A Feb. 10 Bloomberg report said that 20 percent of semi-finished goods in the global manufacturing industry are imported from China. This can be as high as 40 percent in Asian countries and about 30 percent in the US.
These figures show that China is a major power in the global manufacturing supply chain.
If companies want to make money, they should not only be able to predict their clients’ needs, but also control their output to ensure product quality. Compared with clients’ unpredictable behavior, it is easier for companies to control raw materials and the manufacturing process.
However, the ongoing outbreak of COVID-19 in China has been challenging companies’ traditional thinking.
On Monday last week, Apple Inc admitted that it would miss its revenue forecast for the second quarter largely due to the outbreak. Apple relies on Chinese supply and factories to assemble its iPhones, and its sales are dependent on the Chinese market, which has become a double-edged sword for the US company.
As an internationally well-known high-tech giant, Apple should have been able to control its supply chain. Instead, it has overcentralized it, allowing it to become locked down by China’s epidemic-prevention measures, dragging down its global supply of handsets.
Feeling the impact of the epidemic, Apple chief executive officer Tim Cook would inevitably review the drawbacks of the overcentralization of its supply chain. Faced with those risks, Apple is expected to adopt a decentralization strategy.
Taiwan is a neighbor of China, and Taiwanese businesspeople have zealously helped build up the Chinese supply chain. How should they respond to the structural industrial change that is about to take place?
Since Taiwan has limited resources, it might be unrealistic for the nation to take a hydra-headed approach to the development of supply chains for various industries.
Rather, it should take advantage of its strengths in the semiconductor industry, precision machinery and biomedical technology to focus on one or two strategic industries, and make every effort to build supply chains for these industries to create a high value-added economy.
Other Asian nations might have already sensed a structural change to the supply chain as an effect of the outbreak. Neighboring countries are likely to fight each other over fleeting business opportunities.
President Tsai Ing-wen’s (蔡英文) administration should play a leading role in planning and organizing the matter. Taking into consideration the balanced development of urban and rural areas, it should come up with a blueprint for the construction of an industrial supply chain in a timely manner.
After being hit by the outbreak in China, experienced and ambitious Taiwanese businesspeople there should take the lead in building Taiwan’s own industrial supply chain for the sake of better business opportunities.
At the same time, the government should make its regulations simple and transparent, reduce the uncertainties for business investments and strengthen administrative efficiency to attract international high-tech companies to Taiwan for long-term investment cooperation and reciprocal procurement.
As the economic, structural transformation and upgrading take place, Taiwan must also further strengthen its democracy and rule of law as it proudly holds its head high and steps onto the global stage.
Chen Hsiu-lang is an associate professor of finance at the University of Illinois in Chicago.
Translated by Eddy Chang
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