, which is China has shutdown factories and production lines for a short time has costed huge business losses due to the unavailability of finished products and raw material. As Us - China trade war is rising to a new height made the foreign countries to think about relocating to a different country which able to attract capital inflow. There are countries where foreign companies are looking upon and in this context, Vietnam was able to attract investors due to several factors including control over the pandemic, reopened economy, etc.

Vietnam's GDP is growing 6 to 7 percent every year sing 2016 and steady growth in the past. It is closer to other Asia countries and is connected to the global supply chain. The middle and upper-class population segment is expected to reach 95 million by 2030 with an average GDP per capita of US$7000 by 2035 and the participation rate of the female is accelerating than developed countries. The 13 free trade agreements make Vietnam one of the most open economies. Other reasons like ensuring safety to businesses during the pandemic, issuing incentives and tax breaks, the quick reopening of the economy during the pandemic.

 

The country is large and diverse with several industries. Agriculture is one of the important sectors in the country but they are moving to other services and manufacturing industries because of the support from investors and the government. The industries suited for such supply chain shifts are garment and textiles, automotive, Electronic, and food & processing sectors. The below figures show garment and textiles, automotive, Electronic, and food & processing sectors segment divisions respectively.

The 3 common models regarding distribution in Vietnam are primary, secondary, and last-mile distribution. In Primary distribution, the allocation of finished goods from vendor to distribution centers or distributors.

Secondary distribution is the movement of goods shipped from main distributors to smaller distribution centers, stores, dealers, or consumers. Often this concept is equivalent to the last-mile distribution if the delivery points are the final buyers.

Last-mile delivery is the final part in which the finished goods are delivered to the customer or to the company that ordered and bought them. This stage involves logistics delivery operations from stores or small fulfillment centers to customers.

Though many companies thinking about shifting to Vietnam, it won’t be easier. Do you think Vietnam can be the next manufacturing hub other than China and contribution better to the global supply chain? Let me know your view and you can know more about Vietnam through the list of sources.

Information collected sources:

 

1)  https://www.vietnam-briefing.com/news/qa-relocating-supply-chain-vietnam.html/

 

2) https://www.nordeatrade.com/en/explore-new-market/vietnam/distribution 

 

3)  https://english.vietnamnet.vn/fms/business/194267/the-rise-of-convenience-stores--minimart-chains.html

 

4) https://www.supplychainbrief.com/supply-chain/vietnam/?open-article-id=9553982&article-title=distribution-models-in-vietnam--primary--secondary--and-last-mile-distribution&blog-domain=abivin.com&blog-title=abivin 

 

5)  https://www.vietnam-briefing.com/news/china1-new-face-manufacturing-vietnam.html/

 

 Logistics and Tactics of Apple

Apple used to unveil its next fleet of iPhones in the month of September. Everybody will rush to their nearby to buy their one Apple stores all over. For Apple, it means that they have some days to ensure that millions of iPhones originating from China were ready for purchase at storefronts worldwide. It is a logistical exercise on the grandest of scales especially considering that Apple routinely sells millions of new devices during launch week. Apple begins that process before they are unveiled to the public moving large shipments of iPhones to distribution centres around the world. Naturally, these shipments are steadily monitored by security guards at all times from truck depots, airports, customs, and storage warehouses until the product is finally unveiled.

Logistics management of Apple is very efficient in shipping finished products across the globe. Another aspect to the logistics machine that isn't often discussed namely getting all the devices components together so that the assembly process can begin. Apple certainly does more than one thing, they do have a relatively small variety of products. This is a departure from how things looked in 1997 when Steve Jobs took over at Apple. Jobs drastically reduced the number of products offered by the company from 350 to just 10. It was a bold move but in terms of managing the supply chain, it was very impactful. Today's current number of Apple products is just five with fifteen variations of each. Those products share many common components which further streamlines the supply chain.

It's no surprise that a company known for innovative technology would embrace the use of technology in managing its supply chain. Apple does an outstanding job in this area through supply chain monitoring technology, Apple can divert products from assembly origin in China to wherever it is needed to be based on sales. This is a good example of the value that can be derived by utilizing available software to monitor the movement of cargo. Knowing where the inventory at all times allows for continuous adjust based on need. Around 200 suppliers are providing some 97% of materials used in Apple's manufacturing process.

Consider Apple’s size this isn't particularly a large number. By keeping the list relatively small Apple can guarantee their suppliers certain production volumes in terms of materials purchased to meet their demands. This goes a long way towards building strong relationships for this list of exclusive suppliers. Stronger relationships also mean that Apple can maintain close control of standards. The company has a supplier code of conduct and supplier responsibility standards which are intended to ensure that suppliers follow apples principles and values. Of course, it also means that Apple has considerable leverage in negotiating contracts with their suppliers.

In 1997 with the iMac was released just in time for the holidays, Steve Jobs cornered so much of the available airfreight capacity that Compaq, a competitive rival, was unable to ship their goods in time for holiday shopping. This tactic serves Apple so well that more than a year ago a spokesman for the international air cargo Association said the new iPhone launch is going to be a massive boost to air cargo. This proved to be accurate when the iPhone 6 released took place in August 2014 nearly all air capacity was booked for more than two weeks from China into the US. This strategy has worked for two reasons, Apple has ensured that space needed to move their product and at the same time they effectively prevent competitors from moving their handheld devices until later in the season. More than four million iPhone successes were sold in pre-order within the first 24 hours alone in 2016.