Foxconn is the largest contracted electronics manufacturer in the world. After weeks of uncertainty and massive outages due to the coronavirus epidemic in China supply, Foxconn is putting its factories back into operation. But starting up the supply chain and production lines on which most iPhone works depends on half of the problem. The other half is the question of getting people to buy them.
“The market is what we are concerned about in the United States,” Foxconn founder Terry Gou told journalists last week. It is easy to imagine a scenario in which “production has resumed again quickly, but customers have stopped spending,” he said, according to Bloomberg.
Customer behaviour during pandemic Coronavirus
Customers still spend, but mostly for essential goods. From disinfectant gels to toilet paper. Consequently, the new iPhone 11 or Amazon Echo may not be the best time for a shopping cart. IDC analysts are already grasping PCs and tablets. The global smartphone market will drop by an alarming 10.6% this year’s first half.
So, when consumer spending on technology will get back to normal? Looking ahead could reveal developments in China:
When the new type of coronavirus began to spread beyond Wuhan, Beijing tightened its quarantine measures. This is causing a dramatic fall in industrial production, in-store people, and consumer spending. During January and February, the industrial production in the second-largest light economy declined by 13.5% year on year. This is the worst figure since 1990, when Reuters began monitoring this data. Car sales fell by 92% in the first half of February. Giant sinks did not avoid domestic manufacturers like Lenovo, Huawei and Xiaomi. This due to a terrible supply-side sieve. Apple closed all of its 42 stores in China. In February, it delivered only 494,000 phones. A year ago it was 1.27 million for the same period.
China – supply and demand
In China, the worst wave of quarantines is now sinking, and the situation is slowly improving. On Friday, Apple reopened its stores in China, and customers are beginning to spend again on luxury. Analysts call it Chinese consumer demand. And while the brick-and-mortar stores have suffered a big blow, some online stores are looking forward to solid sales. For example, JD.com is expecting a 10% revenue growth this quarter.
For the rest of the world, it turns out that it could be the consumer demand and not disrupt supply chains that could hurt factories. Yosii Sheffi, a supply chain management expert at the prestigious American MIT Institute, calls it the whip effect. Lack of consumer interest forces firms and traders to reduce orders from wholesalers, suppliers, and manufacturers.
Technology companies will think of how to sell their physical goods in such a freezing environment. It could mean prioritizing products for organizations such as authorities or schools. In an interview with CRN, Dell Technologies CEO, Michael Dell, said that he saw a massive increase in “demand for home-based work solutions”. It focuses on meeting these requirements. He says that “our supply chain is in relatively good shape”.
And even in China, demand would not rise too quickly. According to CNBC, chief economist for China supply at TS Lombard, Bo Zhuang, industrial production will increase again after the January and February slump in March. Still, local and global demand will probably take some time.
“We were afraid of supply-side problems. Now it’s becoming a fear of demand-side shock,” Zhuang says according to CNBC.
Here you can read more about the coronavirus history in China: https://en.wikipedia.org/wiki/COVID-19_pandemic_in_mainland_China