“When China sneezes, the world catches cold”.

This seems to be even more true this time.

While the impact of the coronavirus outbreak resulting in a shutdown in major parts of China can be felt globally, Japan is feeling a relatively larger impact.

Already, many Japanese firms have temporarily shut down their production as they depend on their units in China. Nissan recently announced two days of shutdown for the same reason.

If we draw a parallel to Japanese firms that have setup back offices or technology centers in China, they are equally impacted. My colleague Barbara Hodge has nicely captured the impact of this outbreak on Shared Service Centers. 

A discussion with one of my Japanese clients revealed that their back-office center in China is affected, resulting in reduced volume handling of transactions. The business is feeling the impact. They are unable to pay their vendors or process collections on time. Questions have been raised about an alternate location to distribute the operations and thereby hedge risks.
Over the past few years, several global and Japanese firms have started considering alternate options to China as the cost of labor and manufacturing have increased substantially. However, that was still not enough to trigger any major action.

Will the new chain of events trigger consideration of alternate shared services locations?

There is a human angle to the discussion as we pray for an early cure, and empathize with all those impacted. After all, China is an important contributor to the global economy. If foreign firms start diversifying it will not be welcome news for China.

However, let us also remember that the world needs successful global firms to stay competitive, healthy and productive. They are the global job and wealth generators. Hence, it may be the right time for many firms with high dependence on China to look at alternate location strategies for their Shared Services Centers.

Only a small percentage of Japanese firms have Shared Services Centers compared to their counter parts in Europe and America

In a previous article I had emphasized the lack of consideration by Japanese firms in adopting Shared Service Centers as means to gaining productivity. Only a small percentage of Japanese firms have Shared Services Centers compared to their counter parts in Europe and America.

The choice is completely theirs. Do Japanese firms want to keep most of their eggs in one basket and hope to continue forever? Or should they be adopting global norms and following their counterparts in the western world. We have already observed that Japan has lagged behind in the adoption of emerging technologies compared to its peers in Europe and Americas.

Will Japanese firms now use the opportunity to change their traditional delivery model and look at frontiers beyond their neighbouring coast?

Perhaps the time is ripe for Japanese conglomerates to reconsider their Shared Services and outsourcing strategy.