The future of global value chains

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The future of global value chains has never been more fragile, which suppliers are we safe to rely on? Should we have more than one supplier for the entire supply chain?

As we review world trade in more detail, we can see it has proved remarkably resilient in terms of a fast recovery of the global supply chain, and indeed the rebound of the Chinese economy. However, we do need to return to lower trade costs and the price of shipping containers, a drop in fuel prices and a lifting of import/export restrictions. The recovery in terms of physical goods has seen an increased demand for durable goods, for example electronics, alongside medical goods such as PPE and of course, the boom of online shopping. On the other hand, there is a reduction in services supplied especially those that need in-person interaction. 

Overall challenges

What does this mean in the long term? And how does this fit with the resilience we know we need to build into our trading patterns. It is clear that we need to learn from this disaster and plan for any future disasters however, what should this resilience look like? Are we imagining, not just what a pandemic looks like but, climate change disasters for western countries currently unused to this form of problem? Did anyone imagine the gas shortage or CO2 or container pricing? How do we plan for the future? 

How can SME’S work to provide a forum for discussion and debate along with practical tips of how we can:

  • enhance resilience in global trade and for globally trading SME’s
  • measure resilience in terms that are meaningful to an SME
  • investigate best practice cross border collaboration to boost the resilience of globally expanding SME’s.
  • can we still operate with ‘Just In Time’ manufacturing?
  • Should we be investing in stock holding?
  • what should our global value chain look like in the coming years? 
  • are we planning for the last disaster risk, or should we be investigating for the next disaster? 
  • what impact can digital tools and innovative technologies have on the new normal?

Further analysis

In the world of international trade there are many aspects that need expertise to optimise the potential of an international business. These aspects have been siloed for too long and it has become clear that there aren’t enough people that understand the context and process in which international business operates. 

Now, as our economy is reeling from the impact by two of the most damaging events in the 21st century, we are looking to business to pull us out of this disaster. Economics encourages us to catalogue our experiences, allowing us to learn how to manage next time – as long as the next disaster manifests itself in the same way. But lack of a cohesive plan leaves trade trying to build its own resilience to this type of calamity.

Le Moigne & Ossa 2021 Crumbling Economy, Booming Trade draws a comparison in evolution of GDP and merchandise in OECD countries, between the Great Recession in banking and that triggered by COVID 19.  When measured, the Great Recession from Q1-2009 to Q1-2010 was much deeper and began to recover to a mid-way point: However, demand had lessened. Conversely, 2020 figures show a sharp short dip in Q2 and a much faster recovery in Q3; in other words, demand didn’t falter although supply did. 

The pandemic has exposed weaknesses in our production process, for example, our reliance on China as a main supplier.  Mejean et Al 2020 estimate that an average 10% reduction in the production of Chinese firms decreases the real GDP in European countries by approximately 0.5%. This leads to a general re-thinking of our Global Value Chains, but not reverting to reshoring and self-reliance as a solution. As Miroudot 2020 says ‘bad luck can happen anywhere (even at home) – diversify for robustness’. 

Considerations to be taken into account include:

  • There is no current evidence that complex supply chains are more impacted by COVID 19 
  • Most affected are industries that rely on the movement of people 
  • Diversification and international cooperation are needed to respond to surges in demand in times of crisis
  • It may not be the time to close borders and stop trade, Antras et Al, surmise that globalisation can either increase or decrease the risk of a pandemic occurring. 
  • There is an increased need for collaboration between world organisations such as the WTO and WHO  in guaranteeing equitable access to vaccines, medicines and PPE. 
  • The importance of transparency and information sharing increases, as does the need to help businesses to reduce the issues and bottlenecks in global value chains.  

As the UK is signing many new trade agreements these need to carry safety valves in the case of export restrictions and include dispute settlement systems that are robust enough for any future disasters. Our trade needs to be protected and the UK needs a Trade Strategy that will comprehensively build resilience to stave off any future quandaries oversupply. In this ‘new normal’ any economy based on services alone is going to suffer more than a balanced manufacturing-based country. 

Knowing all these questions need answers is part of why the Society of Independent International Trade & Customs Experts started. We know that SMEs need help to establish a stronger, sustainable supply chain and we’re here with, what amounts to 100’s of years of experience to help. Let’s get this discussion started because our voices need to be heard.

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