Technology companies have been at the heart of the global response to the COVID-19 pandemic, whether providing consumer devices; marketplaces and media services to shop and entertain; hardware to support cloud computing; online communication platforms, or robots that actively take temperatures of patients. The sudden explosion in demand was both unpredictable and unprecedented, but being technology companies, they were able to respond quickly. While many parts of the technology sector have demonstrated remarkable agility and innovation during the pandemic, there remain challenges ahead. A research commissioned by Standard Chartered, Critical indicators of sustainable supply chains, reveals supply chain interconnectedness and resilience are top concerns for technology companies, emphasised by 59 per cent and 56 per cent respectively.
As they look ahead to the post-COVID era, technology companies are rethinking their supply chains to mitigate vulnerabilities and supply shortages while leveraging the opportunities of the post-pandemic digital era. At the same time, they are working to meet growing customer and shareholder demands around sustainability.
However, diversification and relocation is not always feasible when sourcing highly specialist components or outsourcing production.
The reliance on countries such as China is threatening the resilience of supply chains, given the strained relationship between China and the United States, the threat of trade tariffs and stockpiling of key components such as semiconductors. Some manufacturing bases were already shifting away from China, while governments, most notably the U.S., are seeking to enhance domestic production of semiconductors to reduce concentration risk. TradeCo, the Bank’s non-financial arm, also plays an important role in filling the “gap” in the supply chain; embedding itself between suppliers and buyers of tech products – such as buying and financing semiconductors on behalf of clients – to ensure the stability of supply.
For some technology companies, a potential solution to these geopolitical and concentration challenges is the creation of alternative supply chains. It will take time, however, to create alternative manufacturing sites, particularly of highly specialist components. China’s megafactories can ramp up production at pace and at scale, with a large specialist workforce. Replicating this model would need substantial investment. These megafactories are themselves supported by a vast ecosystem of suppliers, such as plastics, fixings, etc. which are all part of the technology value chain. 93 per cent of technology company respondents said that ensuring the financial resilience of this indirect ecosystem of suppliers is just as important to a resilient supply chain as the direct supplier ecosystem.
With digital business models now becoming the norm, accelerated by the pandemic, technology companies and their supply chains are under unprecedented pressure to build additional capacity as new demands emerge. The first step is to understand the likely scale of these demands.
Addressing capacity and concentration risks are key priorities for many technology companies, for which they are heavily reliant on their suppliers. However, establishing visibility and interconnectedness across supply chains, whether direct or indirect suppliers, to understand and address these risks, remains a problem.
Many of these supply chains are large and complex, so it can be difficult to know where to start. Companies need to be pragmatic, and prioritise their supply chain efforts, such as financing, in areas that offer the greatest value – and often therefore greatest risk – to their supply chains.
Sustainable supply chains are essential to meet consumer and shareholder priorities
Increasing visibility and connectivity across supply chains is important to ensure supply chain resilience, but also to support technology companies’ sustainability agendas. Increasingly, consumers and shareholders include a company’s environmental, social and governance (ESG) record as part of their purchasing and investment decisions: 34 per cent of consumers choose brands and suppliers that have environmentally sustainable practices, and 30 per cent based on ethical values1.
These issues are also becoming more important from a political and regulatory standpoint.
Companies cannot achieve their ESG targets without the support of their supply chains. Suppliers’ carbon emissions are, on average, 11.4 times greater than an individual company’s direct emissions2.
The number of high profile sustainable supply chain initiatives in the technology sector is growing. In January 2020, Microsoft announced a USD1 billion fund to invest in new technologies and innovative sustainability solutions for carbon, water, waste, and ecosystems regeneration3 as part of its mission to become carbon negative by 20304. Apple is on the same carbon negative trajectory5, and has created a USD200 million Restore Fund to invest in climate solutions and carbon sequestration, such as restoring degraded savannahs in Kenya and protecting Amazon rainforest in northern Peru.
Social factors, such as labour rights, have also become a priority. Many companies, such as Samsung, have established a human rights framework to tackle abuses across their ecosystems based on the United Nations Guiding Principles on Business and Human Rights.
Standard Chartered is supporting technology clients in a variety of ways to achieve their supply chain resilience and sustainability ambitions. For example, as clients, or their outsourcing partners or suppliers, set up manufacturing sites in new and less familiar locations, they are engaging with us to leverage our market proximity, local expertise and regulatory relationships.
The Bank is also helping with specific challenges that relate to the technology sector. For example, technology companies are highly energy-intensive. To reach net zero or negative zero emissions targets, they need to replace traditional energy with renewable sources, but there are not enough renewable energy sources to do this, particularly in Asia where the bulk of their supply chains are located. Therefore, we are engaging with clients to discuss how best to develop new renewable energy markets, such as in Malaysia.
Standard Chartered is also heavily engaged in the development of a well-functioning voluntary carbon market, in which companies can buy carbon offsets from verified suppliers to offset their emissions, including projects that reduce emissions from deforestation or conserve, rehabilitate and replant forests. Initiated by Mark Carney, UN Special Envoy for Climate Action and Finance, our Group Chief Executive, Bill Winters, chairs the Taskforce on Scaling Voluntary Carbon Markets.
It is a private sector-led initiative working to scale an effective and efficient voluntary carbon market to help meet growing demand, and in line with the goals of the Paris Agreement.
The technology sector has weathered the COVID-19 crisis well, fuelled by growing demands from consumers and the expansion of digital business models. But supply chain disruption during the early months of the pandemic, and ongoing shortages of some components, has emphasised the importance of visibility and better management of supply chains, and partnerships, such as with banks, to secure predictable supplies. Combining resilience with sustainability will also remain a long-term objective.
"We use a four-part framework:
Identifying risks and resilience in our supply chain
Defining supplier selection criteria, to allow us to rebound more strongly as the crisis passes
Exploring the ‘new normal’ and what this means for performance
Evaluating preparedness for future crises and finding more scalable solutions
Finance director of technology company in USA
