High-tech manufacturing in Asia: Key risks to enhance resiliency

High-tech manufacturing businesses in Asia are being challenged by a complex and unpredictable risk landscape. In an era of persistent geopolitical tension, high-tech supply chains remain fragile, casting doubts over businesses’ existing resilience and continuity plans. Extreme weather events, climate and sustainability concerns, and the use of artificial intelligence (AI) and automation also add to the headwinds faced by high-tech manufacturers.

Although many high-tech manufacturing businesses in Asia are already taking proactive steps to ensure business growth amid challenging conditions, supply chain diversification and seizing new opportunities in new markets can further magnify the risks they face. What are the top risks faced, the implications, key considerations, and actions that these businesses must take to mitigate risks and remain resilient?

Top risk: Geopolitical tension

Impacts of geopolitical conflict continue to upend the global supply chain.

Geopolitical tensions around the world have had a significant impact on high-tech manufacturing businesses in Asia. According to the Global Risks Report 2024, geopolitical impacts on businesses are likely to arise primarily due to three hotspots: the war in Ukraine, the Israel-Gaza conflict and tensions over Taiwan. Escalation in any one of these hotspots would radically disrupt global supply chains, financial markets, security dynamics and political stability.

Recent events in the Red Sea have also severely disrupted trade flows and supply chains. Apart from cargo and shipment delays of at least two weeks, shipment costs and insurance premium also increased. Breach of Warranty (BoW) rates, for example, have increased for single voyages lasting between seven to 14 days. Furthermore, the cargo insurance market has also introduced a premium for vessels sailing through the Red Sea, compared to zero premium previously. Delays have also impacted high-tech manufacturers’ production and time to market, resulting in impact on finances and cash flow.

Additionally, regulatory changes due to geopolitical tension also pose acute risks to business continuity. Hence, there is a critical need for high-tech manufacturers to consider redeploying production bases and diversifying supply chains on a global basis. For instance, countries like Japan are reducing dependencies on China's electronic supply chains, while India, Vietnam, Thailand are emerging as alternative production destinations.

Overcoming supply chain diversification challenges cost-effectively

However, supply chain diversification and relocation can often incur significant costs as well as risks. Key considerations and potential challenges include:

Quality of real estate and physical assets in new locations, considering how most high-tech manufacturers lease their premises and utilities from a landlord or developer.
Reliability of infrastructure, including power and clean water supply, as stable continuous operation often hinges upon the stability of utilities.
Regulatory and political uncertainty (e.g. trade barriers, changing economic policies, civil unrest).
Economic uncertainty (e.g. currency fluctuations, interest rates).
Legal and compliance risks (e.g. labour laws, intellectual property, legal frameworks).
Cybersecurity and IT infrastructure.
Manufacturers’ contract obligations with clients, as manufacturers with clients’ assets (e.g. machinery) on-site are mandated to take up property insurance insuring these assets.
Talent supply, retention, and skills availability.

As there are multiple solutions to consider, from insurance coverage such as Property Damage/Business Interruption (PDBI) and Political Risk Insurance to risk mitigation measures such as Pre-loss Business Interruption (BI) Review and Supplier Risk Mapping, Marsh Asia actively helps high-tech manufacturers in Asia calibrate these solutions according to their needs in a cost-effective way.

Risk #2: Extreme weather and climate risks

From extreme weather to resource scarcity, climate change has multiplied the risks facing high-tech manufacturers.

Extreme weather events can cause severe disruptions for high-tech manufacturing businesses across their supply chains, from raw material sourcing to production and distribution. According to a Deloitte Global report, extreme heat and drought conditions in China in 2022 led to factory closures at several electronics component makers.¹ The drought also resulted in water scarcity, affecting the availability and cost of essential resources for manufacturing processes.

Along the high-tech manufacturing value chain, businesses also face persistent physical risks due to extreme weather and climate change, such as floods and typhoons that not only cause property and infrastructure damage but also hinder the stable supply of critical utilities required for production and operation.

At the same time, the increasing consumption of resources (primarily energy and water) and limited access to alternative and renewable energy sources create additional pressures for high-tech manufacturers to report and deliver on sustainability commitments amid Asia’s complex and constantly evolving climate regulatory landscape.

Tapping on climate and sustainability expertise to enhance resilience

Combining the expertise of our industry risk specialists and climate and sustainability practice, Marsh Asia has been helping businesses:

Model physical climate risks for their facilities and key suppliers and vendors, and subsequently conduct risk engineering to improve resilience.
Conduct valuations and review PDBI insurance coverage to ensure adequate coverage as the value of losses from extreme weather and climate events increases.
Conduct BI reviews to ensure an appropriate maximum indemnity period for BI insurance coverage.
Review business continuity plans and crisis management plans.
Embed climate and sustainability risks into enterprise risk management (ERM) frameworks.

Risk #3: Talent risks and transformation

A worldwide talent shortage poses obstacles to supply chain diversification and AI adoption.

Asia’s high-tech manufacturing businesses must also cope with people risks and workforce issues, especially when they choose to expand and diversify their operations. In the US, more than 65% of manufacturers cited the ability to attract and retain employees as their top challenge.² Where artificial intelligence (AI) is concerned, more than half of US and UK organisations acknowledge they do not have the right mix of skilled AI talent.³

A practical approach to talent shortage for high-tech manufacturing businesses is to find new ways to improve productivity. According to Mercer Asia’s Global Talent Trends 2024 report, business executives believe that work redesign to incorporate AI and automation will deliver the most business growth, while over half (54%) believe that their businesses will not survive beyond 2030 without embracing AI at scale.

The report also highlighted the belief among business executives that employee training and reskilling, physical and mental well-being initiatives, process optimisation and workflow management will give the biggest boosts to productivity.

Bridging the talent skills gap with a holistic approach

To ensure a reliable pipeline of talent and to lower people costs, high-tech manufacturing businesses can partner with leading human resource consulting firms, such as Mercer, that can help with:

Redesigning work and career pathways and adopt new practices for AI and workforce optimisation.
Tapping into the broader technology talent ecosystem and increasing workforce agility, as well as setting up retention-based talent pools to help manage skills scarcity and competition.
Investing in talent assessment and employee skills development, as well as building a skills-first culture within the workforce to encourage upskilling and reskilling.
Creating a more sustainable, equitable, and intuitive work experience for employees with a focus on employee physical and mental health.

Global ambition and expanding product mix also brings product risks into the spotlight

High-tech manufacturers are expanding by selling and servicing their products on a global scale. Some are also transitioning their business models from core ICT (information communication technology) products to more complex electronics and applications (such as automotive and even aviation). Global expansion and diversifying into products of greater complexity can lead to greater exposures to product risks, including product recall and liability, errors & omission, and product warranty.

Additionally, contract manufacturers are typically required by their clients to take up Product Liability / Recall Insurance, or Tech Errors & Omissions Insurance, which not only serve as a risk transfer but also a business enabler. Securing sufficient insurance capacity and structuring the right level of coverage is crucial to effective and financially sustainable business expansion.

In both Asia and globally, the insurance market for product risks and liability coverage is challenging, with insurers demanding greater scrutiny. Marsh Asia has been working with high-tech manufacturing businesses to improve the quality of their underwriting submission data by highlighting their quality assurance procedures, from raw material intake to finished product.

¹ Deloitte Global (2023). 2023 semiconductor industry outlook. https://www2.deloitte.com/content/dam/Deloitte/us/Documents/technology-media-telecommunications/us-tmt-semiconductor-industry-outlook.pdf

² National Association of Manufacturers. (2024). 2024 First Quarter Manufacturers’ Outlook Survey. https://nam.org/2024-first-quarter-manufacturers-outlook-survey/

³ Snaplogic. (2024). The AI Skills Gap. https://www.snaplogic.com/resources/infographics/ai-skills-gap-research