Event report: Rising to the COVID-19 Challenge – Strengthening the “China Link” in Global Industrial & Supply Chains

On December 15, as part of the #GMIS2020 Digital Series, the Global Manufacturing Industrialisation Summit sponsored the webinar Rising to the COVID-19 Challenge: Strengthening the “China Link” in Global Industrial & Supply Chains. The event provided the occasion for addressing the experience of Chinese manufacturers in facing the externalities of the COVID-19 pandemic and their policies to restore balance within supply chains.

COVID-19 and the evolution of globalization

Globalization is facing a transformation phase induced by the COVID-19 pandemic. The economic shock caused by the health crisis has highlighted the weaknesses of the international production system, characterized by a close interdependence between the flow of goods and services but also by a high degree of productive fragmentation. 

The pandemic has thus triggered a process of rethinking global supply chains, the backbone around which manufacturing production has been structured and which, therefore, have played a fundamental role in shaping the world economy. 

Currently, the repositioning of global supply chains at the regional or national level is seen as a plausible consequence of the pandemic. According to some, the regionalization or localization of global supply chains constitutes a measure capable of improving a country’s ability to respond to exogenous shocks. For others, such a process constitutes the preamble to a rather counterproductive protectionist shift in national economic policies. 

For instance, as UNIDO has pointed out:

In the wake of the COVID-19 pandemic, there are concerns about the current role of these chains, in particular given the widely held belief that they have facilitated the transmission of the crisis across countries … If countries turn inward towards more protectionist policies as a result of the pandemic, this tendency to bring production closer to home could be further accentuated.

In any case, it is not plausible to envisage the eventual restructuring of global supply chains without taking into consideration what choices China will make. As a matter of fact, in the last twenty years Beijing has acquired a central role within the global production network, having become one of the most important manufacturing hubs in the world

Debating trend in global supply chains from China’s perspective

The meeting “Rising to the COVID-19 Challenge: Strengthening the “China Link” in Global Industrial & Supply Chains” (a special event in the GMIS2020 digital series) gathered testimonies from entrepreneurs and institutional representatives on the impact of the pandemic on Chinese manufacturing and on the ways adopted by Chinese manufacturers to stem the destructive impact of COVID-19 on supply and industrial chains.

The rationale behind the digital session was to explore Chinese manufacture’s experience in adjusting production and operations to the COVID-19 challenge.

The first topic addressed by the panelists concerned the most effective measures taken to deal with the pandemic.

The general picture that emerged from this first part of the meeting is that of a business sector that has had to innovate not only its products, but also its management techniques. Specifically, each participant highlighted some key concepts that summarize the strategies adopted by their companies to face the epidemic, namely:

  1. global cooperation
  2. digital transformation
  3. original innovation

Connecting global cooperation

Qizhong Li, Executive Member of the Board, Vice President & Chief Compliance Officer, Shanghai Zhenhua Heavy Industries, outlined the difficulties their company encountered in allowing the five vessels at sea at the time of the pandemic outbreak to conduct offloading operations in countries that were already under national lockdown (including Germany and India). 

According to Mr. Li, remote collaboration by combining the efforts of the employees onboard the ships and the team based in the company headquarters was necessary to complete the complex unloading procedures. Remote testing procedures were also conducted to allow customers to remotely assess the properties of a product.

Developing digital solutions for knowledge-sharing and cooperation initiatives

Haiqin Xie, Vice President, Haier COSMOPlat IOT Ecological Technology Co., Ltd, illustrated how through the implementation of digital infrastructures, Haier was able to resume pre-pandemic productivity levels quickly, as well as develop services to help other companies and government departments. 

One of the first measures taken was to establish a pandemic prevention and control unit, with the task of identifying the conditions necessary to the resumption of production.Such conditions were later translated into standards which, according to Mrs. Xie, were “integrated into Haier’s existing digitalization facilities”. 

Among the digital services that Haier implemented, there were a system through which employees could report on their health conditions; a system to provide remote training opportunities; a platform to provide supply services both to enterprises, universities and public offices.

Through the industrial internet platform we were able to match the manufactures with specific demands – Haiqin Xie

In sum, digital services have been used by Haier both to resume its own activities and to provide support to institutions and other companies alike.

Innovation as a resilience-building measure

Daniel Zhang, Executive Director and Social Responsibility Principal of BROAD Group, emphasized the central role played by the ability to obtain innovative products by repurposing and innovating already developed products. According to Mr. Zhang, this capacity to transform and adapt is one of the strengths of Chinese supply chains.

Mr. Zhan then gave two examples of how BROAD’s R&D staff have developed original solutions to counter the spread of COVID-19. The primary objective was to obtain products that would be able to support the operations of hospitals around the world. 

In the first place, they focused on was disinfection chambers. In this case, the R&D department had repurposed air cleaner products to produce ozone-based disinfectants capable of killing COVID-19.

Secondly, they sought to develop hospital facilities that were easily deliverable. In this case, therefore, the R&D staff developed modular hospitals with negative pressure COVID-19 isolation wards. This type of modular hospital was designed to be put into containers, transported by sea and then assembled on site. 

So I think during the pandemic industrial enterprises can mobilize their own R&D staff to do something creative – Daniel Zhang

The second question developed from the observation that pandemic revealed the exposure to the cross-border risk in the global supply chains. Localization, decentralization and regionalization seem to be now the trends in the global supply chains’ structure. 

Changing in global trade? For the maritime industry globalization is still mainstream

As maritime shipping is the principal means of transport in global trade, Mr. Li illustrated how ZPMC is addressing the post-pandemic global economic scenario. 

One of the key points emerging from this intervention was that the current framework of globalization, as well as that of global supply chains, cannot be completely reversed. This is especially true in the case of large products. 

Talking about the port machinery industry, Mr. Li urged caution with regard to predictions of a local redirection of supply chains, stating that for this sector “globalization and the international division of labour” are still the main game in town.

The production of big scale machinery involves a wide range of upstream and downstream production, from the production of raw materials … to the large amount of steel that we use – Qizhong Li

The other relevant point of Mr. Li’s intervention concerned the presence of a tendency to invest in innovative sectors, including unmanned technology systems

Regarding the future plan of ZPMC, Mr. Li stated that a key point to increase the competitiveness of the company is to invest in R&D of partly unmanned port machinery. In this respect, he argued, “we are trying to shift towards remote operation and control”.

Digital transformation: a stabilizing element within global supply chains during the pandemic outbreak

For Haier, the pandemic represented an opportunity to test the potential of information technology in securing stable production and strengthening the flexibility of the industrial chains. Accordingly, Ms. Xie’s intervention analyzed the role of the industrial internet in enhancing an innovative and cooperative global supply chain environment. 

The digital platform set up by Haier — COSMOPlat — has brought benefits especially in terms of ensuring the stability of the industrial production chain. One of the most effective functionalities of the platform is to facilitate the analysis of the relationship between supply and demand and to signal early warnings in this regard. 

This functionality has been important in identifying missing parts within the industrial supply chain. In this way, it was possible for companies to have a tool through which analyze and address the imbalance between supply and demand caused by the pandemic. 

Ms. Xie recalled how “some enterprises on the platform were producing goods and materials relevant to the pandemic but due to the outbreak they were caught in short supply of raw materials all at once. From this perspective some supply gaps appeared in the industrial chain. Actually we saw the problem from the platform”. 

Digital platforms can therefore contribute to play a stabilizing role in the supply chain, on the one hand facilitating communication between different stakeholders and, on the other, coordinating the actions necessary to bridge the gaps in the production chain.

In terms of the completeness of the industrial chain, we think the platform can provide a better perspective. It’s no longer about the upstream and downstream of an individual enterprise … you can get a broader perspective – Haiqin Xie

“Brands, stories and humanistic concerns”: the Chinese industry and brand promotion

BROAD’s track record of rapidly providing equipment to counter the spread of the pandemic — starting at the epicenter of the crisis, Wuhan, and then continuing on to the Republic of Korea — has been used as a case to restate the key role of Chinese supply chains within global manufacturing processes.

The central point of Mr. Zhan’s speech concerns the importance for Chinese manufacturing of shaping a positive narrative about their work. According to Mr. Zhang the quick reaction shown by the Chinese manufacturing sector in front of COVID-19 can bring to the Chinese industry an important reputational capital to be used to promote its image during and beyond the pandemic. 

In the post-pandemic period, a strategic objective for Chinese industrial brands would therefore be to develop communication plans to tell their own story. This could be done, according to Mr. Zhang, either through “the emerging Chinese self-media platforms or the emerging global self-media platforms”.

We need to think about whether our brands can tell stories of lives, environmental protection, and green life – Daniel Zhang 

Thus, investing in brand influence is considered by Mr. Zhan to be a priority for the Chinese industrial community. 

Debating decoupling

The last session of the meeting focused on the analysis of the post-pandemic geo-economic scenario. Specifically, panelists provided their take on the possibility of a decoupling from China, deriving from the decision of other countries to shift supply chains and manufacturing facilities out of China. 

In the face of a decoupling scenario, what are Chinese enterprises corresponding strategies? 

Mr. Zhang stated that it is possible to trace an inclination toward decoupling from China in several geographic areas, in Europe, in India and, most notably, in the U.S. 

In the latter case, the effects of the trade war between the United States and China have impacted BROAD Group’s ability to export its products to America. As stated by Mr. Zhang “we have lost many orders due to the American government’s policy”. 

One possible solution to stem the impact of a proper decoupling scenario could be to reduce the emphasis on export and investing in the development of local partnership: “for example [we could find] local partners through local industrial cooperation across the world, providing equipment in support of local energy supply or local construction projects”

Through this strategy Mr. Zhang sees the possibility for Chinese products to acquire a more international dimension. This means that, in order to react to decoupling policies, Chinese supply chains need to “gradually integrate further into the global supply chain”.

Haier’s strategy to contain the effects of decoupling was to have planned a global business layout. According to Ms. Xie “thanks to our previous global arrangements we can ensure local operations in many places. In this sense, the impact of decoupling on our business has been relatively limited”.

Maintaining a framework of global cooperation and integration remains, however, a fundamental prerequisite for Haier’s production chain. In fact, while operations can be carried out locally, R&D activities have to be conducted on an international level.

Moreover, according to Ms. Xie, the pandemic has underscored the potential for cooperation and integration of supply chains. Ms. Xie recalled some operations conducted by Haier with European countries to transfer products to combat the epidemic. Specifically, Haier collaborated with Heidelberg University for the transfer of epidemic prevention passageways to reduce contacts during tracing. 

The success of this operation, opened up new possibilities for cooperation with Haier, as “some German enterprises after seeing the potential of the Chinese market, proposed to come to China with their technology and establish their production facilities in China”. 

Decoupling as the result of ideological considerations is the concept that emerged from Mr. Li’s remarks. In fact, according to Mr. Li, political correctness rather than economic usefulness would play a role in orienting Western countries towards decoupling strategies.

The port industry sector also has an inherent advantage in counteracting decoupling policies. Indeed, it takes a long time to transfer and reassemble supply chains in other countries for such massive products.

Benedetta Giuliani
18.12.2020
von Benedetta Giuliani