Under a Virus Cloud: Tech companies could soon start hedging against China as the sole manufacturing hub

By: |
March 10, 2020 1:00 AM

Apple was among the first companies to announce the affect of virus on business with impact on both manufacturing and supply chain.

coronavirus, coronavirus impactThe coronavirus impact could also end up delaying product launches this year.

Tech companies are petrified of viruses. And, rightly so. But no software virus has created as much damage as the novel coronavirus, which has put paid to the plans of most tech companies across the world. COVID-19, which had its origins in China, has so far been responsible for the cancellation of the Mobile World Congress in Barcelona, the biggest smartphone expo of the year, as well as a host of other events and launches spread across brands. Samsung was lucky to squeeze in its S20 and Flip launches earlier in February, as almost every mobile phone launch since has been limited to being a virtual affair.

With China being the ground zero, the impact has been more. Almost every company in the tech sphere which needs to manufacture a product is dependent on China. In case there is a company that does not produce in China, then it needs the components for its manufacturing to come from there. So, the near shutdown of factories in China has hit everyone.

Apple was among the first companies to announce the affect of virus on business with impact on both manufacturing and supply chain. It even shut Apple stores—it has since shut stores in Italy. Mid-February, it told investors the epidemic is going to have an impact on its revenue with iPhone supplies being impacted along with actual sales in China.

The coronavirus impact could also end up delaying product launches this year. From the so-called more affordable iPhone SE2 to Macs and MacBooks, a lot of Apple products could be delayed. The Moto Razr should have been selling in India by now, but that has been delayed already. Samsung has not yet given a final date when it will start selling its Galaxy Z-Flip in India. No one wants to commit. That is the level of uncertainty in the market.

So far, the impact has not trickled down to India. However, if the situation prolongs, some models of the iPhone could go out of stock. To Apple’s advantage, iPhone XR and iPhone 7, the more popular models in India, are manufactured locally. However, even those could be impacted if component supplies dry up. Same could be the case with companies like Samsung, Oppo and Xiaomi, all of whom assemble in India with components shipped from China.

The general shape of the economy and the fact that demand in India is often seasonal has meant that none of the devices have really started going out of stock. Not yet. But that could happen if the situation prolongs longer. For now, it seems China is recovering, but slowly. This jolt, that too at a time when most companies are struggling with demand as people hold on to devices longer, is sure to shake up the tech industry.

With most of the tech industry under the weather thanks to coronavirus, there will be increasing clamour from all quarters to reduce everyone’s dependence on China for manufacturing and component sourcing. Apple, for instance, has already been under pressure over this for a few years now. While it has moved some production back to the US and countries like India and Brazil, there will now be more calls to ramp up on Plan B as China is not really going as per plan for Cupertino.

Even companies like Oppo, Xiaomi and Samsung that produce most of the smartphones locally will now be looking at talking to component manufacturers to start moving parts of the production to countries like Thailand, Vietnam and India to hedge against future eventualities of this kind. The tech world is really realising that China as a manufacturing hub might not be a good idea after all. A more decentralised tech manufacturing map is being drafted somewhere.

If India is able to sell itself as a destination with that can offer the stability needed to become a new manufacturing hub, along with the skilled manpower it already has, then the coronavirus cloud that hangs over the world now could end up with a silver lining that shines on the Indian economy. For now, it does not seem Silicon Valley at least would be looking at the subcontinent with that much confidence.

nandagopal.rajan@expressindia.com

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