Question

Assuming for example that more automobiles were eproduced in China last year than in the US, yet the US is still dependent on China (and others) as a major part of the supply chain for parts, assemblies, etc. for the auto industry, where do the firms go for their "plan B" IF in deed they have a plan B?

The point is less "where would they go" but rather thinking in terms of Porter and others, are these supply chain elements easily replaceable? Is it time and cost prohibitive? As big and fancy as these firms are, do they really have a plan B?

Answer 1

For any organization is important to have and work on risk management aspects of the sustainability and business continuity. Often these strategies to combat the business risk is called as plan B.

For the auto industry, the dependence on China as a major supplier of the spare and ancillary parts is mainly because of the economies of the scale and the competitive prices at which these supplies are being received. China is also a manufacturing hub that can produce the product as per the defined quality parameters as we know the quality of some cheap phones being produced in China and the iPhone being produced in China. Hence, quality is a matter of production specification given by OEMs in the auto segment. It's not just the cheap labor availability which is the factor rather production scale is also important and to replace the Chinese manufacturing hub's supply to some other country and the location the three factors becomes very important:

a. Availability of labor that must be cheap compared to developed countries

b. Strict quality control

c. capability to produce and manage the supply chain at large scale

'If the above three criteria are possible to be met by any other location, companies can look for the plan B options, as of now one country which has similar benefits available is India and India has got all the potential to replace the china in terms of the global hub of manufacturing.

At present, the world supply chain has been disrupted due to COVID-19 cases in China, and now companies in the US are seriously looking at India as their plan B to get the supply.

Even if we analyze the current situation with the porter's five force model, India does meet all the criteria to become the supplier of the auto parts to the world, the only thing need is the scale at which products need to be produced so that it can compete for their Chinese counterpart pricing.

It is not that the current supply chain is irreplacable rather with little strategic planning and long term committment it is possible to replace.