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Covid learnings, Ukraine war, and climate change reshape tech supply chains

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By Anil Kempanna, CEO, Cientra

The upheavals brought by the COVID-19 pandemic, the prolonged Ukraine crisis, and climate change alarms have prompted a reassessment of global supply chains, particularly within the tech industry. The once strong belief in globalization’s seamless exchange of goods and services across borders has been shaken. As nations grappled with the need to protect their interests amid contactless protocols during the peak of the COVID crisis, disruptions to supply chains added to the nightmare.

China’s role as the world’s manufacturing hub came under scrutiny as its zero-covid policy halted production. Former US President Donald Trump responded swiftly by enacting the CHIPS (Creating Helpful Incentives to Produce Semiconductors) for America Act in January 2021, signifying a significant reversal after decades of expansion into Asia. The global repercussions led to a dent in GDP growth. According to a World Economic Forum report, supply chain disruptions driven by global crises, like COVID-19, the Ukraine war, and so on, are wiping an estimated 1%-2.5% off global GDP.

Rethinking logistics:

The global repercussions have sparked an emerging trend called “friend-shoring,” where companies are favouring countries like India and Vietnam over China. Vietnam capitalized on China’s setbacks by positioning itself as an attractive alternative for high-tech production, drawing in major players like Samsung, Intel and Apple. The port city’s proximity to manufacturing clusters (that helps in lessening carbon impact) and its expressway which provides a 12-hour route to Shenzhen, China’s electronics hub, gives it an edge.
We have some inherent advantages in India too. A Gartner Digital Workplace Survey found India the most digitally dexterous country in the world, followed by the UK and the US, as we have the largest Gen Z workforce. India’s biggest advantage in the Plus 1 (the business strategy to avoid investing only in China and diversify business into other countries)  space is its design and manufacturing capabilities.

However, in India, ease of business and logistics need to be buckled up for sustainable competitive advantage. India has created a lot of PLIs to boost near-shoring advantages. The Gati Shakti Infrastructure push and the DESH (Development of Enterprise and Service Hubs) Bill will overhaul the Special Economic Zones (SEZs). Businesses operating within the SEZs are offered tax incentives, including 100% income tax exemption on export income for SEZ units for the first five years. This significant cost-saving opportunity makes offshoring to India extremely attractive. India has 272 operational SEZs with a combined employment of 2.8 million people. What makes India an even more attractive offshore destination is its time zone advantage.

For instance, while teams in the US or Mexico conclude their workday, teams in India are just beginning theirs. This continuous workflow enables more productivity and faster turnaround times, a crucial element in the tech sector. It is also important to reign in freight and travel costs and lower the carbon footprint by moving close to logistics hubs. Even Mexico, with shorter supply chains, is availing near-shoring benefits being closer to the US.

Strategic alliances for innovation:
India has been the leading IT sourcing destination across the world, accounting for 55 percent market share of the $200-250 billion global services sourcing business in 2019-20. Revenue in IT outsourcing is expected to show an annual growth rate (CAGR 2024-2028) of 17.58%, resulting in a market volume of $20.09 billion by 2028. India has around 1,600  Global Captive Centres (GCCs) with about 150 of them located in tier-2 cities, and employing 1.66 million plus workforce. Strategic technology partnerships on research and testing on beneficial disruptive technologies, manufacturing hardware, and even pooling funds for large-scale investments are important in the new era of work post-COVID-19. The growing partnership between India and the United States, for example, has the potential to shape the global technology landscape and 21st-century geopolitics. The US-India initiative on Critical and Emerging Technologies (iCET) is geared toward strengthening US-India ties in innovation ecosystems.

Embracing resilience:
Climate change, geopolitical conflicts, and public health crises will continue to pose challenges to supply chains. Companies and countries must pivot from reactive risk management to proactive strategies geared towards resilience. The World Economic Forum launched the Resilience Consortium in 2022 for companies and countries to pivot rapidly from reactive risk management to strategic recovery so they are better prepared for the next crisis.

The government is keen on providing an enabling environment, with the Make in India program, National Policy on Electronics (2019), the Production Linked Incentive (PLI) Scheme for the electronics sector, the SPECS Scheme and so on. As nations recalibrate their priorities post covid crises, the reimagining of tech supply chains offers a glimpse into a more agile, interconnected future.

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