This is a quick read on key trends in regards to China supply chains.
China is the second-largest economy in the world and a leading manufacturing hub for various international companies. As per this Nikkei Asia article, exports from the country grew 9.9 percent to $239.7bn in September 2020. These changes happened after it diversified its supply chain to regain trade growth after both the COVID-19 pandemic and a trade war with the United States. Imports for the same period in the country rose 13.2 percent to $202.7bn.
The continuing trade war between China and the United States has affected industries around the globe. China’s supply chain systems weren’t without risk and many felt the impact of it as well. Political tensions, rising tariffs, and the overall economic slowdown have emphasized the need for effective change management, reactiveness, and core strategy planning for maintaining consistent supply chain management in the country. Currently there’s an ongoing focus on digitization, especially after the pandemic.
The present tariff rates in China show no sign of slowing down, and the country’s global influence and power have somewhat contributed towards a stable economy. This could be because of a robust domestic market, a weaker Yuan, and China’s strategy to transport exports en route from the US to neighboring Asian countries to evade the high tariffs. As a result of this, China could boost its exports—something that had an effect on the country’s supply chain as well.
The Baker McKenzie law firm, conducted a poll in which 93% of companies in China are planning to transform their supply chain systems to tackle the effects of the trade war. 18% of these companies are planning to completely transform their production and supply chain, and 17% plan on instilling small changes (Source). This pursuit of companies to bring about change is dictating the need for specific skills in various areas of the supply chain in China.
In Shanghai, a couple of US-based companies are shifting their sourcing office to Vietnam, Bangladesh, and other neighboring countries. Even so, multinational corporations in the city have shown stability compared to 2019. The economic downturn has steered many companies to strive for digital transformation. Digital supply chain systems are a result of this. On the other hand, in Suzhou, companies are resorting to cost-cutting strategies because of uncertainty looming on the future earnings of the B2B sector because of rising tariffs. The China-US trade war has led many companies to optimize their sourcing and supply chain strategies.
In South China’s Guangzhou, there’s been a shift in the labor market in China, as activities are skewed more towards B2C from B2B. The focus now has shifted to companies who are trading within China, hence the supply chain systems of the country are now hooked on FMCG and retail sectors. The China-US trade war has many US companies in China to change from production to sourcing. This is because China flaunts incredible technological capabilities for manufacturing and supply chain systems.
One of the major skills that’s in demand in China right now is business transformation. For senior roles in organizations, this would cover the entire supply chain experience, understanding of standard operating procedures (SOP), mergers and acquisitions, compliance, and integrated business planning (IBP). As a result, several senior roles have picked up demand in the supply chain market. These include Supply Chain Excellence, Supply Chain Director, and certain IBP roles.
Skill sets related to demand planning are in high demand in China. This is due to the fact that they have an important role to play in establishing the overall maintenance and procurement process of a company and increasing the efficiency of supply chain processes. It’s not new that demand planning has gained such traction in the market. But skilled talent to carry out this function certainly is. It’s a niche role where qualified candidates can leverage numerous opportunities.
The job market in China currently favors the country’s massive supply chain industry, especially employers who are in line with the widespread cost-cutting. There are now more candidates than there are roles available in the market. This is certainly a disadvantage for candidates because they lose their bargaining power when it comes to benefits, flexibility and compensation. A positive note that shouldn’t be overlooked; up-skilling is very much a trend amongst Chinese companies now.
Potential employers see the advantages, because high-value candidates who are already employed are less likely to leave their jobs unless they have a solid career path or upgrade. The highly domestic focus of the current environment in China has reduced the number of opportunities for foreign workers. This means that Chinese companies have to create a powerful attraction strategy to get the best candidates and offer them outstanding perks and benefits.
For candidates looking for senior roles in the supply chain industry, up-skilling in the area of field management will certainly add significant leverage to their profile. The trend now requires supply chain executives to work on the business transformation goal by combining industry knowledge, leadership skills, strategic planning, stakeholder management, and global business insights. It’s important for companies to also invest in up-skilling by providing supply chain certifications, for example, CPIM and CSCP, to senior and best-performing employees.
The goal of achieving complete business transformation is good in concept, but it won’t be realistic to implement unless companies turn their attention to cost. Companies are now striving to cut down their costs to survive through these turbulent times. So, an ideal candidate applying for a role in China’s supply chain sector should be excellent at locating and selecting suppliers, negotiating prices, terms and conditions, and maintaining a strong network in the market. Soft skills and stakeholder management are likely to be the primary determinants of success in this role.
There are a couple of mid-level roles that are gaining importance in China’s supply chain sector. These include Commodity Managers, Planning Managers, and Sourcing Managers. Candidates for these positions are now expected to demonstrate a good degree of operational and technical work experience. These managers should be able to coordinate across various departments and work independently towards achieving the company’s goals. It would be an added bonus for the company if these candidates also had a demonstrated knowledge of market insights and experience in cross-country trading.
China has already witnessed a remarkable change in the form of digitization. The use of robots in logistics and warehousing has already made the supply chain of the country quite secure and efficient. Now more than ever, Chinese companies are understanding and embracing digitization by leveraging artificial intelligence (AI) and IoT (Internet of Things) to transform the supply chain. The trend has now shifted from a sequential, linear supply chain network to an open, interconnected chain of operations.
With the rise of supply chain digitization, several digital skills have come into the limelight. Knowledge of information technology and data analysis would be an added advantage for any candidate applying for a role in China’s highly digitized supply chain industry. There is a critical need in the industry to increase efficiency and minimize operational errors. If anyone can showcase their IT experience and technical backgrounds, there’s no looking back for them.
Below are a few ways in which China’s supply chain system is seeing a major digitization trend:
Now is the trend to transform traditional supply chain models by making use of 3D product design. The process involves the use of digital prototypes—something that enables companies to get rid of physical samples and lower markdowns, while saving both money and time. This trend has particularly set in after the COVID-19 pandemic, which immobilized several factories, retailers and transportation networks across the country.
Now with the help of 3D product designs, instant sharing of digital images has become possible in China without involving designers, buyers or sample makers. The technology has reduced the digital product development in the supply chain domain and made it more convenient by allowing remote operations. Also, these digital models also take fitting models out of the equation. The use of 3D modelling is primarily seen in the automobile sector, and attempts at using it in China’s clothing industry have demonstrated that it still needs some fine tuning in this arena.
Virtual Reality (VR) was an established technology long before today’s world. VR has penetrated itself into quite a large market globally, and China is certainly a frontrunner in the race. It is projected that the VR market in China will hit USD 7.9bn by 2021. Given the social distancing norms prevailing everywhere, a supply chain that runs through VR without anyone touching anything will certainly be a breakthrough for the country.
With the help of VR, product designers, engineers and architects are able to analyze different versions of a particular design and conduct on-the-spot evaluation. Moreover, VR technology is shaping a connected world by allowing employees located in various parts of the globe to interact with each other and shape a highly digitized business world. This is a clear indication that traditional businesses will find it extremely challenging to outperform newcomers without embracing digitization.
The world today is vying for big data—something that’s majorly dictating business decisions and global actions. Given the rapid rate at which digitization is taking place across China, big data is playing a big role in the country’s supply chain sector. Add Artificial Intelligence (AI) to the equation, and the use of big data takes a whole new angle. It’s predicted that AI will generate business values worth $5 trillion by 2025. Backed with this technology will help companies drive insights related to supply chain performance and churn huge amounts of data to provide relevant recommendations.
Chinese supply chain brands are now leveraging groundbreaking technologies, such as cloud-based systems, artificial intelligence (AI), and data analytics, to revamp the country’s supply chain operations. For instance, in the northwestern province of Shaanxi, drones have been used for monitoring local logistics networks for the last few years. Also, Chinese logistics companies are making extensive use of AI-based routing algorithms to boost both performance and productivity and lower annual operating costs.
The China-wide supply chain digitization and overall operational transformation has opened a whole new way of conducting business. Rapid innovation in technology, such as cloud computing, AI, and IoT, have changed several industries across the globe. But China’s electronics industry has seen major growth owing to these technologies.
The Asian region is home to the largest electronics industry in the world, with China being a major manufacturing base. A noteworthy factor contributing to the growth of the industry in this region is the Information Technology Agreement of WTO. This agreement waives off import duties on IT and electronic commodities and components to promote the development of electronics businesses and the emergence of new supply chain networks.
China was initially assembling products manufactured in South Korea and Japan, but the country has now strengthened its supply chain with capital and technology. China now produces more than half of the world’s electronics and has become the sourcing hub of numerous foreign electronics brands, thanks in part to its highly advanced manufacturing capabilities and super-fast supply chain systems.
The Chinese mainland is also the global supply chain for the apparel and textile industry. This has become a possibility after the WTO Agreement on Textiles and Clothing, which waived off all quotas restricting trade in garments and apparels after it came into effect on 1st January, 2005. Ever since then, China has become a major manufacturing and sourcing center for many apparel and textile companies. Much of it is because of the low cost of production and availability of affordable labor, both of which make China very attractive to multinational companies.
The COVID-19 pandemic and the trade war with the United States may have shaken China’s economy, but we are seeing the country's resilience demonstrated as they come back from this by leaps and bounds. Transformation in China’s massive supply chain is already evident from the trends discussed above. The highly developed supply chain network and well-equipped logistics systems have definitely helped China set a strong global footing as the sourcing hub for many industries.
Sourcing Allies is a team of expert China sourcing agents that has helped western customers manufacture and source products from low-cost regions since 2006.
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