TRADE- India leveraging China Zero-Covid Policy

1. Background

• Shanghai imposed a fresh, partial Covid-19 lockdown again this month
• Suchpersistence by China with a zero-tolerance strategy has lent an element of urgency to global value chain (GVC) restructuring and relocation, a process that has been in progress, though haltingly, over the last decade. 
• India, which has thus far not been able to attract relocating supply chains, now gets another chance and should not let it slip by this time.

NOTE- A supply chain is the network of all the individuals, organizations, resources, activities and technology involved in the creation and sale of a product.

2. How can India leverage its position against China

• Hand-picking an apt location for setting up or expanding a business is complex and requires great deliberations. 
• Factors such as land reforms, production-linked incentives, tax regime, geopolitical factors, availability of skilled human resources, physical infrastructure and digital connectivity, the strength of supply chain logistics and so on, dramatically influence the decision. 
• India with its young, upskilled and affordable workforce along with a supporting industrial system represents a conducive environment for overseas investors with access to its vast demographically charged and active market. 
• Multinational corporations from several countries have already manifested their interest in shifting their manufacturing destination to India. 
• Manufacturing encouraging initiatives such as production-linked incentive schemes, reduction in corporate tax, Atma Nirbhar Bharat program, and easing land acquisition and labour laws has further intensified the interest of global manufacturing players in India.

3. Do India has an opportunity to leverage

• According to a recently released report by World Economic Forum entitled "Shifting Global Value Chains: The India Opportunity", India has the potential to reshape supply chains and become a global manufacturing hub. 
• It is estimated and targeted that India could contribute more than 5 trillion dollars in annual economic impact to the global economy by 2025 and thus can play a significant role in reshaping the global supply chains. 
• The report has also outlined five possible ways for India to realize its manufacturing potential, these comprise coordinated action between the government and the private sector, shifting focus from cost advantage to building capabilities, accelerating integration in global value chains by reducing trade barriers (tariff, quota, etc) and enabling competitive global market access for Indian manufacturers, lower cost of compliance and focusing infrastructure development on cost-saving, speed and flexibility.

4. Challenges associated

4.1. Material scarcity

• Insufficient inputs have been a concern since the pandemic began, due to an abrupt rise in consumer demand like never before. Even now, retailers and suppliers alike are struggling to meet this demand amid the limited availability of many parts and materials. 

4.2. Increasing freight prices

• Contrary to initial expectations, the need for container shipping has increased considerably throughout the pandemic. With worldwide lockdown measures inciting a surge in eCommerce sales, the response has been a greater import demand for raw materials and manufactured consumer goods (a large percentage of which are moved in shipping containers).

4.3. Difficult demand forecasting

• Demand forecasting in the middle of a global pandemic has added a new layer of complexity to many companies’ supply chain management. The onset of COVID-19 essentially shattered the forecasts for countless retailers and suppliers of consumer goods/services, leaving them without a guide as to how much inventory to stock or manufacture at any given time. 

4.4. Port congestion

• Port congestion caused by the pandemic remains one of the top challenges for the Indian supply chains, seeing as port owners, carriers, and shippers are collectively still scrambling for a viable solution to this problem. Congestion occurs whenever a ship arrives at a port but cannot load (or unload) its freight because that station is already at capacity. 
• Although the loading/unloading process typically goes according to plan, labour shortages and social distancing associated with the pandemic have notably steered things off course (creating major bottlenecks at several busy global docks).
• Due to this congestion and the backlog it’s created, a myriad of companies are unable to get their goods out the door on time — which means carriers are also unable to adhere to their specified delivery commitments.

4.5. Changing consumer attitudes

• Consumer attitudes and behaviours have changed in some big ways during the pandemic, as well, like lowering the threshold for delivery times and raising the requirements for a positive customer experience. 

4.6. Digital transformation

• When it comes to supply chain operations, digital transformation and IoT can be mixed blessings. With that said, there are several technologies with the potential to enhance the way we approach the traditional supply chain, including artificial intelligence, drones and robots, electric vehicles, and on-demand delivery. 

4.7. Restructuring

• There’s no doubt that restructuring is making major waves among modern retail brands. This process can take many different forms, from reshoring to changing suppliers, to signing contracts with all new carriers. The challenge in terms of restructuring is to decide when it’s the right time for a change and how to do so as seamlessly as possible.

4.8. Inflation

• Although it's too soon to say for sure, there’s a strong chance 2022 will be remembered as the year of inflation. While much has been said about inflation in India, the reality is, that quite a few countries around the world are now dealing with the highest inflation in decades.
• As this period of inflation stretches on, businesses must be prepared for cost increases related to the procurement of raw materials, finished products, and more. The consequences of these climbing costs often translate to excess or surplus inventory, mounting storage fees, smaller margins, and lowered revenue for your product-based brand.

5. How to overcome supply chain issues

5.1Keep liquidity in your business

• Protect your business with flexible access to capital. After all, having cash on hand is often the difference between meeting demand and going out of stock. 

5.2Diversify sourcing in your supply chain strategy

• Broaden your range of sourcing, perhaps geographically, to increase choice and abundance within your supply chain. By developing multiple supplier relationships, it’s easier to become more flexible and adjust to a constantly changing market (i.e. during a prolonged pandemic that alters the entire global economy). 

5.3Work with a freight forwarder

• Partnering with one or more freight forwarders can help you manage and track the shipment of your goods. While freight forwarding companies are accountable for the transportation of products from one destination to the next, they can also arrange the entire process for shippers and negotiate the best price and/or fastest route. 

5.4 Identify alternative shipping ports

• Hedge your bets by seeking out alternative ports to meet your fulfilment needs and stay on schedule — regardless of unforeseen events or a sudden spike in customer orders. 

5.6 Improve demand forecasting

• Without fail, the best way to improve forecasting is by using automation to calculate these metrics on your behalf. Ecommerce sellers are always looking for a balance between their inventory levels, warehousing costs, and the demand from their customers to prevent stockouts or inventory shortages. 
• With automated inventory alerts, forecasting tools, and cash on hand, merchants can stock up with confidence based on predicted product demand or historical sales. What’s more, prioritizing forecasting can streamline inventory counts and reduce excess overhead fees.

5.7 Stay resilient

• Retailers who stay resilient in the face of supply chain challenges have the best chance for success. By remaining flexible, your company can better adapt to unforeseen circumstances and make strategic pivots as necessary. This might mean coming up with better solutions to complex problems with your inventory, technology, marketing, and more.

6. Way forward

• To attract those firms wanting to relocate, India will have to compete with countries such as Vietnam and Malaysia and offer competitive investment incentives, improve policy and regulatory stability
• Diversification and building some redundancy in supply chains is a focus for many companies given the risks revealed by the covid-19 pandemic.