The global supply chain is entering uncharted waters where geopolitical power struggle, climate change, and economic uncertainties are coalescing into a perfect storm, and old playbooks may no longer work. At the DIGITIMES Asia-hosted Supply Chain Summit hybrid event that opened on September 27 in Taipei, experts including Hinrich Foundation research fellow Alex Capri, Wall Street Journal chief economic commentator Greg Ip, and Tata Motors Purchase and Supply Chain vice president Hemant Barge advised companies to watch out for the new megatrends and adopt new strategies to thrive in the challenging time.
"In the old era of globalization of the neoliberal world, the kind of skill set the folks in this audience needed was fairly straightforward - what supply chain decisions made the most business sense," said Greg Ip, summarizing what he sees in the critical capability to thrive in the future. "In the new world, we're entering into now where tariffs and export controls of subsidies and friend shoring are the watchwords. You need to be aware that you need to develop new muscles and new skill sets to understand what makes the most political sense for the players involved. And this is going to be an ever-changing set of priorities."
Alex Capri pointed out that US-China rivalry in the hybrid Cold War, climate change regulations requiring carbon emission reductions, and single-point breakdown risks in supply chains during the pandemic have formed a "perfect storm."
This perfect storm is even more complicated with the US Federal Reserve's aggressive interest rate hikes to combat inflation. A rapid tightening unseen in decades without coordination internationally may likely overdo and trigger a financial fiasco. Ip said the worrisome factors also include an aging demographic structure in many countries, the unmet gaps between green energy and the decreasing supplies of carbon fuels, as well as the rising protectionism amid ideological confrontations.
From poignant lessons learned from the Wuhan lockdown during the early stage of the COVID-19 outbreak to the draconian pandemic control measures imposed on the Greater Shanghai area in the later stage of zero-COVID, as well as the power blackouts in Sichuan, companies have come to realize that the costs for over-dependence on China as the world factory and the unpredictable disruption China's policy uncertainty may bring are simply unbearable.
Multinational companies, such as Apple, recently have started to accelerate the relocation of part of their supply chains out of China. India is one of the popular destinations for global supply chain reconfigurations.
"How do people participate in Tata's supply chain?" asked the moderator, DIGITIMES editor-in-chief Uriankhai Sergelen.
"Globally all markets will try to make their products locally and India would also support in a similar way. If Taiwan industries would like to work in India or particularly with Tata, we have to start looking at long-term commitment," said Barge. Taiwan should understand that the Indian government is also encouraging localization by offering many incentives to increase local content, which are opportunities to be captured, Barge said. "Taiwan has got a lot of strengths, and a lot of synergies that can be built with Tata, and we can look at these requests case by case," said Barge. "But, in summary, I will say that you are more than welcome to come to India."
Supply chain restructuring is the long game
Between the "West" that the democratic allies of the US are alluding to, and the "East" that China and its allies such as Russia form, there will also be "non-aligned" countries including India that resist being involved in the Cold War, said Ip. India, as a leader in the "Non-Aligned Movement" in the 20th century, will again become a key player in the new "Non-Aligned Movement" of the 21st century. However, Ip pointed out that notwithstanding that India still has relatively high trade barriers compared to some of the other countries, it is very much more of a country that is plugged into the global economy and wants to be more plugged into the global economy.
India is poised to play a much bigger role in global economies as a turnaround story, said Barge. He acknowledged the fact that India has got specific need to overcome the challenges of poverty and the challenge of lack of infrastructure, but he stressed that there is a different India, one that is more promising and more filled with energy. "India's youth population is significantly active and that remains and will remain a strength for India, and the economy size that India carries, the technology that India has absorbed at the same time can also become a global hub for most of the design and software development."
Southeast Asian countries have generally maintained good relations with China, and are also avoiding taking sides, just like what India has refrained from doing. However, the "China+1" or "China+2" strategies have become a valid choice to mitigate risks from over-relying on China. And Vietnam, which has signed Free-Trade Agreements with the European Union and joined the Comprehensive Progressive Trans-Pacific Partnership (CPTPP), has been benefiting from investments, services, and capital moving out of China, including those from Chinese conglomerates.
"The restructuring of the supply chain is the mid-to-long game, where there's a lot of opportunity to be had, and certainly for Taiwanese companies to get involved in that," said Capri. "And that is driving the supply chain towards 'regionalization'." The fact that there were many representatives of US states in the audience as well as the India Taipei Association as the co-organizer of the summit is also evidence of this trend.
"In China, for China, in India, for India, in the US, for the US. That means new partnerships for supply chains, that means new strategic partnerships with governments, it means friend shoring, it means ring-fencing, these trends are going to pick up more localization more fragmentation," said Capri. "So be prepared. Be prepared to partner, be prepared to function. Be prepared to look more and more local."
From left to right: Hinrich Foundation research fellow Alex Capri, DIGITIMES editor-in-chief Uriankhai Sergelen, Tata Motors VP Hemant Barge, and WSJ economist Greg Ip.
Photo: DIGITIMES, September 2022