By Isabel Wong
While COVID-19 did not begin the process of deglobalisation, the fragmented public health responses to the virus outbreak, potential decoupling of trade partners and eventual localisation of supply chains in the past few months have experts arguing the global pandemic simply adds further momentum to the deglobalisation phenomenon.
With renewed geopolitical tensions and the race for a coronavirus vaccine coming into play, the near-term outlook for international trade and relations become even more uncertain. We speak to four Lynk experts to find out how the deglobalisation trend could impact businesses and economies.
Pharmaceutical: George Svokos – Consultant
“COVID-19 has clearly accelerated the deglobalisation process. Governments are turning introspective in their approaches. Examples are the Indian government’s export ban on certain products to protect domestic supply; US legislators promoting and giving incentives for manufacturers of pharmaceuticals in the US; and the Israeli government stockpiling pharma products. The impact will be evident when vaccines and therapies for COVID-19 are developed, and countries where they are manufactured will be unwilling to export until they can get their populations sufficient supplies of treatment.
Many countries will attempt to duplicate manufacturing of imported products locally and thus, creating overcapacity of certain products while tariffs will increase prices. The global supply chain of generic pharma products, which mainly comes from India and China cannot be fully duplicated and therefore, final stages may be manufactured in certain countries to appease political pressures. Earlier stages will still be coming from where it is most efficient to produce them.”
Best way forward: “Depending on where you are operating and how you can create a strategy to take advantage of the short term situation in the longer term.”
Luxury Retail: Philippe Margueritte – Former Senior Vice President, Travel Retail at Coty
“COVID-19 showed that Western countries might be too reliant on Asia for some of their core and strategic supplies. This is especially the case for raw materials used in key drugs such as Aspirin or anti-inflammatory medicine, electronic components such as chips or rare earth parts used in key devices like computers and smartphones, and strategic elements including lithium batteries and more. The pandemic revealed countries’ incapacity to respond to a sudden surge in worldwide demand.
The other aspect the pandemic has accelerated is the increasing force of sustainability. International trade and travels were clearly not the most respectful of our planet. During the lockdowns, blue skies and singing birds were seen more often in the streets. It goes to say that when all human activities are put on halt, balance in nature is able to be restored.
Also, traceability and control on what we eat and how we treat the environment have become a top priority. The realisations mentioned above are some of the contributing factors to the deglobalisation phenomenon.
In the cosmetic industry, the impact should be limited as not a lot of multinational brands are manufacturing in Asia. But some impact should be seen in packaging especially plastic parts where Asia has a significant market share. Companies might also stop sourcing from big international suppliers and opt for smaller local players. As a result, there will be an increase in product cost due to local sourcing as small local players generally have higher costs. I could also see a potential trend of innovation in packaging that enables sustainability, local production and traceability.”
Best way forward: “Kick off immediate innovation programmes for key raw materials and packaging previously sourced from Asia while including at least 30 per cent of smaller local suppliers in the sourcing process. Companies will also need to build strong marketing plans to explain to consumers the benefit of the change as they will have to accept a significant price increase due to deglobalisation.”
Oil and Energy: Graham Hill – President at HillConsult Asia-Pacific
“Companies are looking at supply chain diversification, as well as regional and national self-sufficiency. In turn, these developments have accelerated the lean and agile approaches in the supply of services.
Deglobalisation in the Hydrocarbons business will cause India to become the alternative supply chain of choice with diversification away from China. China will continue to be a huge part of the supply chain, but will lose its dominant status. There will also be emphasis on local, national and regional supply to ensure that supply chain disruptions do not jeopardise production.”
Best way forward: “The best business model to adopt in Hydrocarbons services will be regional service models with a lean overhead structure and a responsive and agile management closer to customers’ and regional needs. “Global” will become a negative marketing concept. Security of supply, and a tailored service will take over in customers’ hierarchy of requirements.”
Chemicals: Berthold Alfes – Independent Consultant at Berthold Alfes Strategy Consulting
“Deglobalisation is one of the various trends which have, in our view, been accelerated through the COVID-19 pandemic. Governments across the world have turned increasingly inwards, leading to border closures, restrictions on foreign takeovers, and subsidies for domestic businesses. Businesses at the same time have become acutely aware of the scale of risks in globalised supply chains.
Over the past 30 years, the chemical industry has benefitted massively from global supply chains with production steps allocated close to raw material sources for certain products, and in proximity with end markets for others. This highly efficient model is now under threat. Companies in the industry are now reviewing models where sub-scale assets are distributed across the key geographics and the choice of suppliers is limited by location. We expect prices of chemical materials to go up as a consequence, affecting a broad range of industries where chemicals are used as in raw materials.”
Best way forward: “More larger chemical firms are already set up as global concerns with organisations in the key markets. What we see is that policies increasingly require a broad range of value-added functions such as R&D, and engineering to be performed domestically. This will require companies to establish more empowered subsidiaries. Functional coordination across geographic markets and global business steering will become more challenging in future.”
Are you equipped for potential deglobalisation?
Lynk experts can help you develop business continuity plans and define action steps to best prepare your business to navigate through the disrupted global supply chain. To request trial, contact email@example.com