The time is March. China, the de facto factory of the world, is struggling to make a come-back. Evans Tu (杜書伍) is the President of Synnex Technology, the world’s second-largest high-tech channel group with an annual revenue of NT$340 billion and business in 38 countries across the globe. He is one of the few people who may be able to predict the future of the international high-tech supply chain. 

Synnex reported its earnings in mid-March. In 2019, it achieved the second-highest net income in its history. Even as the COVID-19 pandemic is sweeping through Europe and the United States, and even as countries around the world lower their growth forecasts, Tu is optimistic that demand for electronics is a staple of the modern economy. “Demand will only experience delay; it will not vanish. There is even a chance of it booming after the crisis.” Here are the highlights from Tu’s interview with CommonWealth Magazine:

I will start by using Synnex’s experience to explain how China is getting back to work. Synnex has 2,000 employees and over 40 locations in China. We have teams monitoring the resumption of work after the new year. They tally which branches can resume production. 

Currently, besides Wuhan, more than ninety percent of workers in other locations have gotten back to work. We often get one-sided information that makes us feel the supply chain will be disrupted. But the situation in China is changing daily. Yesterday’s problem may be solved today. We need to look at the supply chain of the information technology industry from a broader perspective. 

Supply Chain:
Order Restored by Mid-April at the Latest

First of all, the information technology industry thrives on using electronic tools. In these past months, the entire supply chain has responded with great agility. Synnex is further down the supply chain. The midstream is where they assemble electronic components into products; the manufacturing of electronic components is upstream. 

If we take companies downstream of Synnex into account, our combined inventory will last us more than two months. The same for midstream companies. Upstream component manufacturers work around the clock, 365 days a year.

There are three key elements of a supply chain. The first is of course the production equipment. The second is the workers, and the third is the raw material. Workers are gradually resuming production, and they are doing so at a high rate. There is enough raw material in our inventory to last at least two months.

The fourth key element is transportation. In the past, we could not ship our products out, but now there are no obstacles. As for air freight, the reduction of passenger flights will impact cargo flights to a degree, but we can adjust accordingly. So there is not too much problem with transportation; we just need a week or two to adjust.

Judging from the four elements listed above, the entire supply chain will not experience too much of a problem. I think that by mid-April at the latest, every aspect of the supply chain, including delivery, will be working smoothly.

Demand Chain:
The IT Industry Enters a New Phase of High Growth

Next, let’s look at the demand chain from a broader perspective.

Firstly, the demand for electronics has been a staple of the modern economy for the last three to four decades. That means the demand will only be delayed; it will not disappear. 

Secondly, global digitization is an ongoing trend. Therefore, the growth of IT products will always be higher than economic growth.

Because everyone needs these IT products to increase productivity and competitiveness, the slower the economy is, the more you need to invest in IT. Investment in technology does not slow or stop.

Furthermore, everyone is undergoing the process of digitization. Other trends such as artificial intelligence, big data, and 5G also stimulate the replacement and upgrading of technology products.

The demand may be a bit lower now, but it will not vanish. We are in the process of booming. From the perspective of industry development, we are entering a phase of high growth with new technology and a new paradigm. I think we are in an era similar to when the smartphone appeared in 2008. We are entering a new phase of high growth.

In the current phase, we certainly see another situation. Some companies have employees who work from home, and some schools need to provide online lessons because classes are suspended. They try to buy IT equipment, only to find it’s out of stock. But that will only be for the short term.

Because various countries are being placed on lockdown, demand has been “flash-frozen”. So, the supply chain does not need to produce at such a high capacity.

In truth, all the electronics brands of the world want to know their channels’ inventories. That’s why all the devices are connected to the internet. When you buy a product, you need to register it with the manufacturer online. That’s why brand companies are very clear on how many of each model they have sold.

How much inventory is left is always very clear to us. How many units are sold every day, or even every minute; how many units are still with the channels? Or are they with the downstream assembly factories?

Because brands have a firm grasp of their inventory, they can look at the current inventory and how fast they are selling to adjust production in the factories they outsource to. They can also inform component manufacturers as to how much inventory they need. All the quantities are controlled in real time. 

The Current Situation in China:
Reducing Companies’ Burden During the Pandemic

Next, let’s look at things from the economic level. Many are worried that Chinese growth is slowing. The United States is also at the tail end of a growth cycle.

If we look at the economy from a broader perspective, and if we don’t limit ourselves to short-term conditions, we will see that the economy has natural cycles. Over-growth may lead to inflation, so slow growth can be healthy.

At the same time, China has progressed from an era when most people were unemployed and needed job opportunities to a time when the majority of them are working.

Therefore, during a pandemic, if the unemployment rate can be kept to around 4%, then it is a healthy number. Because China’s current social welfare system is intact, the government does not have too much trouble providing for those who are out of a job.

Recently, because of the outbreak, the Chinese government has announced that it will lessen the burden of corporations. Companies can waive or only pay half of what they need to pay for endowment insurance, medical insurance, unemployment insurance, employment injury insurance, maternity insurance, and the Housing Provident Fund. They can also postpone the payment. Different provinces have different rules about how this will be done.

Also, if the company is renting from state-owned businesses, they can waive rent for a certain number of months. China has offered many ways to ease the pressure off of corporations. This will ensure growth. Companies are less likely to lay off employees. Society will remain safe and orderly until we ride out the crisis.

It’s important to keep businesses running during the pandemic, because many things are irreversible. Once a company goes under, it will be hard to recover even when the economy is back on its feet.

Have you read?
♦ How can Taiwan Cope with the Worst Economic Blow Since WWII?
♦ Let’s seize the opportunity to support industries hit hard by COVID-19
♦ Where is Globalization Headed Amid COVID-19 Epidemic?
♦ Apple Supply Chain Disrupted by Novel Coronavirus
♦ Coronavirus to Take Bite out of GDP - Can Taiwanese Companies Cope?

Translated by Jack Chou
Edited by TC Lin
Uploaded by Judy Lu