Manufacturers must rethink global operations in face of COVID-19, says study
22 June 2020
University-of-Birmingham_Manufacturers must rethink global operations in face of COVID-19 - study_580x280.jpg
Manufacturers must redesign & reform their global supply chains & global production networks (GPN) if they want to survive & prosper in the wake of the COVID-19 pandemic, a new study reveals.
The virus’ impact demonstrates that global manufacturing concerns must switch from large production sites in single locations, such as China, to numerous smaller facilities around the world to reduce and mitigate business risk.
Stability, reliability, resilience and predictability are critical in the design of global production networks that balance risk versus reward and harmonise economic value with values related to reliability, resilience and location.
Researchers at the University of Birmingham published their findings in their paper, ‘COVID-19 & Alternative Conceptualisations of Value & Risk in GPN Research’ (Bryson, JR & Vanchan, V), in the peer-reviewed academic journal, Tijdschrift voor economische en sociale geografie (Journal of Economic & Social Geography).
Report co-author, Professor John Bryson, Professor of Enterprise & Economic Geography at the University of Birmingham, commented: “There is a real tension between optimisation of GPN and risks which ripple out across the globe. COVID-19 is the first time that these ripples have impacted on every country and the majority of people living on this planet.
“It is unfortunate that companies, governments and geographers did not consider the outbreak of SARS in late 2002 as a testbed to develop new approaches to the management of risk. GPNs and offshoring come with many risks that have been ignored.
“There is a critical social science debate within geography that must move from celebrating the dominance of GPNs as an organisational form to an on-going critical reframing that accepts that a fundamental rethink is required by global manufacturing concerns.”
Researchers conducted an analysis of the adaptation strategies of the GPNs of 91 American companies, identifying the role played by different forms of value – including ‘economic value’ and alternative non-price-based sources of value – in configuring production networks.
However, they found coronavirus highlights that the most effective GPNs balance cost control against risk – balancing production facilities in core markets against over-reliance on facilities located in lower-cost locations.
The rapid speed and economic impacts of COVID-19 have shifted the balance between state, citizens and businesses within national economies. During the pandemic, the state has engaged in a process of nationalisation with its exceptional degree of support for businesses and employees – becoming a key consumer and surrogate employer.
Researchers highlight that the most common operational response among American firms to the US-China trade war involved relocating suppliers from China to another low-cost country.
However, the impact of COVID-19, has seen firms beginning to develop strategies dealing with supply chain disruptions – with larger firms building regional supply chains, leaning more on technology for smaller firms, and focusing on efficiency and resilience.
“Globalisation is not a novel concept, but COVID-19 has highlighted the risks associated with increasing interconnectedness of people and places through economic, political, cultural and environmental changes,” Professor Bryson added.
“Existing thinking on GPN design minimises costs and maximises economic ‘value’, rather than balancing profit against risk reduction – a high-risk approach that must change. We must reframe the debate around the benefits and risks associated with deepening globalisation.”
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