Navigating the Post-COVID Environment: Trends and Risks Facing Global Tech Supply Chains

Navigating the Post-COVID Environment: Trends and Risks Facing Global Tech Supply Chains

Executive Summary

  • Since the start of this year, the global tech manufacturing sector has faced an unprecedented amount of large-scale supply chain disruptions as companies worldwide begin to transition into a post-COVID-19 environment. In this report, Everstream Analytics highlights ten major trends and risks facing global tech supply chains. 
  • The onset of the COVID-19 pandemic has underscored the importance of having end-to-end supply chain visibility, starting from a company’s multi-tier supplier base all the way to the end-customer, in order to mitigate potential disruptions.  
  • The scale of the COVID-19 pandemic has also exposed the dangers of becoming overly dependent on a single country’s manufacturing facilities — namely Chinese manufacturers and suppliers in critical industries. For consumer electronics, the crisis highlighted this global over-reliance on China for lower-to-mid end electronics components and assembly as the world’s largest manufacturer of consumer electronics products.  
  • In the wake of COVID-19, companies are increasingly contemplating the need to diversify their supply base to reduce reliance on a single country’s manufacturing facilities should similar potential disruptions surface again in the future. While natural disasters and trade tensions have served as an impetus in the past for more diversified supply networks, businesses are re-assessing whether shifting sourcing and production lines may be necessary.
  • Global tech manufacturers have also had to navigate the volatile nature of geopolitical and trade tensions such as the China-India border conflict and ongoing U.S.-China tech competition that has restricted the flow and supply of semiconductors and other advanced technological goods.
  • For the semiconductor industry, companies with advanced manufacturing capabilities tend to be consolidated among a few major industry players concentrated in a handful of countries. If similar supply chain disruptions were to emerge, there could be global consequences given the wide application that semiconductors have on other critical sectors. 
  • As is the case with other industries, tech supply chains remain adversely impacted by severe air cargo capacity constraints and rising freight rates as consumer electronics and semiconductor manufacturers scrambled to keep their supply chains moving at the height of the COVID-19 pandemic. 
  • The advent of the annual storm season over recent months has posed serious disruptions with electronics and semiconductor manufacturing facilities, particularly those concentrated in East Asia, facing the threat of prolonged flooding and heavy rainfall
  • The growing prevalence of cybersecurity attacks — ranging from ransomware to data breaches — has also posed major threats to the production and business operations of semiconductor manufacturers.  
  • Cargo theft continues to pose a significant threat and costs for tech manufacturers and suppliers, which has typically involved the robbery of various finished high-value consumer electronic goods such as smartphones, laptops, and display screens.
  • The sourcing of raw materials needed for the production of critical parts and components in high-tech manufacturing has come under severe supply constraints and price surges in light of COVID-19 restrictions and unforeseen industrial safety accidents.
  • Companies can cope with these risks by improving supply chain visibility, re-evaluating supplier and distribution networks, and reassessing due diligence strategies, among other measures.

Background

Global tech supply chains — which include semiconductor to consumer electronics manufacturers — have been faced with its fair share of disruptions in light of the global COVID-19 pandemic. While not as heavily impacted by the crisis compared to other critical industries, tech manufacturers nonetheless face a variety of risks and trends as companies attempt to adapt and transition into a new post-COVID-19 environment. 

Taking this into account, Everstream Analytics highlights ten key trends and risks facing global tech supply chains as we head towards the end of 2020. These challenges include the importance of maintaining end-to-end supply chain visibility and traceability; the over-reliance on Chinese suppliers, particularly for global electronics manufacturers; potential sourcing and manufacturing shifts; global trade tensions; concentration risk in the semiconductor industry; reduced air cargo capacity; natural disasters; cybersecurity threats; cargo theft of high-value consumer electronics; and supply chain constraints for critical raw materials. 

Trends and Risks For Global Tech Supply Chains

Supply chain visibility

Supply chain visibility refers to the process of being able to track the movement of products and their inputs from the procurement of raw materials all the way to the manufacturing and distribution of the end-use product. In particular, the onset of the COVID-19 pandemic has underscored the importance of having end-to-end supply chain visibility across a multi-tier supplier base in order to mitigate and assess the potential impact of supply chain disruptions in order to reduce risks and costs. 

For technology companies, these visibility challenges came to the forefront when the COVID-19 pandemic initially broke out in China in late January and February. At the height of the crisis, mass production shutdowns choked tech manufacturers off from sourcing from Chinese suppliers and triggered significant shipment delays for critical components and parts (including semiconductors or finished electronic devices). Companies reliant on sourcing from critical Chinese suppliers faced an outsized impact from factory closures in Wuhan and Hubei province where several LCD and OLED display suppliers were based that prompted delays for laptop and smartphone manufacturers. Even when companies were permitted to restart their factories in China following COVID-19 shutdowns, the vast majority were unable to return to full capacity immediately and needed to bring factory workers back in phases due to various public health, transport, and labor restrictions. 

The lack of supply chain visibility meant that technology companies were faced with sudden supply shortages or shipment delays once they discovered that their Tier 1 suppliers had been impacted by their own Tier 2 and 3 suppliers and beyond. Without the visibility required, even well-established tech companies with a strong reputation for knowing their supplier base were not as prepared as they thought they would be. A joint survey conducted by the Business Continuity Institute (BCI) and Everstream Analytics on COVID-19 found that while 95.5 percent of respondents knew the locations of either their critical or non-critical Tier 1 suppliers, there was less knowledge or visibility for suppliers further into the supply chain despite the vast majority of disruptions originating in Tier 2 or beyond; only 11.8 percent of respondents performed due diligence on critical suppliers as deep as Tier 4 and 11.3 percent for Tier 5 and beyond.

Over-reliance on China for electronics manufacturing

The scale of the COVID-19 pandemic has exposed the vulnerabilities of global companies becoming overly dependent on a single country’s manufacturing facilities — namely Chinese manufacturers and suppliers in critical industries. For consumer electronics, China is the world’s largest manufacturer by specializing predominantly in the production of lower-to-mid end electronics components: more than half of the mobile phones and almost all of circuit boards in the world are still produced in China, while Chinese factories are responsible for installing two-fifths of the world’s semiconductors.

As the COVID-19 crisis evolved, this global over-reliance on sourcing from Chinese manufacturing facilities became apparent as affected companies scrambled to identify alternative suppliers and secure essential raw materials needed for critical inputs into end-products. In March, the Indian government called on its electronics and smartphone industry to identify a list of critical parts and components made in China that could then be airlifted into the country. Although electronics manufacturing saw considerable growth in India prior to the COVID-19 pandemic, Indian smartphone and electronics assemblers remain heavily dependent on China for key components such as sensors, display screens, or camera modules. To put this into perspective, 51 percent of India’s imports of microphones, 42 percent of telephone sets, and 35 percent of monitors and projectors in 2019 came from China alone.

But breaking supply chain reliance on China will not be easy. For starters, electronics supply chains remain highly integrated and dependent on China for a considerable amount of raw materials and intermediate inputs that may not be easy to replace. Some, like Japanese electronics manufacturer Nidec Corporation which produces motors for electronics goods, have even pledged to expand sourcing capabilities in China amid the COVID-19 crisis after they were unable to procure parts that it believed was sourced locally but was in fact being shipped from Europe.

Shifting supply chains

Another key theme emerging from the COVID-19 crisis is the extent to which companies — including tech companies — are contemplating the need to diversify their supply bases to reduce reliance on a single country’s manufacturing facilities if similar large-scale disruptions were to surface again in the future. While natural disasters and trade war tariffs have previously served as an impetus for more diversified supply chains, businesses are re-assessing their manufacturing networks and whether shifting manufacturing from China to other emerging markets or via re-shoring and/or near-shoring initiatives may be necessary. 

The dependence of electronics manufacturers on critical Chinese suppliers has raised renewed questions into whether firms may need to de-risk through supply chain diversification over the long-term. In short, this could mean seeking alternative sourcing for raw materials and other suppliers in different countries that could make the same or similar parts, components, or finished products. To mitigate rising costs, companies may choose to shift production lines to existing facilities or contract manufacturers and even set up factories in other countries to prevent any potential obstacles posed by being solely dependent on one location. Citing national security concerns and critical supply shortages in light of the pandemic, several governments including the U.S., U.K., India, Indonesia, South Korea, Japan, and Taiwan have also launched schemes aimed at providing industrial subsidies to incentivize firms to move supply chains out of China closer to home through re-shoring and/or near-shoring initiatives (see Appendix A). 

While shifting production away from China to another country may be attractive from a supply chain diversification perspective, several challenges remain in a number of important areas: sufficient access to mature manufacturing facilities; warehousing availability; reliable air, ground and ocean freight infrastructure and routes; alternative suppliers and raw materials; and long-existing supplier relationships that may not be easy to replicate in alternative markets. For industries heavily reliant on advanced technologies, shifting sourcing may not be easy as much of the technology that is being built or made in China requires skills that are not easily transferable elsewhere. Full automation of back-end processes could eventually lead to more assembly lines being re-shored in the future, but has long been done in China given how labor intensive these processes can be. 

Global trade tensions

In the backdrop of the COVID-19 crisis, global tech manufacturers and suppliers have also had to navigate the volatile nature of global trade and geopolitical tensions that further underline the importance of end-to-end supply chain risk management. 

As noted in an earlier Everstream Analytics Special Report, a military standoff over a disputed border area between China and India on June 15-16 prompted Indian authorities to respond with a wave of economic retaliatory measures that resulted in severe delays for Chinese-origin goods at ports, delayed production lines, and caused uncertainty for shippers. Chinese exports of smartphone electronics, telecommunications equipment, and semiconductors were targeted through unofficial cargo and customs clearance delays across all Indian ports. Some major global tech manufacturers were also impacted by the political dispute including Foxconn, Cisco, Dell, and Apple. More than 150 Foxconn shipments containing smartphones and electronic parts were held up at the Port of Chennai over an extended period of time.

Ongoing trade war tensions between the U.S. and China has seen the Trump administration impose export controls and other various trade restrictions aimed at stemming the flow of cutting-edge U.S. technology to China through its Entity List, which has targeted over 300 Chinese entities including telecommunications and semiconductor companies. On September 25, the U.S. imposed export controls on China’s largest chipmaker, Semiconductor Manufacturing International Corporation (SMIC), after alleging unacceptable risk that equipment supplied to the SMIC could be used for military purposes. Unlike an Entity List entry that imposes blanket bans, the SMIC restrictions come under new Military End Use (MEU) rules and will likely be enforced via case-by-case restrictions.

The volatile nature of U.S.-China tech competition could also have serious consequences for global chipmakers, with suppliers faced with the pressure of having to choose between U.S. and Chinese supply chains. Non-U.S. and Chinese tech manufacturers may face an uncomfortable choice: in order to retain access to U.S. equipment, they may be required to give up on sales to Chinese firms; or, conversely, turn away from U.S.-made equipment but be forced to switch to subsequent equipment from non-U.S. suppliers. These dynamics are already playing out for Taiwan Semiconductor Manufacturing Company (TSMC) after it announced in May that it would be building a USD 12 billion (EUR 10.1 billion) chip production plant in Arizona and reports surfaced that it would also stop taking new orders from Huawei to comply with export controls imposed by the U.S.

Concentration risk

For the semiconductor industry, companies with advanced manufacturing capabilities tend to be consolidated among a few major industry players concentrated in a handful of countries. Given the considerable costs needed to go into the funding of research, design, and manufacturing capacities, only foundries and integrated device manufacturers with proven technical capabilities are able to take on higher capital costs and achieve commercial yields. These top-tier manufacturers are concentrated in a small number of countries such as the U.S., Taiwan, South Korea, Japan, and Europe (see Figure A below). While the majority of China-based semiconductor firms are still largely manufacturing low-and-mid range integrated circuits, China has pledged over USD 118 billion (EUR 106 billion) over five years to shore up its domestic semiconductor industry as part of its Made in China 2025 plan.

CountryMarket share (by %)Leading companies
U.S.45Micron Technology, Intel, Qualcomm, Texas Instruments, NVIDIA, Broadcom, Western Digital, GlobalFoundries, Advanced Micro Devices
South Korea24Samsung Electronics, SK Hynix
E.U.9Infineon, NXP, ASML, STMicroelectronics
Japan9Toshiba, Sony, Panasonic
Taiwan6TSMC, Wistron Corporation
China5SMIC, HiSilicon
Figure 01: Global market share of semiconductor industry (by company nationality). Source: SIA, Hinrich Foundation, World Semiconductor Trade Statistics. 

However, this can prove to be challenging in instances where sudden choke points or supply chain disruptions emerge. During the South Korea-Japan trade dispute last year, Japan imposed export controls on critical high-tech chemical materials, such as resistors, fluorinated polyimide and etching gas, that created severe disruptions for South Korean semiconductor and smartphone manufacturers. As was covered in a previous Everstream Analytics Special Report, Japanese companies hold a quasi-monopoly on these materials that are essential in the production process for smartphone and semiconductor manufacturing, and the trade restrictions triggered South Korean semiconductor manufacturers Samsung Electronics and SK Hynix to reconfigure their supply chains as both countries sought to stockpile and secure certain chipmaking materials from alternative suppliers.

 U.S.TaiwanSouth Korea JapanE.U.ChinaOther
Design, manufacturing, assembly and testing (IDM)51328117N/A1
Design, no manufacturing or assembly (fabless – 45% of supply chain)6218N/A12107
Manufacturing (foundry – 45% of supply chain)107362N/A72
Assembly, testing (OSAT – 10% of supply chain)1754N/A5N/A1212
Figure 02: Location of semiconductor companies by production. Source: Semiconductor Industry Association (SIA), Hinrich Foundation.

If similar supply chain disruptions were to emerge, there could be global consequences given the wide application that semiconductors have on other critical sectors such as automotive & mobility and life sciences & health care. In 2019, one company alone — TSMC — accounted for around half of the world’s contract chip making market share, with many multinational firms reliant on TSMC for the chip manufacturing needed to produce widely used consumer electronics such as smartphones, laptops, and other goods. At present, only Samsung (South Korea) and TSMC (Taiwan) are manufacturing semiconductors in volume at the most advanced process nodes and producing commercial quantities at the 7-nanometer (nm) node.

Air cargo constraints

At the height of the COVID-19 crisis, companies scrambled to get their supply chains moving out of Asia (particularly for consumer electronics) as they faced soaring global air freight rates for shipping goods out of China amid mass flight cancellations and sudden limited air cargo capacity shortages emerging worldwide. Although global air cargo traffic has slightly improved in recent months, it remains significantly depressed by the impact of COVID-19 with a year-on-year comparison showing around a 40 percent decrease in worldwide air freight capacity (see Figure C). These constraints stem from the loss of available belly cargo space from passenger aircraft that have stayed parked, with the International Air Transport Association (IATA) confirming that belly capacity for international air cargo shrank by 70.5 percent in July compared to the previous year.

Air Freight Trade LaneCurrent Freighter PercentageChange to pre-COVID-19 levels
Trans-Atlantic66%+33%
Trans-Pacific83%+24%
Europe-Asia80%+30%
Figure 03: Freighter percentages by air freight trade lane amid COVID-19. Source: FreightWaves

For semiconductors and consumer electronics, the majority of shipments are still transported through air or land depending on the origin and destination country, with ocean freight less frequent given the challenges associated with humidity and other temperature-sensitive impacts. While certain firms have benefitted from a surge in consumer demand (most notably for laptops and other widely used electronics) due to COVID-related workforce changes, almost all firms have been faced with the reality of having to take on persistently high air freight rates without knowledge of when capacity on passenger flights could be returning. In fact, some companies have asked airlines to provide long-term capacity and long-term pricing and were willing to buy freighter capacity to block space. 

In the post-COVID environment, the technology industry has stayed comparatively resilient as demand for 5G-related applications and data centers particularly in Asia remains resolute. In certain instances, some airlines have actually benefited from cargo deliveries for electronics and declining fuel prices to boost their air freight businesses, particularly on long-haul routes from Asia to the U.S. and Europe, and offset the sharp declines in passenger travel demand due to the COVID-19 crisis. Airline carriers Korean Air and Asiana Airlines have seen considerable demand for cargo deliveries for smartphones, TVs, and components from Samsung Electronics and memory chips from SK Hynix.

Natural disasters 

The advent of the annual tropical storm season has posed serious disruptions, with electronics and semiconductor manufacturing facilities facing the threat of prolonged flooding and heavy rainfall. In particular, the emergence of typhoon-type activities in the Pacific Ocean — combined with a high concentration of specialized tech manufacturers and suppliers in Northeast Asia (notably Japan, South Korea and China) — has seen a number of firms sourcing from critical suppliers in the region coping with direct natural disaster impacts on transport infrastructure and production amid the ongoing fallout from the COVID-19 crisis. 

COMPANYSUB-SECTORDATELOCATIONIMPACT
Mitsubishi ElectricSemiconductorsSeptember 7, 2020Fukuoka, Nagasaki, Kumamoto prefecturesHalted production lines at semiconductor factories due to Typhoon Haishen
SonyConsumer electronicsSeptember 6-7, 2020Kyushu, JapanHalted production at plants due to Typhoon Haishen
CanonConsumer electronicsSeptember 6-7, 2020Oita, Nagasaki, and Miyazaki prefectures, JapanSuspended operations at seven factories due to Typhoon Haishen
Shenge ResourcesRaw materials (rare earths)August 18-21,2020Leshan, Sichuan, ChinaAll factories forced to stop production at company and holding subsidiaries
Sichuan Yongxiang Polysilicon Company Ltd. Raw materials (polysilicon)August 18, 2020Leshan, Sichuan, ChinaFlooding halts production at Yongxiang unit 
PanasonicConsumer electronicsJuly 7, 2020Kumamoto Prefecture, JapanStops production of capacitors due to flooding
HitachiConsumer electronicsOctober 15, 2019Koriyama City, JapanSuffered flooding damages to equipment at plant due to Typhoon Hagibis
PanasonicConsumer electronicsOctober 12,-13 2019Koriyama City, JapanPrinted circuit board materials damaged at factory due to flooding and heavy rainfall from Typhoon Hagibis
Figure 04: Production impacts on tech manufacturers due to natural disaster-related disruptions, 2019-2020. Source: Everstream Analytics

Figure D above includes a summary of operational and production impacts companies have suffered due to tropical storm disruptions from 2019-2020. In early September of 2020, two powerful back-to-back typhoons, Maysak and Haishen, hit the Kyushu region in Japan and caused several tech manufacturers to halt their operations at various production facilities including Canon, Sony, and Mitsubishi Electric’s semiconductor factories. Likewise, some of the worst floods in China in decades caused Chinese rare earths producer Shenghe Resources and its subsidiaries to completely halt production in mid-August at all of its factories in Leshan, Sichuan.

Cybersecurity threats

The prevalence of cybersecurity attacks — ranging from ransomware to data breaches — continues to pose major disruptive threats to commercial entities across all industries with hi-tech manufacturers and suppliers being no exception to the rule. In particular, semiconductor firms have increasingly become prime targets for cyber-attacks aimed at either stealing sensitive information through a data breach or shutting down operations until a ransom is paid. 

According to an investigation by Taiwanese cybersecurity firm Cycraft, state-sponsored hackers allegedly targeted at least 7 unidentified Taiwanese semiconductor companies between 2018 and 2019 through a series of deep intrusions referred to as Operation Skeleton Key — with several of the affected firms’ headquarters in the Hsinchu Industrial Park, a major technology hub in northwestern Taiwan. One of the identified companies was Powertech Technology, a Taiwanese semiconductor assembly and packaging company, which had its factories infected with an unspecified ransomware threat that has since been removed.

COMPANYSUB-SECTORDATETYPE OF CYBERSECURITY THREATCOUNTRIES AFFECTED
Tower SemiconductorSemiconductorsSeptember 6, 2020RansomwareIsrael
CanonConsumer electronicsAugust 11, 2020Ransomware / Data breachU.S. 
X-Fab Silicon FoundriesSemiconductorsJuly 5-13, 2020RansomwareBelgium, Germany, U.S., France, Malaysia, and Germany
LG ElectronicsConsumer electronicsJune 25, 2020RansomwareSouth Korea
XeroxConsumer electronicsJune 24, 2020Ransomware / Data breachU.S.
Powertech TechnologySemiconductorsMay 4, 2020RansomwareTaiwan
MaxLinearSemiconductorsApril 15, 2020 (approximately)RansomwareU.S.
Figure 05: Notable cybersecurity threats impacting tech manufacturers. Source: Everstream Analytics. 

Figure E includes a series of high-profile cybersecurity incidents recorded by Everstream Analytics that  have impacted tech manufacturers in 2020. In July, X-Fab Silicon Foundries, a Belgium-based semiconductor supplier focused on the design and manufacturing of silicon wafers, became the target of a cyber-attack and was forced to temporarily stop its IT systems and production lines at all six of its manufacturing sites to prevent potential damages. Israeli chipmaker Tower Semiconductor, which specializes in analogue chips used in other sectors including automotive, medical, and aerospace markets, also suffered from a cyber-attack in early September that caused some of its servers and manufacturing operations to be disrupted.

Cargo theft

Cargo thefts pose a significant threat for shippers. For the tech sector, cargo theft has typically involved the robbery of various finished consumer electronic goods (such as smartphones, and laptops) given their high value and relatively small sizes. Cargo thefts can occur through hijacking and thefts at airport facilities, company facilities, roadways, and/or en route to warehouses via major highways. 

Figure F includes some notable cargo theft incidents involving high-value consumer electronics collected by Everstream Analytics this year along with the estimated value in cargo being stolen. Since the start of the year, three separate major incidents occurred at the Amsterdam Schiphol Airport involving the theft of various Apple products including iPhones and watches. Other notable cargo theft incidents involved phones and other electronics being stolen from trucks in Saint-Witz, France and Nairobi, Kenya en route to or departing from warehouses. 

INCIDENTLOCATIONOCCURRENCE DATEESTIMATED VALUE OF CARGO STOLEN (USD)
Shipment of Apple iPhones stolen from Amsterdam Schiphol Airport Amsterdam, NetherlandsJuly 28, 20203,520,000
Fake drivers steal electronics from logistics company in Amsterdam SchipholAmsterdam, NetherlandsJanuary 8, 20203,340,000
Shipment of mobile phones stolen en route from Kenyatta International Airport to warehouse in Eastleigh, NairobiNairobi, KenyaApril 13, 20201,105,889
Armed robbers attack truck on A1 highway near Saint-Witz and steal 20 pallets of Apple productsSaint-Witz, FranceJuly 7, 2020Millions of USD (unspecified)
Perpetrator steals 4,400 Apple watches stolen at Amsterdam Schiphol AirportAmsterdam, NesterlandsMay 16, 2020563,647
Thousands of phones stolen from truck departing from warehouse in Saint-Priest near LyonSaint-Priest, FranceJuly 13, 2020N/A
Figure 06:  Notable cargo theft incidents involving high-value consumer electronics, 2019-2020. Source: Everstream Analytics.

Supply constraints for critical raw materials

The sourcing of critical raw materials needed for the production of parts and components in high-tech manufacturing has come under severe supply constraints and price surges in light of COVID-19 restrictions and unforeseen disruptions such as industrial safety accidents (including factory fires and explosions).  

The COVID-19 crisis has seen reduced supply and rising prices for cobalt and other similar raw materials that are widely considered essential for making rechargeable lithium-ion batteries used in high-end consumer electronic devices. A price surge of more than 22 percent to more than USD 26,000 (EUR 22,203) per ton for cobalt hydroxide was reported in August from July on the back of increased demand in the consumer electronics industry driven by laptop and tablet sales and other supply chain disruptions. Cobalt, which is heavily extracted from the Democratic Republic of Congo (DRC), was subject to severe lockdown and transport restrictions from March to May due to COVID-19, as well as shipment delays via South Africa’s Port of Durban that was under extended periods of lockdown earlier this year. 

In addition, a major industrial safety accident in China resulted in similar global supply shortages for polysilicon, a raw material melted into cylindrical ingots and sliced into thin wafers before being turned into solar cells used in solar panels. On July 19, a series of multiple explosions broke out at GCL-Poly Energy Holdings, one of the world’s largest polysilicon suppliers, which forced the company to shut down its production facility in Xinjiang and removed about 48,000 tons of polysilicon from the market. The sudden supply shortages for polysilicon accounted for about 10 percent of global supply and triggered global pricing increases of over 50 percent due to the blasts.

Outlook and Recommendations

The emerging risks and trends facing global tech supply chains are diverse and far-ranging as companies transition into a post-COVID-19 environment. Although the technology sector has not suffered the same impacts as other industries amid the COVID-19 pandemic, the challenges highlighted in this report further underline the importance of having end-to-end visibility that can help identify possible disruptions, conduct risk assessments and monitoring of suppliers, and ultimately reduce risks and costs throughout the supply chain.

Everstream Analytics outlines several recommendations below that supply chain managers in the tech sector should consider:

  • Improving end-to-end supply chain visibility: The volatility of the global COVID-19 crisis has underlined the importance of investing in technological solutions capable of mapping out supplier networks and providing greater end to-end visibility. This includes mapping supplier networks beyond Tier 1 and identifying inventory locations where stock is held. These tools and technologies can also be used in combination with control tower set-ups, to help equip managers with analytics solutions to understand new patterns and manage external risks. 
  • Re-evaluating supplier and distribution networks: Tech manufacturers will need to determine whether revisions to their operational and logistical planning are feasible and assess if alternative suppliers and distributors will be needed in the aftermath of the COVID-19 crisis. Clear visualization of critical supplier and shipping locations would allow for more accurate risk assessments for sub-tier supplier levels — both from a geographical and product-flow perspective.  
  • Re-assessing due diligence strategies: Given ongoing regulatory risks stemming from global trade and geopolitical tensions, tech manufacturers will need to conduct a comprehensive review of their supply chain network and ensure compliance to export controls and other various trade restrictions when engaging with foreign suppliers. 
  • Synchronizing and preparing against cybersecurity threats: Tech manufacturers should take steps to coordinate with suppliers to ensure that they have business continuity plans in place should a cyber-attack occur. This includes building awareness of the operational systems, hardware, and equipment used by suppliers to help better anticipate potential disruptions and proactively mitigate such threats. 
  • Re-aligning inventory strategies: Tech companies should be monitoring current inventory levels and plan ahead for additional inventory in the event that critical sourcing locations are impacted by natural disasters or other unforeseen disruptions due to COVID-19. Organizations should consider planning inventory in diverse locations to mitigate the risk of not being able to access or ship critical materials when necessary. 

Appendix

COUNTRYDEVELOPMENTS
IndiaThe Indian government has launched a USD 6.65 billion (EUR 5.62 billion) plan to boost electronics manufacturing and have offered incentives to establish or expand domestic production. The government is also offering a production-linked incentive (PLI) involving cash worth 4-6 percent of additional sales of goods made locally over five years. 
IndonesiaIndonesia is in talks with the U.S. government over the possible relocation of U.S. companies operating in China to the country, offering slots in industrial parts including Kendal Industrial Park in Central Java (a special economic zone with tax incentives).
JapanJapan is setting aside more than JPY 240 billion (USD 2.2 billion; EUR 1.97 billion) in its record stimulus package to prepare a subsidy for companies that reorganize their supply chains and shift manufacturing out of China.
TaiwanThe Taiwanese government announced in September that it would join the U.S. in seeking ‘like-minded’ democracies to join a shift in global supply chains in a move aimed at reducing economic reliance on China.
U.K.In June, the U.K. government announced its Project Defend strategy aimed at reducing Britain’s reliance on China for key imported goods while diversifying the country’s trading relationships.
U.S.The Trump administration issued an executive order on September 30 to look into the country’s reliance on rare earths from foreign adversaries in a move aimed at ending China’s dominance of the industry. Rare earths are an obscure group of 17 minerals used to build a range of consumer electronics.  
Appendix A: Government-led initiative programs to incentivize reshoring and near-shoring. Source: Everstream Analytics. 

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