Is a crippled Chinese supply chain an opportunity for India?
COVID-19 outbreak has an adverse impact on Chinese supply chain. Here is how India can advantage of the same.
Coronavirus has been announced as pandemic because of its wide geographic range. It has affected the global manufacturing industry in many ways. “The first phase was the shutdown of Chinese manufacturing for an extended period early in the year. This represented one-third of global production being effectively switched off overnight,” said Sunil Rallan, Chairman and Managing Director, J Matadee Free Trade Zone. Highlighting its effect on India, he continued by saying, “It is difficult to quantify on a global scale but from Chennai port alone, import cargo volume was down by 60%. We have experienced a dip in trade volumes through Chennai Free Trade Zone as well.”
Speaking about the impact on the supply chain, Diwakar Belavadi, Director – Operations & Strategic Projects, Citadel Intelligent Systems said, “Supply chains across the globe have got severely affected due to the outbreak of COVID-19. This is due to the extensive raw material/component base which China is sitting on. These raw materials which are sourced from China, cuts across almost all industries such as automotive, consumer electronics, healthcare & pharma, industrial automation, electrical systems & appliances, etc. The only industry which is perhaps insulated from the effect of COVID-19 is the defence industry.”
Elaborating on effect on Citadel Intelligent System, Belavadi said, “As a company, we source many of our raw materials such as Fiber Optic cables, Copper Networking cables, protective tubing, Connector components, Passive Optical network Infrastructure and Copper network Infrastructure components from China. Supplies of these parts have been affected from China due to the outbreak of the virus. The impact of supplies started from the point of China getting into the Chinese New Year break in January 2020.”
He further added that, the company is taking following steps to curb the impact:
- As a part of our advance planning process, we had stocked the raw materials/components in view of the scheduled Chinese New Year break. Normally we add some buffer to our inventory especially of critical components thereby carrying some additional inventory in our warehouse, which helped us in a way to mitigate the stock-out situation.
- Alternate sources in USA & Europe helped us to fill the shortage and could procure some quantity of the raw materials from the sources in Europe & USA.
- As a part of risk mitigation and to manage logistics cost efficiently, we had also parallelly devised localisation programs within India to develop the said raw materials/components which has helped us to mitigate the disruption in the supply chain due to COVID-19 outbreak. Such localization drives in our company will also help to de-risk our supply chain in the future and we will be better prepared to face such situations in the future as well.
Agreeing to it, Rallan further added, “The impact on the logistics sector is also significant, due to the massive disruption in trade and freight, shipping container availability has become an increasing problem and logistic costs have increased substantially. The second phase will be a demand problem. As coronavirus is proliferating in the western countries and decreasing in China, the supply and demand problem shifts to the other extreme. Manufacturing capability will increase just as consumption is decreasing. This too will cause significant strain on the logistics sector. This situation has exposed a known weakness in the global supply chain. Manufacturing was too centralised to one region. Phase three will be to de-risk global supply chains. It is vital to diversify the location of manufacturing across the world and India is in a unique position to accelerate make in India to a global audience looking for solutions.”
Is it an opportunity for the Indian manufacturing industry?
Dr. Chandra Sekhar Nettem, Chief Operating Officer, Sentini FloPipes - Sentini Group, a Hyderabad headquartered multi-diverse conglomerate said, “This sure poses a threat as well as a wonderful opportunity for the Make in India concept. A list of raw materials, semi-finished goods and finished goods is to be reviewed for all products currently imported from China. At least few of those are to be indigenous procured or produced. Other alternatives include moving to European suppliers at this hour of need.”
In this regard, Belavadi opined, “Definitely we believe that the disrupted Chinese supply chain should open a significant window of opportunity for Indian manufacturers. This will present an opportunity for Indian manufacturers to eye Exports of Manufactured products out of India to Europe & Americas. This will also present an opportunity for Indian manufacturers to support its domestic requirements across few industries. By doing this, the Indian manufacturing industry will create more jobs, de-risk from Chinese supplies and also boost the Indian economy (higher export revenues and lower imports thereby reducing the trade deficit).
Having said this, this is not an easy task to accomplish by India. This will require structural changes within our country. CII as a Key Industry Body should now get together with all the other Industry bodies in India & government of India to layout a roadmap to make India as a Manufacturing Power house. This will be a long drawn process but should be started ASAP to accomplish this objective. The consortium should focus on amending key policies to make India an industry friendly location which will invite / attract investments in Manufacturing across various business verticals. Even though the operating business environments are different, the CII can still pick-up a leaf from NASSCOM to understand how India has become an IT powerhouse in the world.”