China’s “zero COVID-19” policy and strict lockdowns have dealt a serious blow to manufacturers, and could hasten the exit of foreign firms amid mounting operational risks and a deteriorating investment environment. Taiwanese electronics manufacturers, in particular, have suffered, as China remains a major production hub, although many have gradually relocated operations back to Taiwan or to other countries, as the US-China trade row reshapes global supply chains.
Taiwanese notebook computer makers have been forced to suspend production and have encountered difficulties shipping finished goods to customers, as the Chinese government strictly prohibits human contact and movement to curb the spread of COVID-19. The lockdowns’ effects can be seen in the revenue reports for last month of the world’s top two notebook computer makers. Quanta Computer Inc’s sales plummeted 39.5 percent to NT$66.73 billion (US$2.24 billion), while Compal Electronics Inc’s declined 47.53 percent to NT$53.92 billion.
Likewise, Pegatron Corp, which assembles iPhones and notebook computers, last week slashed its forecast for notebook computer shipments this quarter to a sequential decline of 5 to 10 percent. That compares with its previous guidance of an expansion of between 25 and 30 percent.
Quanta and Compal make notebook computers in Shanghai; Kunshan, Jiangsu Province; and Chongqing, Sichuan Province. The two companies have in the past few years joined other Taiwanese electronics makers, such as Pegatron and Hon Hai Precision Industry Co, in shifting offshore production to Southeast Asian countries, including Vietnam and Thailand, and India.
Expanding its reach to key component semiconductors for vehicles, Hon Hai said its semiconductor deployment in India is picking up pace, matching global peers’ expansion there. Supply chains are becoming “shorter” or “localized” due to COVID-19 pandemic restrictions and logistics snarls, the company said. That means local supply is becoming essential during the pandemic when port congestion and transportation chaos paralyze production.
The shift is spreading to the whole electronics supply chain. Lite-On Technology Corp, which supplies power units and other components, said that its “China-plus-one” strategy aims to diversify and balance its supply chain by avoiding an overconcentration on China.
“In addition to cost surges in overland and air transportation, we spent most of our time figuring out how to reroute goods to customers’ production bases that are less affected by the lockdowns,” Lite-On president Anson Chiu (邱森彬) told investors in a virtual conference last month.
Lite-On said it is ramping up plans to build new manufacturing facilities in Thailand. This year, it is also to start a phase-two capacity expansion in Vietnam to make notebook computers and networking components. The company is making inroads into the US by setting up new production lines to manufacture power management units used in electric vehicle chargers and other components for US customers. At home, a new capacity expansion plan is to start later this year in Kaohsiung.
As of early this month, the government’s “Invest in Taiwan” initiative has attracted 1,191 Taiwanese companies investing up to NT$1.68 trillion, the Ministry of Economic Affairs said, adding that the projects would create 21,801 jobs.
Given the dynamic changes in global supply chains, Taiwanese manufacturers are facing labor management challenges and issues such as how fast they can ramp up new production in new, unfamiliar territories. It will take time to reshape the whole supply chain, but if they can overcome those challenges, they should be able to embrace a new wave of growth.
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