The future of supply chains
However, whole supply chains won’t just spring up in countries, and it’s unlikely this will occur in Australia or New Zealand, Krishnan said.
“We've got a couple of things that are working against this. One is the education investment in STEM. For Australia or New Zealand, there is an education investment but in terms of STEM and manufacturing capability, we are somewhat lacking. Just from our own history, we've priced ourselves out of manufacturing.”
“Will consumers or companies be willing to buy electronics at a higher cost to support that local market? Do we have the educational foundation? Are we producing enough STEM workers? Or do we have enough that can do the factory work at the price point that the Australian labour force requires legally?”
It’s not just companies outside of China jumping on automation, but in China as well, with workers taking training on artificial intelligence (AI) and robotics.
“Factory workers are moving away from physical devices to moving towards AI; workers are identifying objects for AI, so AI and machine learning algorithms can learn.”
While changes to the supply chain were in the works, the lasting impact of the coronavirus pandemic will increase the speed of the shift to China plus one.
“In a lot of cases, there has been a lot of risk built into the supply chain because we have relied on large factories producing multiple finished goods, being very focused on economies of scale, making sure that we get the right cost points out of that,” Krishnan said.
“At least a third of the industry was relying on this, but we've noticed a shift and organisations over the next three to five years, prior to even going into COVID-19, were already starting to think about having suppliers or distributors customising final products on demand.
“If China plus one is implemented, there will be a loss to China, but a lot of components are going to come from China and a lot of the technology capabilities are still going to be developed in China.”
This customisation is likely to occur closer to the final market and can include assembling devices to meet specific regional locations or to meet specific demands of target demographics, Krishnan added.
“This was already starting to happen, and this has put pressure on organisations to realise that didn't think about this quick enough, and I think this is spurring a lot of organisations into action,” she said.