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Building 'Trust' in supply chains

supply chains

The world is in the mid of unprecedented shortages of semiconductor chips. Chip shortages, which started in fourth quarter of 2020, halted assembly lines across industries with automotive industry bearing major brunt of the scarcity. Moreover, global trade war and trade disputes further exacerbated supply chain insecurity among nations for trusted sources of key ICT components  and semiconductors. Today, efficiency and profits are no longer the sole determinants of supply chain orientation. Changing geopolitical equations, risk diversification and sustainability have become major factors determining supply chain realignment. In this changed environment, security, and resilience of each link in a supply chain has become a key concern for governments and industries across globe.

Defining ‘Trust’ – A concept in the making

Definition of ‘trusted value chain’ depends on the actors and spatial factors defining it. Trusted sources can be broadly defined based on sources of origin allowing government to audit and control supply chain.

Broadly, trusted value chains have four key elements -

  • Security: The ability to predict, monitor and respond to threats that may affect the continuity of supply chains.
  • Transparency: Transparent decision processes, regular audits, responsiveness to requests for information, clear laws, and transparency in the arbitration of legal disputes.
  • Resilience: Ability of supply chains to recover from shocks emerging from natural disasters, changes in the security and economic policies of supplier nations.
  • Like-mindedness: Similarity in ideologies and, by extension, legal and political systems between countries, along with common end goals.

Emerging Trends in Global Policy Discourse

A relatively new entrant in the geopolitical lexicon, the narrative on trusted value chains has mostly been centered around the supply chains of high technology ICT and semiconductor products / equipment.

With global attention shifting from the Atlantic to Indo-Pacific, India has been at the centre of supply chain realignments. In September 2020, the Hon’ble Prime Minister proposed reshaping global supply chains based on ‘trust and stability’ in a virtual address to the US-India Strategic Partnership Forum. In March 2021, the Department of Telecommunications (DoT)  mandated that telecommunication providers in India shall use only “trusted products” in their 4G and 5G networks and purchase equipment from trusted sources based on clearance from the National Cyber Security Coordinator (NCSC). 

India also joined hands with like-minded nations to build resilience in supply chains. In April 2021, India, Japan, and Australia launched the Supply Chain Resilience Initiative (SCRI). In domestic arena, DPIIT notified Public Procurement (Preference to Make in India) Order to promote domestic manufacturing capabilities to establish a trusted ecosystem within the country. 

Standardisation Testing and Quality Certification (STQC), an attached office of the Ministry of Electronics and Information Technology (MeitY) has also formulated a Framework for Audit and Certification of technology development and supply chain security.

Preparing for the Inevitable

India needs a comprehensive strategy, with the cooperation of industry, to ensure continued availability and trustworthiness of critical ICT technologies and semiconductors. Based on review of global policy response, following phased policy actions are recommended:

•    Short Term Strategies: Short term action plan should start with setting up of standards for qualifying suppliers as trusted sources. There is also a need for a designated nodal centre to coordinate and conduct a comprehensive supply chain risk analysis and vulnerabilities mapping. The nodal centre will develop a National Resilience Framework with a milestone-based time bound strategy to reorient ‘at risk’ supply chains for critical systems.

•    Medium Term Strategies: India should focus on building domestic capability by 2025 through fiscal incentives, creation of High-Tech Manufacturing Parks and procurement preference. A dedicated ‘Component Sovereignty Programme’ to support and develop essential assets for critical electronic components. Startups are engines of growth and innovation. Therefore, a vibrant startup ecosystem will allow India to keep pace with rapid pace of technological growth. 

•    Long Term Strategies: All major economies exercise significant control over supply chains of critical ICT components within their geographies. Therefore, sustained engagement by initiating parallel Track-1 and Track-2 dialogues to develop alternate supply chains will be a key step in long term. Political will for long-term funding towards research and development is also needed to achieve domination in cutting edge technologies. 

The contours of global supply chains in the 2020s and beyond will be shaped by the evolving understanding of “trust.” The result of the increasing scrutiny of global technology supply chains may well transform trust into one of the most valued currencies in international trade.

This blog is co-authored by Lakshya Kumar Sharma and Rudraksh Gupta.