Business News

Key messages from the Fung Business Intelligence looks at the impacts of the COVID-19 outbreak on China’s economy and global supply chains:

• The rapidly unfolding of the COVID-19 outbreak in China has brought fresh uncertainty to global supply chains across various sectors ranging from textiles and garments and automotive to electronics and pharmaceuticals.

• Production delays, shortage of labour and logistics disruptions, triggered by tough epidemic prevention and control measures enforced by all levels of Chinese authorities, are major supply chain risks facing Chinese suppliers amid the outbreak.

• It is difficult to predict how soon factory operations will fully resume at this point. Some delays in order delivery seem unavoidable. In the near term, shifting sourcing orders from China to alternative production countries in Asia does not seem to be a quick and viable solution, especially since Asian supply chains are highly reliant on Chinese fabrics, components and parts, and some neighbouring countries are already facing capacity constraints.

• For contingency plans, companies sourcing from the diseaseimpacted areas should urge their vendors to follow strictly local authorities’ regulations on worker quarantine and workplace hygiene to avoid worker infection. Meanwhile, buyers or supply chain managers should keep a close eye on the latest news on work resumption in different areas of China and to make agile purchase decisions based on the latest work resumption situations.

• For apparel companies that are urgently looking to diversify their sourcing portfolio, particularly for their autumn/back-to-school season orders, countries or regions that are less reliant on Chinese suppliers, or have a relatively self-sufficient textile and apparel supply chain, such as Turkey, Egypt, Jordan, Mexico and Central America, could be among the first options.

• In the longer term, companies need to thoroughly re-examine their supply chains and devise contingency plans and risk management policies for their supply chains. Businesses should avoid an ‘all-in’ sourcing strategy which is single-market dependent, and also makesure that back-up suppliers for every part of their supply chains are ready to go in case of any unexpected events. These mean that production and supply chains now need to be even more diverse and agile.

• Both a diversified sourcing portfolio and a broad supplier network remain key to businesses even after the COVID-19 outbreak is over. As such, companies with a strong global supplier network and deep relationships with suppliers will be in the best position to meet the new challenges in this era of disruptions and great unpredictability.

• We anticipate that the COVID-19 outbreak in China will be contained before this summer. We believe that China’s unrivalled capacity, extensive capability and flexibility will make it competent to cope with a sudden surge in backlogs of orders when factory operations fully resume.

Download the full report here

Posted on 2020/02/18