Globalization and Supply Chains in The COVID World

Photo by Edwin Hooper on Unsplash

The outbreak of novel coronavirus or COVID-19 began in Wuhan, China which surprisingly turned into a global pandemic and has proved itself to be the black swan of this year. This pandemic has instantaneously transformed the world as we have known it to be and has provoked the worst global crisis in living memory.

Pandemics are not only about the infectious spread of the disease and the crippling reports of death across the globe but much more. Experiencing such a ubiquitous virus outbreak gives rise to a state of unreliability, new beliefs and behaviour among people along with immense fear. Humans become agitated, sceptical and also impressionable in such fearful circumstances. Most of all, they also become less interested in participating or engaging in anything that appears to be unusual or foreign.

At the moment COVID-19 is profoundly changing our way of functioning in our world. This global health crisis has forced us to reconstruct our principles and belief systems, from the sudden reduction in socialization, change in the significance of working independently to remote working, and from globalization slightly starting to shift towards nationalization.

Until recently, leaders of the major economies and other nations, along with policymakers and investors remained apathetic about the potential impact of COVID-19 crisis on world trade and economy. They’ve now finally realised that the effects of the pandemic are not limited till the Chinese borders but it is inducing a massive worldwide shock which is turning out to be extreme as time passes by. But the real question stands in front of us. What changes will we be seeing in globalization and supply chains in the post-COVID world? Could this pandemic be the nail in the coffin for globalization’s present era?

The crisis has surely emphasized the pitfalls of widespread global integration while igniting fears among everyone, giving credence to national constraints on international trade, completely reducing the movement of business travellers, a huge drop in international travel and provided the impetus for nationalists who advocate for greater protectionism and regulation of immigration. As the leaders and investors grapple to regulate their organizations and businesses through this fiasco, it has been the point of focus on the management of supply chains which truly rely on the predictions of the future of global trade and supply chains.

How has international trade and supply chains been affected by the pandemic?

Although world trade started slowing down even before the COVID-19 crisis, the social and economic disturbances brought about by COVID-19 has resulted in a reduction in trade drastically. Potentially at risk are the complex China-centric global supply chains on which so many western and Asian companies have come to rely.

According to a survey conducted by the Institute for Supply Management (ISM) in March, nearly 75% of companies reported disruptions in the supply chain due to coronavirus in one form or the other.

The recent UNCTAD data released on 11 June indicate that merchandise trade dropped by 5% in the first quarter of the year, with a 27% fall in the second quarter and a 20% drop for the year 2020.

“There is still much doubt about the possibility for any economic growth in the second half of the year,” says Pamela Coke-Hamilton, director of international trade for UNCTAD.

What makes the effect of COVID-19 so extraordinary is how it is impacting and complicating every part of the supply chain, from manufacturing to retailing. Companies are struggling to find the raw materials needed to produce goods, and they are facing extreme difficulty to ship their products to the retailers and distributors. Unlike facing other minor disturbances, COVID-19 has brought about massive disruption in every aspect of the global supply chain.

As of today, China has produced about 20% of global trade in intermediate manufacturing products, positioning China at the centre of global value chains (GLCs). After the virus outbreak in Hubei, the Chinese authorities responded by rolling down immediate lockdowns, imposing curfews, curbing trade and movements across the nation which brought a lot of obstacles for not only China but also for the countries which are involved with it in trade and business. The recent data indicates that the nation’s imports and exports fell by about 8% in May 2020 and imports shrunk by 16.7%.

The pandemic highlights the inadequacy of the globalized system.

Retailers run out of essential items as supply chains get battered by coronavirus crisis and struggle to keep up with customer stockpiling.

What do future predictions for the world trade look like?

The broad range of possibilities for the expected downturn is clarified by the current health crisis’s unparalleled complexity and the ambiguity about its specific economic effects. The global trade in the second half of the year is expected to remain below the rate recorded in 2019. The severity of which will rely not only on increased financial disruptions caused by the pandemic but also on the nature and amount of policies that will be implemented by nations to restart their economies as forecasting the future requires strong assumptions about the development of disease and a heavy focus on estimated data rather than the reported data.

Trade had been substantially slowing in 2019 before the outbreak hit, weighed down by this extreme complexity and massive stagnation in the world’s economic growth. The WTO economists say that the fall is likely to exceed the trade decline caused by the 2008‐09 global financial crisis. Recent predictions call for a 30%-40% decrease in foreign direct investment, a 13–32% fall in merchandise trading and a 44–80% drop in international airline passengers by 2020.

World Merchandise Trade Volume, 2000–2022 (Image Source: WTO Secretariat)

What changes will be made to globalization and supply chains to prepare them for the post-COVID world?

Leaders, investors and businessmen all across the world are determinedly waiting for everything to limp back to some kind of near normalcy, so they can get their organizations, companies, trade and business back on its feet. Present projections call for growing international flows again as the pandemic comes under control. For many factors of globalization, therefore, 2020 is likely to be a low point.

When looking at the latest global crisis, everybody has concerns about globalization and global supply chains. How quick should we foresee a bounce in global flows? Do we need to adopt different strategies to change the direction of globalization, as we knew? And how do future flow rates look different from previous ones? These are some questions that have occupied our minds, but there is one thing which the experts want us to be aware of– Most of the globalization’s major factors such as foreign investments, transportation, capital flows, data, etc. will not be vanishing as we know it. But guided by a mixture of government and corporate policies, emerging shifts in public culture, and business practices globalization will be changing.

The current global crisis will not be the end of globalization and supply chains but will mark as a period of extreme transformation.

Following points are some substantial changes that we shall see in the future of globalization and supply chains:

  • We may see a strong emergence of trade nationalism in different nations when it comes to what is considered by individual governments to be essential goods or resources needed for population protection. Trade nationalism, by creating regional clusters, might become the gateway to a more strategically developed form of international trade. Given the divide and immense instability in global supply chains, regional alliances such as the Association of Southeast Asian Nations (ASEAN), the South Asian Association for Regional Cooperation (SAARC), the European Union (EU), and so on will play a significant part
  • Economies of several countries may become less reliant on China-centric supply chains and focus more on individual points of failure and become more self-reliant. Brittle supply chains are not the rejection of globalization as a whole, but rather how global trade and businesses become dependent on single sources of supply. Supply from single sources often raises the risk due to a single point of failure, such as the inability to satisfy increased demand, as many countries have witnessed during the pandemic like decrease in the supply of PPE kits, medical supplies, etc.
  • More focus will be shifted towards developing robust supply chains. COVID-19 underlined the need for transparency in the supply chains and for businesses to prepare for the disruptions they are facing right now and even for the future. Technological changes and digital tools will emerge as critical game-changers to strengthen supply chains. Following 3 technologies have made effective technological advancements in the evolution of supply chains:

1. AUTOMATION-

-Robotic Process Automation (RPA).

-Configurable and Customizable Workflows.

2. DIGITIZATION-

-Cloud Computing.

-Artificial Intelligence.

-Machine Building and Learning.

3. BIG DATA ANALYTICS

  • Continuation of trade during global pandemic requires the leaders to protect their businesses and companies from uncertainties. With the global pandemic, risks shift between the wellbeing of their staff and firm managers have an important role to play in maintaining stability, predictability and direction during emergencies. The COVID-19 pandemic has proven that more people are teleworking than ever- using information and communications technologies to do their job away from the workplace. Remote work accounts for a great deal of value as of now, several businesses have been forced to adopt this strategy and it is here to stay. Workers will also be mentored so that they can undertake local-level decisions in real-time reaction to problems that occur during any disruption.
Photo by Markus Spiske on Unsplash

In conclusion, COVID-19 has unquestionably revealed how vulnerable globalization and global supply chains are. With the pandemic affecting several countries at different times and rates, it is necessary to take up approaches and adopt strategies to maintain economic recovery and continuing trade and accessing the open market is a major step towards it. This period is turmoil for globalization and global supply chains but paying attention to the factors contributing to them, we can make the future easier for global trade and businesses to work through it and maybe even benefit from it.

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Tripti Bhandari

Tripti Bhandari

A Geography student focusing on research and development in earth science, history & culture, human mental health, and also interested in other fields.