The Asia-Pacific cohort is ahead in most measures of recovery planning, where:
- 55% plan to change management of workforce (compared to 39% globally)
- 47% plan to change speed of automation (compared to 36% globally)
- 39% plan to change digital transformation (compared to 31% globally)
At first glance, the stance of Asia-Pacific business leaders in making changes to their supply chains appears to conflict with the attitudes of foreign businesses in China, specifically. A recent survey conducted by the American Chamber of Commerce in China suggests 84% of survey respondents have no plan to relocate their manufacturing operations out of China, whereas similar surveys in 2017 and 2018 had such contingent at 92% and 90% respectively.
The story becomes clearer when probed beyond the initial numbers. For these multinational businesses, their attempt to diversify their supply chain operations actually began several years earlier, as trade tensions between the US and China were heating up.
On the other hand, labor cost in China has been increasing steadily thanks to four decades of uninterrupted growth. In fact, the continued endeavor for China to move up on the value chain, combined with a massive domestic consumer market, are the deciding factors for many firms to adopt the “China Plus One” approach to supply chain management.
For products and tasks that are labor-intensive and add low value, businesses actively diversify their operations to other regional locations, such as Bangladesh, Cambodia and Pakistan with garment, Vietnam with electronics, and increasingly Thailand and Indonesia with toys.
To maintain productivity and profit margins, factories in China have to accelerate their adoption of digital transformation and automation where production robots, 5G communication link of data generating internet of things (IoT) devices, systems software with artificial intelligence and digital twin capabilities will play a key role.
At the National People’s Congress in late May, the Chinese government made an additional commitment totaling US$1.4 trillion to new technology infrastructure in the next five years. This reinforces the notion that China is doubling down on technology to reach its long-term prosperity goal.
Sensing the opportunity for an acceleration in tech transformation, neighboring countries are actively vying for the demand of low-value production left by China.
- The state of Haryana, for instance, is actively looking to encourage businesses to relocate production to India.
- Major Korean manufacturers have long established their production of electronic goods in Vietnam.
- For specialized electronic components such as hard disk drive, Thailand is already home to more than 70% of all production worldwide.