Happy Year of the Tiger – Coping Through Chinese New Year and Beyond
by Carl Hung, President and CEO of Season Group
I recently took part in The EMS (Eric Miscoll Show), the webcast and podcast of EMSNOW.
The lunar new year is the singular largest holiday and celebration for us in China. China’s workforce is largely migrant, so we don’t generally have our family home in the place we live and work most of the year. This is one of the few times we can go home and spend valuable time with our family. This means mass movement of people (over 100,000,000 people) over long distances, with many spending hours on a bus or train. It means shutdowns in factories that last around a week, but take another week or so to recover from. And it means attrition in the workforce as some chose not to return to their jobs after the holidays and to seek other employment, perhaps closer to family or perhaps with a higher rate of pay.
Clearly this piles disruption onto an already disrupted manufacturing supply chain, and that was a large part of the conversation I had with Eric Miscoll and Case Engelen, TITOMA’s CEO, on the podcast earlier in January.
Attrition is real and significant
Historically it has been as high as 40-50% of direct labor, less with the indirect office staff. Many are seeking and expecting a significant pay rise (10-20%) if they move to another job and will perhaps take a month off before they do that. Talent in manufacturing is in short supply, so confidence in mobility is high among the skilled engineers and operators.
And there’s another significant dynamic. The younger generation see people getting rich quick on alibaba and the like as influencers and the like. Many think they can emulate this rather than work in factories, so perhaps will try something different, using casual work contracts rather than permanent ones to give them flexibility. This has created an environment of short term contracts with even less predictability for the employers.
Potentially the most disruptive Lunar New Year ever
One of the questions Eric asked both Case and me was how we ranked this Chinese New Year as a disruptor compared to others and the level of readiness of the industry. I replied that I hope this is the worst ever, not because I want it to be bad, just because I know it will be and I don’t want to see a worse one, or even another like this. This year the disruption will come like a huge wave hitting a ship that has been pounded by waves throughout a long storm and is just hanging on, with a crew that has been highly stressed and at action stations for far too long.
We’ve been fighting the disruption of COVID for two years now and most recently we’ve been preoccupied with shortages. And as if we need more disruption, the winter Olympic games hosted in Beijing is causing factory closures as the government tries to reduce pollution in the region. Many provinces have urged people not to return home this year, some actively banning those from returning if they are deemed to be from high and medium risk areas (Shenzhen and Zhuhai fall under these terms). As a result, many workers decided to head back home even earlier than previous years just in case the area that they’re working in gets labeled medium or high risk.
With respect to COVID, unlike most of the world, China is still chasing COVID zero and locking down hard and fast when cases pop up. When a city or region is locked down, goods can flow in, but nothing flows out, and that is aggravating already stressed supply chains. And the component crisis doesn’t seem to be abating. We have moved from strategic purchasing to spot purchasing, where we are having to pay much higher prices, sometimes as much as 100 times higher. What is more, we are stocking whatever we can, and inventory is growing. This means we are potentially part of the problem, rather than the solution. Stockpiling can only aggravate the shortages in the market and all this spot and forward purchasing is creating a demand that is not reflective of real consumption. This will take some time to unravel.
It’s not all doom and gloom
While it might feel like the world is ending and this perfect storm of disruptions risks multiple shipwrecks, the truth is we are all working hard to mitigate the shortage of components, the factory closures, the shortages of talent and every other wave of disruption that are crashing across the bow of our ship. And we’re doing well in weathering the storm. We’re shipping products and supporting our customers’ growth. Open and honest communications along with planning are helping us and our customers avoid surprises. Design support is allowing us to modify products to use devices that are not in such short supply. And our recruitment, training and talent retention strategy are producing real results, giving us above industry average performance.
We started this process with a robust ship and a great crew and what we have and what we will need to see us through whatever the next storm brings.
Happy Year of the Tiger or as they say in China “Xin Nian Kuai Le”.