China has maintained its position as the manufacturing hub of the world, supported by efficient supply chain infrastructure, and low-cost production. And this has driven the steady rise of its GDP. The scenario changed in 2020 when the world witnessed the Covid pandemic, and China-dependent countries like India, Japan, and Australia suffered heavy debts. This led to the formation of the Supply Chain Resilience Initiative or SCRI. The goal of SCRI is to reduce the reliance on China and create a sustainable and balanced supply chain across the Indo-Pacific region.
What is SCRI?
The SCRI, started on 27th April 2021, is an initiative by three superpowers of the Indo-Pacific region: India; Japan; and Australia. In layman’s language, SCRI is an initiative to reduce the dominance of China in the Indo-Pacific region, and set up standards and infrastructure to carry out smooth supply chain activities.
China was the first country to go on a nationwide lockdown when the Covid virus began to spread. This affected Chinese businesses and businesses from countries like India, Japan, the Philippines, and Australia, who were heavily dependent on cheap labor and products made in China. In response to this, many companies and countries in the Indo-Pacific region have encouraged the rise of the SCRI. While there has been a positive response to SCRI from many Asian countries, China claims the initiative will lead to rising geopolitical tensions between SCRI countries and China. We can already see pressures increasing between China and Australia, as well as between China and India.
This year, China has taken several steps to prevent Australia’s imports, from imposing tariffs to imposing bans and restrictions. Despite all this geopolitical tension, Australia, India, and Japan are learning to work together to promote manufacturing locally and sell globally.
SCRI and Global Supply Chain & Logistics
Companies are shifting their focus from China, and having just one low-cost supplier, to having several suppliers spread out among other Asian countries. The supply chain resilience initiative focuses on strengthening the industrial global supply chain in Asia. The three lead countries aim to evaluate neighboring countries such as Bhutan, Bangladesh, Philippines, Malaysia, etc., where low cost labor and production is possible.
India, Japan, and Australia have already set up their supply chain infrastructure programs to boost their internal and international pipeline. Going forward, SCRI will also focus on local manufacturing for global markets. The three SCRI countries will increase their employment rate, and broaden their skills and knowledge in the logistics and supply chain industry.
Moving a manufacturing hub from one country to another is a complex and risky task. Still, many companies are willing to take the risk as they consider India to be the next world manufacturing hub. A virtual meeting between trade ministers of countries in the Indo-Pacific region held on 27th April 2021 also underlined the crucial point of warehouse locations, trade and investment diversification, and digitalization of supply chains.
The SCRI seeks to reconstruct cross-border industrial networks and commercial connections based on geopolitical and mutual security considerations. This changes traditional underlying economic factors, notably cost efficiencies that dictated supply chain expansion to China over the last 30 years. Currently, a strategic security dialogue between the United States, India, Japan, and Australia known as the QUAD encourages this initiative. The US is ready to provide the resources & technology to make this initiative a game-changer in the Indo-pacific region.
Challenges for the SCRI Countries
There are three main challenges to be addressed by SCRI countries:
- Lack of infrastructure
- Achieving the reality of low-cost production
- Lack of technology and human capital
Lack of infrastructure – If we compare the three superpowers against China with respect to Infrastructure, China has better technology, better methodology, and better techniques to adjust processes to meet requirements. For example, the roads are much better in China than in India, which makes transportation much safer and cheaper. On the other hand, Japan has better infrastructure than China, but labor is not cheap. Thus, the lack of cheap labor increases cost and reduces the profit.
Low-cost production – India is seen as next to China concerning low-cost production and cheap labor. But achieving the benefits that low-cost production could bring is a mammoth task for India’s supply chain. India is fixed in a loop of high population, high competition, impractical learning, and divisive politics. Thus, it would take years to address these issues, and give China a perfect opportunity to capture the market again. Though China is known for its closed door policy, it knows how to dominate global trade.
Lack of technology and human capital – ERP and other standard software applications are still a dream for many companies in India where companies still do much of their planning and scheduling with spreadsheets. The SCRI has included the transfer of technology as one of the crucial objectives in the SCRI program. There is also a lack of human capital in logistics and supply chains in Australia and Japan. To address this the Australian government is promoting a “Work In Australia” campaign to attract skilled immigrants to come to Australia.
To sum up, resolving these challenges, and achieving the relevant performance targets agreed to by the trade ministers of India, Japan, and Australia will take time, and a lot of resources.
On a broader scale, SCRI is one of the crucial modern era global supply chain adjustments that needs to be made if we are going to balance the present dominance of China in the Indo-Pacific region. SCRI is still in its initial implementation phase. Nonetheless, with the good leadership, development of the right human resources, and a drive to actively participate in global supply chain and logistics industries, SCRI can be a powerful project for economic development in India, Japan, and Australia.
Somen Jagtap – Supply Chain and Logistics Professional || Six Sigma -Yellow belt || UniMentor || Freelance Supply Chain Content Writer. LinkedIn Profile: https://www.linkedin.com/in/somen-jagtap-77b258146/