Even though China has fared better in its economic recovery than originally anticipated, the pandemic boosted the long-term trend of businesses diversifying and engaging suppliers in China’s regional competition.
Demand for inspections and audits across Southeast Asia rose 19% in 2020, clocking in at twice the 2019 versus 2018 growth rate. As a whole, this region recorded double-digit expansion in inspection and audit demand starting from July, buoyed by record orders for personal protective equipment (PPE) and rising demand from buyers looking for alternatives to China both in the short and long term.
Not surprisingly, buyers’ choices were closely influenced by the level of pandemic-led disruption that a sourcing region experienced. While sourcing activity in Southeast Asia more than doubled, South Asia’s draw as an alternative sourcing region to China was decidedly less pronounced, with just 2.6% volume growth in 2020. This modest increase pales in comparison to the double-digit growth the region recorded in 2019 against 2018. In particular, manufacturers struggled to bounce back from the halt of April and May. Recovery was then further exacerbated by the combination of domestic lockdowns stunting productivity across the region and continued lockdowns in the West, crushing consumer demand, especially in the region’s most popular product categories of textiles, apparel and footwear.
In the early days of the pandemic, it appeared that China would ultimately be the hardest-hit by the pandemic, both health-wise and economically. But after recording an abysmal first quarter, where production volume was incapacitated by factory shutdowns and demand shocks, COVID-19 case numbers had sharply dropped by March. The world’s second-largest economy began to reopen during the second quarter, with sourcing in China then following a gradual yet stable upward path toward recovery throughout the rest of 2020.
By the end of the second quarter, China became an anomaly against the widespread global slowdown. Sourcing volume in China quickly bounced back to 2019 levels, according to QIMA data. From there, sourcing volumes continued to grow throughout the second half of the year, only stalling in December after lockdowns were reinstated in multiple countries in the West.
What’s perhaps more unexpected than China’s surprise recovery is that it’s being driven, at least partially, by U.S.-based buyers. When 2020 kicked off by the signing of ‘phase one’ of the trade deal between the U.S. and China in January, signs of trade tensions were finally letting up. With American businesses already less anxious about leaving China, the pandemic proliferated and factory shutdowns hit other parts of the globe. Among the first countries to return to work, China then found itself back on the sourcing hot list for many U.S. businesses.
As a result, demand for inspection and audit orders in China from North American brands tracked above 2019 levels throughout the second half of 2020, falling by a total of 3%. By comparison, this is a much smaller dip than the sharp 15% drop recorded in 2019 versus 2018.
In the middle of a public health emergency, we’re also battling an economic crisis, with workers around the world facing rising poverty. Job losses have trounced that seen during the 2008-2009 global financial crisis by an estimated four-fold, according to a report released in January, 2021 by the UN International Labour Organization.
Adding fuel to the fire, more risks in human rights and labor violations are being tracked in factories. The ethical audit data collected by QIMA at reopened factories and through remote audits confirms an emergency situation on the ground, with the share of factories ranked "red" for critical non-compliances more than doubling in the second half of 2020 compared to the first half.
Notably, in China, where the sourcing and manufacturing recovery has exceeded expectations as previously discussed, 14% of the factories QIMA audited received a failing grade after amassing critical violations in the areas of working hours and wages. These violations included workers being burdened with additional sanitation duties as unpaid overtime, as well as those being forced to clock excessive hours so that factories could meet tight deadlines and overflows. This is particularly true in factories that produce high-demand items like PPE and cleaning products.
Sébastien Breteau is founder and CEO of QIMA.
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