Panels & Furniture Asia Jul/Aug 2020

July / August 2020, Issue 4 | Panels & Furniture Asia 22 | MARKET REPORT Diversifying global supply chains – What’s next for South East Asia? By Szeto Hiu Yan In the wake of the COVID-19 pandemic, the focus of discussion on whether foreign enterprises will move out of China has shifted. Nowadays, the question seems to be “Will foreign enterprises expand fromChina?” because by now, one thing is certain – foreign and even domestic enterprises in China are removing some of their eggs from the China basket. Countries in South East Asia (SEA) sit high on the list of preferred countries to relocate or build a secondary facility in. In the context of the wood and wood products industry, which countries will stand to gain the most? What can these countries do to seize these opportunities? PFA seeks the opinions of several industry players and experts. T he call to diversify supply chains away from China has been an ongoing one in the past decade, following wage hikes in Chinese factories and the US-China trade dispute. But COVID-19 was the wake-up call for many companies, which sawmassive disruption to their supply chains and left them scrambling to find alternative suppliers. In late February this year, QIMA, a global provider of supply chain compliance solutions, polled more than 200 businesses with global supply chains; 87%of respondents said the coronavirus pandemic would trigger significant changes in how they manage their supply chain. More than 50% of respondents affected by the pandemic said they had begun switching to suppliers in unaffected regions. US IMPORT OF CHINESE GOODS HAS BEEN ON A DECLINE EVEN BEFORE THE TRADE DISPUTE In the case of the United States (US), American companies have already started to diversify their imports years before US-China trade dispute erupted. According to the 2019 Reshoring Index released in March this year by American consultancy firm Kearney, US imports from China has been on a decline for some time. The Kearney China Diversification Index (CDI), which tracks the shift in US manufacturing imports away from China to other Asian Low Cost Countries (LCC), reported that while China maintains its position as a primary producer of manufactured goods, it has now lost share within the CDI since 2013, the year that Kearney first introduced the CDI. In 2013, China held 67% of share. As of Q4 2019, its share was down to 56%. Of the $31 billion in US imports that shifted from China to other Asian LCC countries in 2019, almost half (46%) was absorbed by Vietnam, which exported an additional $14 billion worth of manufacturer goods to the US in 2019 versus 2018. This is followed by Taiwan (27%) and India (10%). In the wood and wood products industry, a similar trend has been observed by industry players. “The furniture and timber related businesses have already started the exit from China and this will continue. This trend started well before COVID-19 Peter Fitch, Founder of Segamat Panel Boards (Malaysia) and Chairman of MMMA Wolfgang Neeser, Managing Director of HOMAG Asia Udo Mauerer, Vice President, APAC & China, HOMAG Asia Fion Ng, General Manager of Grandwork Interior Jirawat Tangkijngamwong, Deputy Managing Director of Deesawat Industries and Chairman of Thai Timber Association