Manufacturing is all set to get interesting

By Kavan Bhandary

Several trends have been given new impetus by the social and economic impact of the coronavirus pandemic. Remote work is not new but recent events have supercharged its adoption and discredited the naysayers. Zoom was an established tool, if not a household name, before its moment in the spotlight arrived in March 2020.

At a macro level, many manufacturers were already looking for alternatives to counter China’s rising labour costs. Vietnam, Thailand and other South East Asian countries are beneficiaries. ‘Make in India’ was that nation’s pitch to attract foreign investors. President Trump has spent nearly four years agitating to bring jobs back to the USA. With Brexit on the horizon, UK manufacturers are stockpiling components in readiness. Japan has announced incentives for companies to pull away from China. A broader, post-Covid backlash will emerge in coming months.

This opens the door to an exciting new era of manufacturing focused on regionalism and powered by new technologies. Let’s consider what that might look like and the opportunities it presents. I see three prongs:

1)    Timeframe: Even with a post-pandemic appetite for reshoring, or more likely ‘nearer-shoring’, the process of unwinding and reconstituting supply chains is complex, perhaps a decade-long initiative. Supply chains tend to coalesce in hubs or corridors. Think of auto manufacturing in Mexico’s central states or South Korea’s electronics’ clusters. They are the result of many years of effort by regional promoters. With many stakeholders involved, coordination is key. Regions that seek to attract new manufacturing need to take a realistic and long-term view. The world may not spring back to its old order, but China’s position as the world’s factory, built over 40 years, will not be usurped quickly.

2)    Technology: The manufacturing jobs that emerge won’t be the same as those that disappeared. Technology is changing those jobs. Industry 4.0 is built on cloud computing, automation and the Internet of Things. As we emerge from this deep downturn, data scientists, analysts and system architects will likely be in demand. Old school supply chain managers, HR honchos and procurement executives perhaps less so. Regions with large populations of high calibre tech-graduates will have an advantage. Germany, South Korea, Japan, Switzerland and Israel have already built positions in hi-tech manufacturing on this basis. Costa Rica recently announced investments in scholarships to boost its STEM graduate numbers and clearly hopes to create a differentiated position for itself. Companies in automotive, biotech, semiconductors, medical devices and telecoms will be hunting this kind of highly-skilled workforce.

3)    Regionalism: Multinational companies will want to spread their bets and look towards multiple, smaller regional hubs. That dilutes risk while multiplying the opportunities. Whereas a company perhaps had its eggs in one basket, it may seek to move around half and spread that between a couple of new locations. As supply chain disruption settles, we’ll probably see around 50 per cent of manufacturing outsourcing retained in China; 25 per cent near shored or allocated to other low-cost Asian markets; and 25 per cent re-shored. Western companies will recognise that there’s more to Asia than China and investments will diversify across the continent. Vietnam’s impressive record in dealing with the pandemic (no deaths at the point of writing) will boost its already strong case as an Asian alternative to China. Investments in warehousing, distribution and supply chain technology will be an important part of this trend. 

Several studies also show a powerful link between supply chain resilience and faster growth. The key will be a company’s ability to respond quickly to changing customer needs as market demand shifts. That is only achieved when it has access to the right talent and technology and can build buffers and switching mechanisms into its ecosystem.

The net result is an exciting era for manufacturers. It will be one of greater complexity both in terms of technology and geo-politics. Old rules and established orders will give way to new set-ups. Manufacturing will become a sexier choice for bright young talent keen to make its mark at the cutting edge of the new economic order. That new order will have no room for complacency. The winners will be those with the resilience and readiness to respond with speed and agility to future disruptions.


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