Last year’s headlines trumpeted growing strains in US-China relations and the rise of economic nationalism. Instead of pausing during the Covid-19 pandemic, protectionism and disruptions to supply chains have increased across Asia. At a recent IMA Asia CEO Forum, members discussed the risks they are facing in their supply chain and how they are responding.
‘De-globalisation” was emerging already as a major risk before the pandemic started. With the advent of Covid-19, countries are pushing further to isolate themselves. It’s a concern for us as a global business, especially in terms of supply chain disruption.’
Reliable sources of supply are at risk
Covid-19 has the potential to disrupt supply chains as customers question the reliability of supplies.
‘A lot of Chinese customers have started to question the integrity or stability of our European or US supply chains given the serious Covid situation there. Even so, those same customers are still placing orders, possibly in anticipation of supply chain issues down the line.’
As concerns about reliability of suppliers increase, companies are likely to take a cautionary approach by increasing inventories. Health care is especially vulnerable. Governments and businesses alike are protecting themselves by increasing supplies close at hand.
‘Medicine is a global business and a lot of the supply chain goes through China. You’re going to see a lot more stockpiling of product. You will see governments giving incentives for local manufacturing of personal protective equipment, vaccines, and med-tech products like ventilators.’
A single supplier is not your best option
Supply chain strategies will undergo a transformation as companies rely less on a single source of supply, even if it means increased costs.
‘We used to have big global factories – one source or two sources for the world to get the lowest cost. Now we are starting to think differently – Do we need to assemble things in different places? Import duties are popping up on various accounts. Nationalism is here to stay. For companies that are global, there’s no option – We have to think differently about how supply chains are organised.’
Politically-inspired restrictions disrupt supply chains
Trade restrictions are surfacing throughout Asia as economic nationalism takes hold across the region. The restrictions have hit dairy products particularly hard.
‘We’ve seen new regulations in India on dairy exports that seem to be political and a sign that protectionism is coming in. We also see a huge push by the Chinese government to reduce overall reliance on imported baby food. This will have an impact on us as we supply a lot of those international companies.’
Officails sometimes have not thought out those restrictions very well.
‘Politicians on both sides of the world have forgotten that it’s difficult to localize the agri-food industry. For example, in China the demand for dairy products is now so big that it would be difficult to localise it. A lot of the direct inputs into China must come from overseas because China just does not have sufficient capacity. In fact, it doesn’t have the right climate for decent, large-scale dairy farming.’
Click on ‘Deep Read’ at the top of the page to learn more how Covid-19 is disrupting supply chains globally. The full paper also looks at the pandemic’s impact on digital transformation.