How the Shift in Global and Local Supply Chains Is Changing How We Do Business

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A major impact of the COVID-19 pandemic on business and industry is its serious disruption of supply chains. As the world locked down, people shuttered themselves in their homes, factories had shut down, and commercial establishments temporarily closed — the entire US and world economy also slowed down. After more than a hundred days of various levels of quarantine, businesses are now reigniting their supply and logistics systems to stock up and make products and services available to customers in need.

While the world awaits the release of a safe, effective vaccine for the novel corona virus, a number of key developments in business, finance, and technology also need to be given close attention. These changes and innovations will reshape how we work, do business, and live our daily lives.

Looking Beyond China

When the SARS-COV 2 virus wreaked havoc in the city of Wuhan, the rest of China had to close its internal borders to prevent the spread of the contagion. Soon, other countries had to close their borders and prevent the entry of people who came from or transited through China. Later on, all airports and seaports were shut down in many countries, as each nation sought to prevent the further spread of the deadly virus. Consequently, passenger airlines also had to cease operations due to a travel ban and limited the number of paid flyers.

All these events led to a domino effect across all continents. Business supply chains were cut since China accounts for at least 60% of all global consumer goods. In response, many firms had to rethink their supply chains in case the pandemic drags on. Production and manufacturing need to go on despite the disruption since a long-term stoppage of business activity could lead to failure to produce goods, inability to meet sales targets, missed financial obligations, and finally, bankruptcy. In short, many economies are now rethinking their strategy of sourcing out material and labor requirements. Some global brands like Apple, GoPro, and Samsung have begun the exodus from China to resettle their factories in Vietnam and Malaysia where wages are now lower and the business environment more friendly. This, of course, is not just due to the pandemic and disruption of supply chains but is also part of the ongoing trade war between the US and China. Still, companies are improving their level of business resiliency by widening their scope and not over-relying on China as a source for their business production needs.

woman preparing to ship out her products

$1Trillion = Cost of Moving Out of China

The move, however, is not as simple as packing up a suitcase. A report from Bank of America revealed that business migration might entail a total cost of at least $1 Trillion over the next five years. The report also claimed that the disturbance in the supply chain affected 80% of conglomerates with global operations. From the perspective of economic philosophy, this is viewed by analysts as moving away from globalization to a more localized way of managing supply chains. The migration will not be 100% since some companies will remain in China to produce goods that are intended for the Chinese market. Those that actually just use China as a haven for lower wages and material sourcing are the ones that are now getting ready to leave permanently.

This change will also allow companies to adopt what is called a “just-in-time supply chain”, which means that their localization will allow firms to save on inventory cost by stocking only an adequate amount of finished products and raw materials. In a globalized setting, many storage warehouses needed to be stocked in full or over-capacity as a means to keep products moving. International shipping does take time even with today’s modern transport and freight options. By localizing the chain, business owners can redirect funds to other operational needs instead of having capital “sleep” as an overstocked inventory.

E-commerce as a Universe of New Suppliers

From the big firms down to the individual consumer and small scale entrepreneurs, a change is also happening. The disruptions in the market also led these people to rely on e-commerce for their preferred goods intended for personal use, or for items that they want to sell as part of a new or existing business. In many countries especially in Asia, the pandemic has spawned an army of online resellers who either source their products from a local manufacturer or distributor; or select in-demand items from an online store, keep stocks, and then re-sell them for a profit using their own e-commerce platform or a simple live streaming function on their social media account.

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