The lockdown in Shanghai has impacted global supply lines leading to shortage of critical components for industries such as computers and electronics. The problem has been further exacerbated by the Covid-19 related restriction which have been extended to places like Kunshan near China’s second-largest city, and which serves as important component manufacturing hubs.
“Given the component ecosystem’s dependence on China, the supply chain is under pressure for the industry. Already we are witnessing short supply scenario in some components, and the situation could worsen if the lockdown continues into June,” business head and executive vice president, Godrej Appliances, Kamal Nandi told Business Today. “It could take a quarter or more for the situation to normalise once China lifts its lockdown restrictions.”
“There are three perspectives to this. One is the lockdown in some key cities in China, which has impacted some manufacturing locations. As a result, ships are blank sailing or skipping some of the ports that has resulted in a container backlog. The positive side is that shipment prices are stabilising now,” said CEO Panasonic India & South Asia, Manish Sharma.
Even as videos and images questioning the rationale behind the harsh containment measures emerge on social media platforms defying the Great Firewall, experts have said that the crisis may present yet another opportunity for India to promote its manufacturing sector as an alternative to China.
In February, export of electronic goods rose by almost 88 per cent from $6.6 billion in 2013-14 to $12.4 billion in 2021-22, according to the data from the ministry of commerce & industry. Mobile phones, IT hardware items such as laptops and tablet computers, consumer electronics like television and audio products, industrial electronics and auto electronics already comprise key exports from this sector.
According to Godrej's Nandi, the shortage of components, coupled with increase in prices and a depreciating rupee, has resulted in an increase of 30 per cent in cost of manufacturing since December 2020.
“So far, the industry has passed on only up to 15 per cent of the cost increase in the form of price hikes. In the last four quarters, a 3 per cent hike in prices have been affected every quarter”, he said. However, manufacturers are left with no other option but to hike prices further.
Moreover, if the supply issues are not sorted out in the next two weeks, the manufacturers may suffer as shortage of components like compressors (for air conditioners and refrigerators) and motors for washing machines, which are heavily imported from China. After subdued sales in the last two summers, early rise in temperatures have boosted demean for ACs and refrigerators in India. But component shortage and steep rise in costs may spoil the party.
“Demand for ACs is very high this time but cost of ex-factory logistics at China have jumped five times. While the closure of sea ports at China have complicated the matter further”, said Avneet Singh Marwah, CEO at Superplastronics.
Creating a robust alternative
However, in their search for alternate manufacturing hubs, foreign businesses with manufacturing bases in China have been relocating to Southeast Asian countries such as Vietnam, Thailand and Cambodia.
“It is believed that alternatives for mitigating risks at a large scale would not be possible except from a country like India, provided India creates the right environment and eco-system,” asserted CEO of Fortigo Logistics, Anjani Mandal.
“This can be done through regulatory, entrepreneurial businesses that have the hunger and investment capability, cost-point and value delivered to buyers, responsiveness to adapt to their evolving needs and logistics capability of the geography. All of these need to be coordinated and orchestrated well to build capability to handle such large moves by large corporations,” he added.
Asia's third-largest economy is also looking at developing sunrise sectors like drone manufacturing, which is currently dominated by countries like the US, China and Israel. India has targeted to create a $20 billion drone industry by the end of the decade.
“We are committed to transforming India into the global drone manufacturing hub by 2030. We are working with the NITI Aayog to take this sector forward using three pillars. The first being the evolution of a proactive policy framework, the second is incentivising manufacturing through the Productivity Linked Incentive (PLI) scheme and the third is to also create internal demand through the 12 ministries of the government,” civil aviation minister Jyotiraditya Scindia said Tuesday.
While the supply chain disruptions at China since the early-2020 have opened up a window of opportunity for companies to localise production, for now consumers would have to bear the brunt of surging prices of electronics and appliances as, from chipsets to indoor AC units, all key components are being imported.
(With inputs from Nidhi Singal and Rahul Oberoi)
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