www.business-review.eu Business Review | June 2020
14 INTERNATIONAL
Shortening supply chains may leave China out of global trade COVID-19 is reshaping trade all over the world, accelerating the trend towards shortening supply chains. For many multinational companies this means cutting production in China and moving closer to home. By Aurel Constantin Digitalization is increasing in the production process too, as companies will be making efforts to reduce their reliance on paperwork and create more data-driven supply chains. But this move will have its own challenges as different systems operate in each country and border controls are heavily reliant on paperwork. And persuading suppliers to provide their data will raise privacy and competition issues, especially during a trade war. Regardless of how they’ve been affected by COVID-19, companies that plan strategically for the new normal will be the ones to emerge after the crisis. Developing an online presence The trade war between China and the United States will continue regardless of the outcome of the US election in November 2020
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opens new opportunities for many companies as they are able to reach customers who were otherwise unattainable. And companies in the
hina’s share of global trade in some
supply chains. But multinationals’ problems
manufacturing and consumer goods sectors
industries exceeds 50 percent. For
are not caused only by the limited supply
will be able to join regional supply chains.
example, its share by volume in tele-
chains. The COVID-19 crisis has pushed
This will be relevant for small and medium
communications equipment was 59 percent
down demand as well. The Economist Intel-
enterprises. Pricing models will also need to
in 2018, according to research by the Econo-
ligence Unit expects the global economy to
be developed strategically. The regionalisa-
mist Intelligence Unit. China’s role in global
see a steeper decline in output than the one
tion of supply chains and the build-up of
supply chains has grown since it was accepted
that followed the global financial crisis of
strategic inventories will push up the final
in the World Trade Organisation in 2001.
2007-2008, implying that demand for a range
price of goods and lessen competitiveness.
Many multinationals rushed to take advan-
of goods and services will be significantly
But a more regionalised supply chain will also
tage of the trading opportunities that China
curtailed in 2020. “Companies will therefore
give companies the opportunity to focus on
offered in terms of manufacturing and also as
be faced with the simultaneous challenge of
local tastes with a greater capacity for product
a market for sales.
both supply and demand disruptions,” the
differentiation. In the medium term, this may
report reads.
give companies the ability to reach higher
But the trend is changing. It started with
price points for their products, potentially
the USA-China trade war and the rising wages in China, which led some companies to
DIGITALIZATION OF BUSINESS MODELS
offsetting the increased production costs
relocating their supply chain to other parts
As the COVID-19 crisis developed, companies
from regionalising supply chains and holding
of Asia. The textile sector was among the
saw their offline stores closing around the
larger inventories.
first to look for cheaper labour force in other
world, just like restaurants did. As a result,
countries, which made the Asian supply chain
they have expanded their delivery options in
United States will continue regardless of the
more diverse. According to the research, this
order to reach more customers. This high-
outcome of the US election in November
is just the prelude to what is due to happen
lights the importance of e-commerce and the
2020. Multinationals will have to change their
in other regions as global companies look to
need of an online presence. As the consumer
business models in order to remain competi-
build resilience into their supply chains. And
habits that emerged in 2020 are likely to
tive on the global market, and regionalised
the COVID-19 crisis is just one more push
endure, companies will have to continue to
supply chains will be part of these new
for these companies to shift to regionalised
develop their online platforms.
models.
The trade war between China and the
