China – Page 4 – The OM Blog by Heizer, Render, & Munson

OM in the News: Global Supply Chain Problems Worsen

It has become an almost daily headline, The front page of The Wall Street Journal (Oct. 9-10, 2021) is the title of today’s post and opens: “Global supply-chain bottlenecks are feeding on one another, with shortages of components and surging prices of critical raw materials squeezing manufacturers around the world.”

New Ford F-Series pickup trucks stored in a lot in Kentucky awaiting semiconductors that are in short supply.

Factories and retailers in Western economies that have largely emerged from lockdowns are eager for finished products, raw materials and components from longtime suppliers in Asia and elsewhere. But many countries in Asia are still in the throes of Covid lockdowns, constricting their ability to meet demand.

Meanwhile, global labor shortages, often the result of people leaving the workforce during the pandemic, are throwing further off production obstacles. At the heart of the gridlock is China, the world’s largest trading nation. Arriving ships often must quarantine for a week or more before they are allowed to dock. Disruptions to customs and port services add to delays. The more ships wait on the inbound side at Chinese ports, the longer it takes for them to start out again from China to the rest of the world, waiting for Chinese-made electronics, clothing and toys. Freight rates on the heavily trafficked China-North America route more than doubled this year.

Beyond China, Covid-related factory closures in Malaysia have hit chip supplies to car makers in a semiconductor market already hit by outages in Texas, Japan and Taiwan. In Indonesia, mining companies want more trucks to feed the world’s rising demand for coal and minerals. Yet the waiting list for new truck deliveries is 9 months. Their own supply-chain problems make it harder to deliver the fuel and materials that would help resolve supply problems elsewhere, reinforcing the bottlenecks. Strikes and Covid cases among port workers in Australia have curtailed operations. Passenger flights to the country, which used to be an option for air cargo shippers, are still mostly halted.

The global auto industry will lose 7.7 million vehicle sales world-wide, 10% of expected production in 2021 (costing $210 billion in revenue), as a result of the chip shortage,. “We are not demand-constrained, we are supply-constrained,” said Daimler’s CEO, adding that the chip supply squeeze would be felt into 2023.

Classroom discussion questions:

Summarize the basics of the global supply chain breakdown.
What is the impact on consumer goods?

OM in the News: China’s “996” Culture

In Chapter 10, “Human Resources, Job Design, and Work Measurement,” we discuss quality of life and work force motivation. But many of our OM students are not cognizant of the cultural differences in workforces outside the U.S. So let’s examine workers in our biggest competitor, China.

To understand work culture in China, start with a number: 996. It’s shorthand for the grueling schedule that has become the norm at many Chinese firms: 9 a.m. to 9 p.m., six days a week. The term originated in the technology sector 5 years ago, writes The New York Times (Aug. 2, 2021), when the country’s nascent internet companies were racing to compete with Silicon Valley. At first, workers were willing to trade their free time for overtime pay and the promise of helping China match the West.

The first major pushback to 996 came in 2019, as China’s economic growth slowed and tech workers began questioning their work conditions. Online protests followed, but the movement faded under government censorship. This year, 996 shot back into the news after two workers died at Pinduoduo, an e-commerce giant. Officials promised to investigate working conditions, although it’s not clear what has come of that. Since then, some companies have taken steps to improve work-life balance. Kuaishou, a video app, just ended a policy requiring its staff to work on weekends twice a month. Tencent began encouraging workers to go home at 6 p.m. — though only on Wednesdays.

Many are willing to endure the working conditions because of the competitiveness of the job market. The number of college graduates in China rose by 73% in the past decade, a stunning achievement for a country that had fewer than 3.5 million university students in 1997. As a result, more people are competing for a limited pool of white-collar jobs.

But it’s also clear that many are sick of the rat race. Some Gen Zers have turned to reading Mao Zedong’s writings on communism to rage against capitalist exploitation. An online craze this year called on young people to “tangping,” or “lie flat” — essentially, to opt out. Still, some in China’s working class dismiss the complaints as elite griping; after all, tech workers are highly paid and educated.

Classroom discussion questions:

How does the “996” culture compare to that in silicon Valley?
What makes the U.S. different from Chinese work patterns?

OM in the News: The U.S.’s Supply Chain Review

The U.S. government is directing a broad review of supply chains for critical materials with the aim of spurring domestic production while strengthening ties with allies. As noted in our Feb. 18th blog, chip shortage is squeezing auto makers in the U.S. and world-wide. Cars use chips for numerous systems, including engine management, automatic braking and assisted driving.

The U.S. mandates a review of supply chains for four areas reports The Wall Street Journal (Feb. 25, 2021): semiconductors, used in products from cars to phones; large-capacity batteries used in electric vehicles; pharmaceuticals and rare-earth elements that are key to technology and defense, and supply chains covering six broader sectors, from technology to food production. Senators Rubio (R., Fla.) and Coons (D., Del.) recommended the government invoke the Defense Production Act to “incentivize or, if necessary, require American companies to retain their domestic capacities during this time.”

Bags of rare-earth concentrates at a California mine. China dominates the market for rare-earth elements.

The government intends to encourage domestic production with incentives such as job-training programs and business loans, in addition to using the federal procurement process for more American-made purchases. “This problem was decades in the making. We can solve it by making smart investments that are long term in nature,” said the National Economic Council. While China was not named directly, it dominates the rare-earths market and is a major player in other supply areas, including pharmaceuticals. “Right now, semiconductor manufacturing is a dangerous weak spot in our economy and in our national security. That has to change,” added Sen. Schumer.

A group of associations representing technology companies, the automotive industry and other businesses called for action to improve supply chains, including promoting the construction of semiconductor-manufacturing facilities and investing in research.

Classroom discussion questions:

What are the obstacles to revamping these “critical” supply chains?
Are the government incentives sufficient? What else can be done?

OM in the News: Globalization in Retreat?

Globalization was a key driver of the world economy in the 1990s and 2000s. But global value chains—the spread of supply networks across countries—ceased expanding after the 2009 financial crisis. This year, the arrival of the pandemic has had a devastating impact on economic activity around the world, writes The Wall Street Journal (Dec. 17, 2020), and global trade has shrunk by 9.2%.

China remains an export powerhouse but has turned inward. Exports as a share of its GDP have fallen from 31% in 2008 to 17% in 2019. China is not alone. Nationalism has become a stronger force around the world, and with it economic nationalism. Indian Prime Minister Modi has a “Make in India” campaign. President Trump touts “Buy American” policies.

The Indian government offers incentives to large smartphone brands to make their products there.

Other concerns about globalization relate to national security. The U.S.-China relationship has soured partly because of fears that the security of advanced technology products, from drones to microchips, might have been compromised by the Chinese authorities. The U.S. is not alone in worrying that Chinese technology is suspect, as the controversy over Huawei and the security of its telecom equipment shows. Japan has begun investigating how to break its supply-chain dependence on China and produce more at home.

And many countries have been asking whether they have become too dependent on others for essential medical supplies and medicines of which they might be deprived in an emergency. Some temporary export bans were imposed over fears about inadequate domestic supplies of medical equipment, PPEs, and drugs. Attitudes have changed. President Macron of France believes that the coronavirus “will change the nature of globalization, with which we have lived for the past 40 years,” adding that it was “clear that this kind of globalization was reaching the end of its cycle.”

Classroom discussion questions:

In Ch. 2 (p. 33) of your Heizer/Render/Munson text, we identify 6 reasons why companies globalize. Which, if any of these, are changing if this WSJ article is on target?
What are the main factors driving this “retreat?”

OM in the News: Countering China’s Dominance of Key Minerals

The U.S. government is ramping up efforts to secure minerals critical to modern technology but whose supply is dominated by China—a stranglehold that could take years to break , writes The Wall Street Journal (Oct. 6, 2020).

In recent years, the U.S. and other Western nations have invested in projects to mine these resources—essential for the production of electric vehicles, cellphones and wind turbines—an effort these countries are now accelerating given how far they still trail China.

Last week President Trump signed an executive order to speed the development of mines. Miners welcomed the move, but caution it takes around 10 years to set up a mine and that the West also needs to develop the capability to process these resources into the materials used in final products.

Rare-earth elements are one of the 35 types of minerals that the U.S. government has deemed critical to economic and national security. The U.S. imports 80% of its rare-earth elements from China. For 14 of the 35 critical types of minerals, the U.S. has no domestic production. China has built its dominant position because of their abundance there and the country’s more lax environmental laws make it easier to mine them. It today dominates the entire supply chain.

Up until the 1980s, the U.S. was the world’s biggest producer of rare earths and created the technology to process them, but now has only one producing mine and no processing plants. (That one is California”s Mountain Pass mine–shown in the photo)-

Classroom discussion questions:

Why are these rare minerals an OM issue?
Relate the new mining push to the “Triple Bottom Line” discussed in Supp. 5 on p.195-6 of your Heizer/Render/Munson text.

OM in the News: Chinese Form Blockchain on the Sea

China’s state-run container line Cosco Shipping will work with Alibaba and Ant Financial, on using blockchain technology to track goods across seaborne supply chains, reports The Wall Street Journal (July 8, 2020). The initiative is the latest in a string of agreements in the shipping sector aimed at connecting cargo owners, vessel operators, ports and logistics companies through digital platforms that use blockchain technology.

Blockchain allows trusted participants to share information as goods move through supply chains. The system promises to reduce the cost of administering shipped goods, cut down on paperwork and speed the flow of goods by letting companies transmit information quickly and reliably. Ant Financial Services runs the biggest business-oriented blockchain platform in China, processing payments and other services for as many as a billion users a day.

Denmark’s Maersk, the container shipping giant, and IBM in 2016 introduced a blockchain platform for container ships called TradeLens, which other big operators such as Switzerland’s Mediterranean Shipping, France’s CMA CGM and Germany’s Hapag-Lloyd have since joined.

It’s unclear so far whether significant freight flows have been handled through the platform. Use of the blockchain platform has waned during the coronavirus pandemic because global trade flows have fallen sharply while shipping lines have dropped hundreds of port calls, paring down and effectively simplifying many supply chains.

Large companies such as Walmart and Procter & Gamble, along with hundreds of ports, have been testing the technology to get a better view of their supply chains, from raw materials to finished goods.

Classroom discussion questions:

Why is a firm like Walmart implementing blockchain? (Hint: See Ch. 11 in your Heizer/Render/Munson text)
Describe how the concept of blockchain works.

OM in the News: China’s Chokehold on Medical Supplies

Alarmed at China’s stranglehold over supplies of masks, gowns, test kits and other front-line weapons for battling the coronavirus, countries around the world have started to set up their own factories to cope with this pandemic and outbreaks of the future, writes The New York Times (July 6, 2020). But when the outbreak subsides, those factories may struggle to survive. American companies have been reluctant to make big investments in fabric manufacturing because they worry that mask demand will be temporary.

China, however, has laid the groundwork to dominate the market for protective and medical supplies for years to come. Its market grip is a testament to its drive to dominate important cogs in the global industrial machine.

Before the pandemic, China already exported more respirators, surgical masks, medical goggles and protective garments than the rest of the world combined. Beijing’s coronavirus response has only added to that dominance. It increased mask production nearly 12-fold in February alone. That is 5 times what China could make before the outbreak, and 15 times the output of U.S. companies even after they ramped up production this spring. The Chinese government played a major role in this year’s medical-equipment build-out with cheap land, subsidies, and a demand that that its own hospitals buy locally.

The U.S. has begun a push for the federal government to buy American-made pharmaceuticals and medical supplies. Likewise, France pledged to produce homegrown masks and respirators by the end of this year. But Chinese pharm companies supply 40-45% of heparin (a blood clot medicine), 70% of acetaminophen, and over 90% of antibiotics, vitamin C, ibuprofen and hydrocortisone to the U.S. About 80% of the active ingredients used in U.S. drugs also come from other countries.

Thus, it begs asking: Is it time for America to take control of its pharmaceutical and medical production?

Classroom discussion questions:

This article suggests risks in outsourcing. Relate this to the pandemic.
How does the theory of comparative advantage stand up in this situation? (See Ch. 2 of your Heizer/Render/Munson text).

OM in the News: International Supply Chains May Prove Hard to Break

The supposed rush to reshore global supply chains may end up going nowhere. Those expecting large-scale deglobalization and the return of domestic production for many goods might be disappointed, writes The Wall Street Journal (April 23. 2020), with reports suggesting that global sourcing remains in full force.

Bringing some manufacturing home for medical or security purposes might make sense. Amid the U.S.-China trade war, reshoring was already a major issue of discussion before the coronavirus arrived. American imports of Asian-made goods (as a percentage of domestic manufacturing output) dropped in 2019, falling from a record high to the lowest level in 5 years. But that decline was due to a sharp fall in Chinese imports. Imports from the rest of low-income Asia actually rose, and U.S. manufacturing output was roughly flat.

This isn’t exactly deglobalization. Manufacturing shifting from one country to another as countries grow richer and pivot to higher-value manufacturing isn’t new. Just as China took a greater share of manufacturing once done in S. Korea and Japan, Bangladesh and Vietnam are well placed to take a portion of manufacturing that, for now, is done in China. It is inefficient for wealthy countries to attempt to resume much low-value production currently done abroad, as we point out in Ch. 2’s discussion of the theory of comparative advantage (see p.46).

Even in high-value sectors, a lack of knowledge, experience and competitiveness in niche areas are difficult to surmount. For example, Japan last year restricted exports of smartphone screen components to S. Korea. (Despite Korea’s dominant position in electronics, screens are largely produced in Japan). Manufacturers such as Samsung and LG were left hanging. Korea managed to reduce its Japanese components modestly (from 92% of the total to 85%) by massively expanding imported parts from the U.S., Belgium and Germany.

Ideological commitment to globalization didn’t drive the growth of major value chains in the first place, and its decreased popularity is unlikely to unwind them even with the current pandemic.

Classroom discussion questions:

What risks have operations managers come to discover with outsourcing?
What steps has the U.S. just taken to increase its supply of medical goods which are predominately manufactured in China?

Good OM Reading: Learning Painful Supply Chain Lessons–Again

After the 2011 earthquake and tsunami in Fukushima, Japan, many multinationals learned painful lessons about the hidden weaknesses in their supply chains — weaknesses that resulted in loss of revenue and market cap. While most companies could quickly assess the impacts that Fukushima had on their direct suppliers, they were blindsided by the impacts on 2nd– and 3rd-tier suppliers in the affected region.

Almost 9 years later, it seems the lessons of Fukushima must be learned anew as many companies worldwide scramble to identify which of their “invisible” lower-tier suppliers — those with whom they don’t directly deal — are based in the affected regions of China. “Many companies are probably also regretting their reliance on a single company for items they directly purchase”, writes this interesting Harvard Business Review (March 5, 2020) article. Supply-chain managers know the risks of single sourcing, but they do it anyway in order to secure their supply or meet a cost target. Often, they have limited options to choose from, and increasingly those options are only in China.

Risk management principles (which are summarized in Table 11.3 of your Heizer/Render/Munson text) should be applied, at a minimum, to tiers 1 and 2 in company supply chains. Beyond tier 2, the risks should at least be understood. In some cases, it will not be possible to find multiple sources for certain parts or materials. For example, a supplier may possess unique intellectual property; sometimes volumes aren’t sufficient to justify two sources; or multiple sources are simply not available. In these cases, companies need to supplement their traditional sourcing practices with new sources of data and new approaches to understand and mitigate the risks they take on.

When companies have advance knowledge of where the disruption will come from and which products will be impacted, they have lead time to execute avoidance and mitigation strategies immediately — like
shaping demand by offering discounts on substitutes, buying up inventory, booking capacity at alternate sites, or controlling inventory allocations.

This epidemic again teaches that a robust supplier-monitoring system is a basic requirement for today’s supply chain managers.

OM in the News: Auto Manufacturers Start Flying in Parts

Auto parts shortages could soon hit North American factories

Did you know that cars and trucks are made of about 30,000 individual parts? And a finished vehicle doesn’t get off the shop floor until each of those component parts are in place. “It’s all or nothing,” says one industry CEO. The auto industry is preparing for supply-chain problems from the coronavirus outbreak in China to soon hit vehicle production in the world’s healthiest car market: the U.S., reports The Wall Street Journal (Feb. 29, 2020)

Auto parts made in China generally take several weeks to be shipped via ocean freight to the U.S., a lead time that has so far not had significant impact on U.S. vehicle production. However, with some critical components already in short supply, several car companies and auto-parts suppliers have chartered airplanes or booked space on commercial cargo planes to fly parts directly from China.

Nissan and Toyota are reserving space on commercial cargo planes to ship key electronic parts to their North America plants. Pinch points are even emerging for mechanical parts that have a broader supply base, such as brake pads and door hinges as many auto makers are scrambling to find backup supplies. Tensions over who will cover the cost of airfreight and other added expenses already have escalated, and often lead to months of wrangling between suppliers and auto makers.

Parts shortages already have forced some car factories to close or curb production in Japan and South Korea, and has threatened car output in Europe, where the coronavirus continues to spread. “There is a strong likelihood that there will be disruption of production” at car companies in the U.S. a Detroit exec said. “It will get more serious before it gets better.”

Classroom discussion questions:

How can manufacturers deal with such shortages in today’s global economy?
What is happening tp vehicle sales in China?

OM in the News: Ships Are Skipping China

February 2020 will come to be remembered as a period of historic disruption to physical supply chains the world over, as the coronavirus wrecks trade. Dozens of export sailings to ship China-made goods to consumers from the U.S. to Europe — think handbags, flat-screen TVs, and plastic toys — have been canned since the virus crisis escalated last month. Those non-shipments are part of a much bigger picture in which every aspect of global shipping — from oil and gas through to dry-bulk commodities — has been upended.

“The unprecedented gyrations caused by the virus matter because 90% of all trade moves by sea and China has grown into the maritime industry’s main source of cargoes,” writes Material Handling & Logistics (Feb. 18, 2020). The disruptions have left toymakers like Hasbro and fashion houses like Versace and Jimmy Choo struggling with their supply chains. Vessels are idling. And exporters to China face diversions as clients there use clauses in their contracts to walk away from commitments to buy cargoes. “All the signs are that there has been a major dislocation in global supply chains,” says a trade economist.

All this has come about because the virus has led to hundreds of millions of people being told to stay away from work or education in China, squeezing output in the world’s fastest-growing major economy.
The number of blank sailings — where ships don’t load at a planned location — has jumped since the outbreak began. Almost 600,000 20-foot boxes are currently out of action as a result of the virus.

Hasbro says that the virus is disrupting its commercial operations in China — from where it had already been seeking to diversify its supply chain. Hyundai halted some of its car production because of component shortages caused by the virus. Fiat Chrysler is planning to halt operations at its assembly plant in Serbia due to a lack of parts from China.

Classroom discussion questions:

How does a logistics manager deal with this situation?
Can airfreight help replace shipping?

OM in the News: World Economy Shudders as Coronavirus Threatens Global Supply Chains

Travellers are few at this Chinese railway station.

The last time a virus outbreak hit China, in 2003, the global economy emerged unscathed. Now, nearly 2 decades later, the effects of the coronavirus threaten to ripple around a world transformed by China’s boom. Chinese consumption and production power growth from Asia to North America, Europe and beyond. Manufacturers world-wide are tethered to China by the tentacles of a supply chain that relies on the country’s factories for many intermediate and finished goods. “This is a once-in-a-generation event,” said one CEO.

With fears of contagion keeping Chinese workers home, production is getting pinched, writes The Wall Street Journal (Feb. 23, 2020). In the U.S., GM warned that a lack of China-made parts could slow assembly lines at plants in Michigan and Texas. Hyundai suspended one of its main assembly lines in Ulsan, S. Korea, because it couldn’t get parts from China. Asiana, S. Korea’s 2nd-largest airline, put its 10,500 employees on staggered shifts of 10 days’ unpaid leave. Videogame giant Nintendo said that shipments of its flagship Switch gaming console are delayed as it can’t get parts from Chinese factories. Apple won’t meet revenue projections for the first quarter as the epidemic shuts its China plants. Container-ship operators are preparing profit warnings as dozens of trips out of China are canceled. In Vietnam, an economy highly dependent on Chinese supply chains, exports in January fell 17%.

Major electronics producers that depend on Chinese parts also have suspended output because of the outbreak. Others are weighing relocation. Japan’s exports to China are expected to drop 7% this quarter from the prior one. An extended Chinese shutdown could cripple global manufacturing and cost the world up to $1 trillion in lost output. “The current situation is more serious than we thought,” said S. Korea’s president.

Classroom discussion questions:

How can companies evaluate disaster risk in their supply chains? (See Supp. 11 in your Heizer/Render/Munson OM text)
What impact will this virus have on supply chains in 90 days if it is not contained?

OM in the News: Coronavirus Tests Apple’s China Dependency

Coronavirus has given new meaning to something Apple executives have been saying for years: Apple needs another China. The rapid spread of the virus and the disruption it has caused is the latest test of Apple’s dependency on China as its manufacturing base for most of the iPhones, iPads and Macs sold world-wide.

To curtail the virus’s spread, local governments have asked people to stay away from work. Shipments of parts and components to the Apple assembly plants are curtailed, and workers who went home to celebrate the Lunar New Year may not return, out of caution. Foxconn, Apple’s main manufacturer, is contending with a strict quarantine in Zhengzhou city, home to its largest iPhone plant.

Apple has successfully weathered a number of challenges involving China in recent years, writes The Wall Street Journal (Feb. 8, 2020). But it is among the foreign companies most vulnerable to the outbreak because it hasn’t diversified its manufacturing. Though it looked at assembling iPhones outside China, it found the costs of facilities and training too high and opted to keep exporting from China. Apple’s leaders have long considered its reliance on China-based manufacturers as both a strength and a vulnerability. Apple worried more about a disruption in exports from the country than loss of sales inside Greater China, a market that accounts for 1/5 of revenue.

Samsung, the world’s largest smartphone maker, wound down production in China last year as part of a years-old strategy of diversifying its manufacturing base by shifting production to India, Vietnam and elsewhere.

Apple is known for its operational prowess and has a record of navigating supply-chain challenges. After an earthquake triggered the Fukushima nuclear crisis in Japan in 2011, Apple quickly created a new factory to maintain production of optical drives it needed for its devices. When monsoons flooded factories in Thailand later that year, Apple turned to the Thai Navy to load boats with the heavy equipment necessary for production. But those events only affected a sliver of Apple’s supply chain. Coronavirus affects the very heart of it.

Classroom discussion questions:

Referring to Supplement 11 in your Heizer/Render/Munson text, draw a decision tree for Apple’s disaster risk.
What can Apple do at this point if it thinks the virus will have a 6-month impact on supply chains?

OM in the News: Building a Hospital in Wuhan, China in 10 Days

Among the serious issues facing China as the coronavirus continues to spread, are the impact of the border, factory, and store closings, and shutdowns which are beginning to affect global supply chains from auto parts to iPhones (see our blog on Feb. 2, 2020). Facing criticism that the official response to the outbreak was delayed, the Chinese government has stepped up containment. One of its initiatives was to build two new hospitals in Wuhan –in 10 days! Since our Chapter 3 video case study, “Project Management at Arnold Palmer Hospital,” details that 60 month construction task (which included 13 months of planning), this OM project is worth discussing with your class.

Here is how The New York Times (Feb. 4, 2020) describes the task, which began on Jan. 24th:

Construction teams of 7,000 workers with armies of trucks and excavators dug and scraped around the clock. The city government completed a feat recalling the SARS epidemic of 2003, when Beijing built a hospital in a week. For China, the new Wuhan facility would also serve as a potent symbol of the government’s drive to do what needs to be done. Leaders pledged to build the 1,000-bed complex in 10 days and vowed that another new 1,600-bed hospital would be ready by Feb. 5.

Wuhan, a city of 11 million, has been eerily quiet since the authorities locked it down, preventing residents from leaving and severely limiting public transportation and private cars. But the roads around the hospital building site were packed with cement mixers, trucks and other construction vehicles. Migrant workers and suppliers of materials were roped in to build the complex. Workplace safety precautions included temperature checks to try to detect signs of coronavirus infections. By Feb. 3rd, ambulances begun transporting patients to the new hospital.

Classroom discussion qestions:

How did this project differ from the construction of the Arnold Palmer Hospital in Orlando?
Could this project be replicated in the US? Why or why not?

OM in the News: The Virus and Global Auto Supply Chains

The coronavirus outbreak, which has all but sealed off China’s Hubei province from the rest of the world, could have an outsize impact on the global auto industry, which has a large footprint in the region in central China. reports The Wall Street Journal (Feb. 2, 2020). The virus’s spread has disrupted car manufacturing in China and prompted major auto companies with operations there to restrict travel and ask employees to stay home. One German auto supplier said that at least 5 employees had been infected.

The Chinese auto industry has grown from virtually nothing 30 years ago to become the world’s largest market for new vehicles. Wuhan, Hubei’s capital, has in that period emerged as an auto-making hub, home to state-owned Chinese Dongfeng Motor and numerous assembly plants for Honda., Peugot, and GM. Auto makers in Wuhan were expected to produce 1.6 million vehicles this year, contributing 6% of overall Chinese output.

Honda said it wasn’t sure when its 3 vehicle plants in Wuhan would reopen in light of the epidemic. These factories can build 600,000 vehicles/year–half of Honda’s total capacity in China. Webasto, a German auto-parts supplier, stated that four employees in Germany had contracted the virus after an employee from China visited headquarters. Bosch, the world’s biggest auto components supplier, warned that coronavirus could impact its global supply chain, which is heavily dependent on China. (Bosch relies on China for exporting electric motors, transmission and power electronics for electric cars).

The virus’ impact is not only on production and distribution of vehicles in China, but has major implications on global supply chains in other manufacturing arenas. Foxconn said it would keep its Chinese factories closed until mid-February. The move could affect global supply chains for tech companies that rely on Foxconn to manufacture everything from Apple’s iPhones to flat-screen TVs and laptops.

Classroom discussion questions:

Might this disease have a lasting impact on global supply chains?
What other industries are being affected in the US?