Fractures and breakdowns in the global supply chain—a pandemic-laced crisis—may actually present opportunities for south central Pennsylvania’s manufacturing sector.
That was the topic of a Zoom webinar attended by about 100 area manufacturing, economic development and state officials on Tuesday. It was presented by two Pittsburgh-based experts on international business, Dennis Unkovic and David Iwinski, Jr.
“We see a domino-effect of implications… with much greater issues to come,” said Iwinski, managing director of Blue Water Growth LLC.
Understanding the reasons behind the supply chain breakdown requires a little background in China’s factories.
Iwinski, who traveled to China 65 times since 1985, described Chinese factories as mini-cities where employees not only work, but also live in dormitory-style housing. These mini-cities were shut down for the Chinese New Year holiday—a time when the Chinese traditionally return to the hometowns in an “extraordinary migration.” There are no unemployment benefits in China. Many workers remained in their hometowns, picked up new jobs, wary of returning to dormitory-style housing conditions amid the COVID-19 climate.
Meantime, factories are now trying to exist on 30 to 40 percent of their returning workforce while replacing and retaining the remaining 60 percent. Volumes are down and quality is down.
“These problems started to flow overseas, into shortages, masked by panic buying,” said Iwinski.
Just as Chinese factories started to ramp back up, the United States shut down due to the pandemic—“the last straw in decades of changes” between the two countries, Iwinski said.
So what does this have to do with south central Pennsylvania companies?
“We think there’s going to be a large-scale, simultaneous supply chain realignment,” Iwinski. “If all your supplies are coming out of China, you’re at extreme risk.”
They offered three critical pieces of advice. First, they cautioned business leaders to be pessimistic regarding forecasts of recovery from China. Secondly, they advised businesses to conserve capital and resources. And lastly, they implored attendees to either realign or re-shore their supply chains now.
Unkovic held up his iPhone.
“It’s made of 32 component parts from 11 different countries. This is the concern we have—companies relying on component parts are going to see shortages in the future—it’s going to keep them from creating finished goods,” said Unkovic, an international law partner at Meyer, Unkovic & Scott LLP. “We think this is going to be an extremely tumultuous next three to five years.”
Both experts see a silver lining—an opportunity for Pennsylvania manufacturers.
“We want strong Pennsylvania companies and a strong Pennsylvania economy,” Iwinski said. “Timing is of the essence—we’re all coming to this realization, but capacity is not unlimited. So, there are lines to get into (other) factories—there are backups.”
Tina Weyant, founding executive director of the World Trade Center (WTC) Harrisburg, said it was critical to apprise regional companies of this situation because there’s never been a supply chain breakdown of this magnitude. But she hopes area companies are inspired by the opportunities presented.
“We have a generally strong manufacturing industry with a lot of knowledge, and we have the benefit of being very diversified, so I think we can ramp up, although it will be a challenge.”
There are currently 2,900 diverse manufacturers in south central Pennsylvania’s nine counties accounting for 16 percent of the workforce.
“In general, the region’s manufacturers got through the pandemic fairly well—a lot were able to stay open,” said Leigh Ann Wilson of MANTEC, a private, nonprofit organization based in York. “The concern is the next quarter, because sales drop off will happen.”
There are also pre-pandemic workforce issues.
“There are lots of jobs open,” Wilson said. “More people are able to stay at home right now due to unemployment funding—there’s not a huge incentive for them to return to work. But the jobs are there—highly skilled jobs.”
Two area manufacturers producing unique components for niche markets gathered valuable takeaways from today’s webinar.
“It was a great recap of the current global situation,” said Kerry Woods, sales manager at PR Hoffman, a Carlisle manufacturer of highly specialized components such as glass optics and silicon carbide semiconductors.
As many as 70 percent of PR Hoffman’s customers, accounting for $5 to $8 million in sales, are in exports to Europe, China, Japan and additional Asian markets. Their components are utilized in 5G networks, satellites, electronic vehicles and autonomous engineering.
Instead of having difficulties receiving component parts from Chinese manufacturers, they have the reverse problem—trying to retain their Chinese customer base.
“We’ve been operating in fire drill mode. We have many customers in China—we’re seeing the impact of their extended Chinese New Year holiday… we’ve had problems getting freight into China,” Woods said.
PR Hoffman’s 35 essential employees continued working throughout the pandemic. Woods said the company made many adjustments to align with health and safety guidelines.
Chris Tarsa, is president and CEO of C.L. Sturkey, a Lebanon-based manufacturer that is one of a handful of worldwide manufacturers for microtome knives used by hospitals and laboratories in biopsies and other medical procedures.
While his company is not reliant upon Chinese-produced components, it gave Tarsa pause in another area.
“It’s pretty clear that China is not the reliable business partner many think they are. We’re looking at putting our blades in China, but now I’m cautious as a result of today’s webinar,” Tarsa said.
Many area business leaders on the call asked about the strength of the American manufacturing sector.
“I believe based on a lifetime in international business that we’re sitting in the most innovative nation in the world—that’s based on us having the best universities in the world,” Iwinski said. “But the deeper reason—it’s culture. This country was formed by adventurers, malcontents, weirdos, risk-takers—it’s in our guts. In China, the nail that sticks up is hammered down. But innovation is our core and key. I know I’m on a soap box, but I love this soap box.”