China is in no danger of losing its supply chain supremacy to India or Vietnam
- For all the talk of foreign firms leaving China over the Covid-19 pandemic and global uncertainty, examples of wholesale departures are hard to find
- China’s advantages in quality, cost, timeliness and security will keep its central role in global supply chains in place for a long time to come
The possibility of multinational companies leaving China in droves along with their supply chains has become a hot topic these days. This is nothing new.
So where are we heading? During my work, I regularly interact with senior executives of multinationals operating in China. Some companies might curtail their China operations because of the pandemic but, despite the current uncertainties, I haven’t come across many considering a wholesale departure.
Some will, of course, restructure their China operations, selling some businesses but also buying some. Many view China as one of their most important markets and a source of knowledge and inspiration for innovation. While some continue to invest, many are in a wait-and-see mode.
These supply chains are “sticky”, and it takes a long time to build them. It would be difficult for many manufacturers to move their supply chains. Some might move parts to other countries, but new supply chains are often constructed because of new products or policies in the host country.
Given the current state of the global economy and geopolitics, multinationals do have some concerns. However, I have been told that after considering issues including the war in Ukraine, inflation, chances of a multipolar post-war world order and possible shifts in the international finance system, they believe China could play a more important global role going forward.
Much of the current sentiment is driven by geopolitics and the Ukraine war. While some of these factors could be here for a while, others are transient. Geopolitics and other non-economic factors are distorting the perspective in terms of economic fundamentals, while company executives are making their decisions based on economic logic and global strategies.
Multinationals are ultimately responsible to their shareholders and must configure supply chains based on quality, cost, timeliness and security. As such, while there might be short-term issues, China will continue to play a pivotal role in many supply chains barring some extreme “black swan” event.
Edward Tse is founder and CEO of Gao Feng Advisory Company, a strategy and management consulting firm with roots in Greater China