Thoughts from Joe Booth, Altus’ Business Development and Marketing Director
Covid-19 the unassuming name for a virus that seems to have gripped the world over the past weeks and months. When I speak with some of my friends, they roll their eyes and speculate about another mountain out of a mole hill situation, in which the media must sell ads and generate fear-based revenue. Others rightly worry about the development of the disease and the potential impact moving forward, driving consumers to empty shelves of supermarkets and price gouging on alcoholic hand sanitisers.
Either way, the virulent disease has had its impact already. Global stock markets which are albeit speculative and self-fulfilling, have seen huge losses and gains punctuated by another politician or health organisation making a statement. China in response has and is currently undertaking the largest work from home study ever attempted. Whilst supply chains are affected globally and manufacturing is halted in many factories, not just in Wuhan, but across the World. And no doubt the impacts will continue to ripple across the rest of the world as updates come daily.
At some point in the future this disease will pass, but what is the risk mitigation of corporations when it does? Can for example Apple bear the risk that Foxcon has another monumental shut down of production because most of their production is in Asia?
I can’t second guess Tim Cooke and his board of directors, but I can only imagine that they will be looking to have new contingency plans to mitigate the effect of another global pandemic; and by the way Apple aren’t alone in relying on Asian cost effective manufacturing to drive bottom line profitability. No doubt these sites will now look for have regional manufacturing capabilities that can continue to produce in desperate times as back up to the primary manufacture in Asia. It only seems rational to do so.
Taking the above into consideration, if I was an executive of a sub-contracting firm in the UK, I would be leveraging our weaker currency and the risk of offshoring production to Asia, to ramp up my sales efforts to win these contingency contracts. Sure, we will still be more expensive, but our manufacturing quality is generally higher and the risk of having no product is diminished because of a multi-site, global production contingency strategy. It is our prediction that products manufactured offshore will be running in low numbers across the UK or Europe moving forward for this reason (the same surely holds for component supply). The alternative, and continuing to use Apple as an example, is a lack of availability of Airpods or IPhones, therefore lower sales, reduced earnings and a slide in the Apple shareprice. We expect to see the real impact in the Q1 and more likely the Q2 financial reports later this year.
The other interesting point to consider is the distance we are from achieving a lights out factory. Instances like these put a fundamental spotlight on closing this remaining gap as inevitably corporations invest in solutions to avoid financial loss rather than optimise production. In a real example, which of these two scenarios gives you a larger incentive to buy a new TV? If your TV falls off its stand and the screen smashes? Or because you only have 1080p quality and there is a new 4K systems that will offer you a raised viewing experience? In this example companies have lost weeks of production, losing 1000’s of PCBAs and products an hour 24/7. The losses will be monumental and make not investing in factory automation seem poorly thought out and a grave mistake comparatively.
Of course, I am no expert on the virus outbreak (which I sincerely hope does not become as devastating as some are predicting) and how it might develop but I am sure there is an opportunity for European electronics manufacturers to win manufacturing business, furthermore for those supplying factory automation and capital equipment to support customers.