As China factories reopen, production may be hampered by ongoing measures to combat the pandemic
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Tech companies including Apple and Sony have seen their production facilities in China reopen, but the persistence of broader supply chain uncertainty will slow their return to full speed. Sony, for instance, reopened its four manufacturing plants in China after less than a month of closures intended to help curb the spread of coronavirus.
Coronavirus restrictions in other countries still have a significant impact on the operations of factories in China. Here are three key ways quarantine measures abroad are impacting production in China:
- Engineer travel has been restricted, limiting prototyping and quality control processes. Companies headquartered outside of China face travel restrictions that make it difficult for engineers to perform in-person analysis at production facilities. The US State Department issued a Level 4 advisory against any form of international travel and there's no clear end in sight. Restrictions on engineer travel was reportedly a factor in Apple considering the delay of its anticipated fall 2020 5G iPhone launch, as staff could not visit factories in China to assist with prototyping.
- China reopened its economy, but must exercise an abundance of caution to prevent a resurgence of the virus. The country has been able to contain the outbreak, reporting fewer than 100 cases last week, thanks to aggressive, widespread testing and enforced isolation of sick individuals. However, the need for continued vigilance to keep the virus from returning will result in a slower economic reboot, due to precautions like more intensive vetting of China's large migrant labor workforce.
- Suppliers outside of China face ongoing restrictions. Other tech manufacturing hubs - including India, Vietnam, and Malaysia - are experiencing outbreaks of the coronavirus on a delay relative to China, and generally have less effective infrastructure in place to combat the domestic spread of the virus. Many manufacturers in China will likely see supply shortages of their own - for instance, stricter quarantine measures in Vietnam would limit domestic production of the Apple displays that are sent to China for assembly, according to Reuters.
The ongoing barriers facing manufacturers in China highlight the duration and uncertainty surrounding the recovery of supply chain operations. According to a March 2020 survey from Business Insider Intelligence, 41% of executive respondents in the connectivity, technology, and software sectors were already dealing with supply chain issues due to measures taken to combat the virus.Further, 62% believed they would have these issues in the next six months, highlighting the anticipated domino effect which would prolong the recovery process. One significant difficulty that companies face is accurately projecting the demand for products, given the uncertain economic conditions. Larger players may need to extend assurances to smaller suppliers if they want to quickly ramp up demand, as the volatility will cause suppliers to be more cautious in production output.
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