COVID to spur more regional supply chains

MANILA, Philippines — The world will see the formation of shorter business supply chains and stronger e-commerce platforms for the distribution of products to consumers as economies transition to the so-called new normal, according to the Economist Intelligence Unit (EIU). 

In a report, EIU said the disruptions to trade caused by the pandemic will “fundamentally reshape trade.” 

“Just-in-time manufacturing using global suppliers will give way to a greater focus on use of regional supply chains,” the report said. 

The global economy is currently highly dependent on China, with its share of global trade in some industries exceeding 50 percent. 

The US-China trade war and rising wages in China, however, have already encouraged some multinational firms to relocate their supply chains to some parts of Asia, the textile industry being an early example of this trend.  

“COVID-19 will push more companies in other sectors to relocate parts of their supply chains. The outcome of this will be an Asian supply chain network that is both less China-focused and more diverse. This is a prelude to what will happen in other regions as global companies look to build resilience into their supply chains,” EIU said.

Companies will also be strengthening their e-commerce platforms both in their sales and production processes. 

For instance, consumer goods companies which have seen the closure of their offline stores have moved to target customers with online activities in an effort to increase sales. 

Restaurants have also been expanding their delivery options to enable them to reach more customers. 

“Moves by firms to enhance their online presence will force many companies to devote more attention to understanding their customers as they seek new channels to meet their needs. Consumer habits that are being formed in 2020 are likely to endure, and companies will have to continue to develop their e-commerce platforms and find efficient ways to distribute their products to consumers,” EIU said. 

Multinational firms are also seen increasing the use of data in the production process, leading to increased digitalization of supply chains. 

“We are likely to see companies make efforts to reduce the reliance on paperwork and create a more data-driven supply chain,” said EIU. 

“However, this presents its own challenges as different systems operate in each country and current border controls are heavily reliant on paperwork.”

Small and medium enterprises, particularly those in the consumer goods sectors, are seen to benefit from this shift as they can join the more localized supply chains formed by dominant players.