The worldwide public health crisis and the Ukraine–Russia military conflict have affected the global supply chain, spotlighting its vulnerability in today’s environment. Will the fresh COVID-19 outbreaks and war in Eastern Europe result in a great reshuffling of the international supply chain?
In the aftermath of the COVID-19 pandemic’s first and second waves, a large number of companies announced efforts to abandon their “Made in China” ways, shifting operations away from China and establishing new facilities in India, Vietnam, and other regional low-wage markets.
During the 2020 economic downturn, LG Electronics, Hasbro, Universal Alloy Corp., Intel, and Samsung outlined plans to either invest more in the Vietnamese capital of Hanoi and New Delhi or to restart factories in these places.
Other businesses had even started their relocation initiatives prior to the pandemic in response to the U.S.–China trade dispute, according to Bob Bilbruck, the CEO of Captjur, a technology consulting firm.
“This transition has been already happening pretty quickly and massively. One of the areas is Vietnam that people are moving to. Also, some production is moving back to the United States, but mostly on items that have bigger margins and the additional manufacturing costs can be more easily hidden in the price of the goods,” Bilbruck told The Epoch Times.
But some tech juggernauts have returned to China following outbreaks in Vietnam. Google had initially planned to produce its Pixel smartphones in the world’s 37th-largest economy, but COVID-19 infections and regulations resulted in the search engine giant making its smartphones in China again.
Considering the current situation unfolding in the Asian economic powerhouse, many Western companies are back to square one, further exacerbating global supply chain crisis problems.
Authorities in large urban centers, such as Shanghai and Shenzhen, China, have considered fresh restrictions in response to growing cases. In addition, Dongguan, a key southern Chinese manufacturing hub, installed strict lockdown measures that expired on March 28. While other jurisdictions have ended their lockdowns, the temporary shutdowns of critical plants and businesses this month have added to supply chain pains.
Toyota Motor Corp. and Volkswagen AG halted operations in Changchun, China. Unimicron Technology Corp., a maker of printed circuit boards and a crucial supplier for Intel, ceased production. Netac Technology, a USB flash drive and portable drive manufacturer, warned of shipment delays because its Shenzhen factory has stopped output.
“The continued Omnicron outbreak in China and the country’s COVID-zero response have once again made clear the fragility of the supply chain labor force and its effect on the world’s logistics ecosystem,” Ron Leibman, head of McCarter & English’s Transportation, Logistics & Supply Chain Management practice, told The Epoch Times.
Are multinational corporations waiting for outbreaks to pass, hoping for the best outcome?
Since governments in the region are responding to new infections with renewed public health restrictions, companies might be looking at the length of haul, resulting in manufacturers attempting to shorten the supply chain.
But while wages had been one of the top reasons for outsourcing industrial production, experts say higher labor costs from manufacturing back home could be offset by savings from not having to transport goods globally.
Others disagree that companies will choose to return their supply chains back to their home countries.
Instead, businesses need to assess what components of their supply chain are at severe risk. They can then determine if they can absorb these challenges by searching for alternative sources or exhausting inventory resources, according to Kiran Gore, an international disputes attorney and adjunct professor at GW Law & NYU at The George Washington University Law School.
“The best solution to a supply chain challenge is to create diversity in sourcing,” Gore said. “Rather than relying upon supply from one factory, country, or region, it’s better to have a diversified model—that way if disruptions appear in one area, the company is well-positioned to mitigate those challenges by turning to its other suppliers.
“This is easier said than done, but it is truly the best solution for this problem.”
Developing countries could also enjoy an opportunity to take advantage of the problems scattered throughout worldwide supply chains.
“These can ensure that small firms cooperate to reduce transaction costs and benefit from economies of scale,” the report reads.
However, if companies are reconsidering where they produce their goods and source their materials, governments could pounce on this trend by utilizing public policy and laying the foundation for an incentive-based market.
From corporate tax credits to funding for reestablishing factories, the United States could appeal to corporations mulling over insourcing campaigns, according to Bilbruck. In other words, officials could create a “made in America” environment through incentives, which would also help accomplish Washington’s green energy objectives.
“Energy efficiency will be a natural result of rebuilding our manufacturing sector in the U.S. as all these model facilities will be the best in the world because they are new,” he said. “Anything new is going to be more efficient and more cost-effective.”
Whatever happens, everything that has transpired and what could further unfold is a “brutal backlash” against globalization, according to Eric Schiffer, chairman of the Los Angeles-based private equity firm, The Patriarch Organization.
Consumers and businesses are wondering just when the global supply chain crisis will dissipate and return to some level of normalcy.
There’s a wide range of factors contributing to today’s post-crisis troubles, such as backlogs, labor shortages, and output and inventories failing to keep up with strengthening global demand.
“In fact, it is going to get much worse,” Bilbruck said, citing the war in Ukraine and China’s lockdowns, which affect oil refining, computer chips, and rare earth metals. “We have not seen the worst yet. Throw in gas production, and you have a heck of a mess that looks like it is lasting and not getting better any time soon.”
But while the supply chain crisis is highlighting some improvements, the world still doesn’t understand the extent of the effects of the recent COVID-19 outbreaks, according to Schiffer.
“You’re seeing a fundamental spontaneous combustion to globalization, not driven by politics, but driven by reality,” he said.
