China’s Factories Struggle to Resume Operations After Virus Shutdown
Date: Monday, February 10, 2020
Source: The Wall Street Journal
Smaller companies are particularly vulnerable after coronavirus lockdown that has choked supplies
As China shuts down swaths of the country to contain a fast-spreading virus, Fabien Gaussorgues is struggling to keep running a business that makes consumer electronics for small-business customers in North America.
The chief executive of Agilian Technology Co. isn’t sure if he can get enough of his 80-person staff back to restart his factory after the extended Lunar New Year holidays. Even if he does, he can’t get hold of quality controllers to certify his factories, and he can’t get shipments flown to customers because so many flights from China have been canceled.
“We have warned our customers that air shipments might be impossible in the next three months,” Mr. Gaussorgues said. “Suppliers can’t commit to anything at this time. This is the No. 1 danger. It might force us to stop production.”
Mr. Gaussorgues’s woes are emblematic of the problems facing companies as they try to restart operations following the lockdown caused by a coronavirus that emerged from Wuhan, which has infected more than 30,000 people and killed more than 600 in China. The country’s restrictions—which are beginning to be lifted—have choked supplies, restricted travel and limited the ability of employees to report to work.
The virus is the latest blow to businesses in the world’s largest manufacturing economy, which also has been hurt by a bruising trade war with the U.S. And while production disruptions are expected to affect companies of all sizes—including giants like Apple Inc. and Qualcomm Inc. —smaller companies are particularly vulnerable.
“Suddenly, an existential threat has come up, and many organizations are re-evaluating their supply chains,” said Renaud Anjoran, chief executive of Sofeast Ltd., a China-focused quality assurance and engineering firm. He said thousands of small and midsize Chinese factories may shut as a result of the production shocks.
“This will, unfortunately, have an impact on our production and delivery,” said Janice Wang, chief executive of New York-based Alvanon Inc., an adviser to retail and apparel makers including Under Armour Inc., with operations in Shanghai. “We anticipate a four-week delay on any physical goods that have already been paid.”
China extended its new-year holidays three days to Feb. 2, and kept most businesses shut thereafter to combat the outbreak. Many factories are scheduled to reopen Monday, although it is unclear how many can. Many workers can’t leave their hometowns, and employers still have to pay them. Factories that do open might have to operate with lower productivity because of labor shortage, new screening requirements and lack of parts.
German auto maker Volkswagen AG said Saturday that it is pushing back the date to resume production at some plants to Feb. 17, citing challenges in its supply chain and in securing factory workers as they face limited travel options.
“If several key suppliers suddenly close down, or are several months late in their shipments, it is a deadly threat to a business,” Mr. Anjoran said. “It is much worse than, for example, a 10% tariff, since they can survive that extra cost for some time.”
Inland deliveries face an additional four to five hours on each journey as 18-wheelers clog temperature checkpoints screening drivers and passengers on highways, according to DHL’s risk-analysis platform Resilience360.