There has been a shift of more regionalization rather than globalization in recent years for supply chains in Asia. And the pandemic has accelerated this shift, reinforcing that Asia will become the future local point of global trade.
The COVID-19 pandemic has drastically changed the intensity of trade. Historically, over the last 20 years, trade has been growing at 3.5x GDP. However, within the last year this multiplier has dropped down to 1.0x.
The overall decline in trade intensity has had varying effects on different trade corridors. Asia exports to Europe and North America took the deepest hit. Rather, interregional trade within Asia remained relatively strong and continues to be a key driver of trade within Asia.
The disruptions associated with the pandemic is likely to intensify companies’ focus on business and supply chain resilience. To achieve greater resilience, countries will need to adapt to different strategies for growth. And companies will also need to consider reconfiguring their supply chains to avoid future shocks.
Building a supply chain resilience can take many forms, beyond just relocating production. One of the options to consider is strengthening the risk management capabilities, improving transparency, or potentially building resilience within the supplier as well as the transportation network.
One of the other things that many companies are doing is digitalization. But what have been observed is that there’s many different speeds at which this digitalization has occurred within companies.
The future of Asia’s supply chain is bright, but only if they are resilient. Notably, the pandemic has exposed the vulnerability of the global supply chain. From the demand side, the crisis is changing the strategic context of supply chains, affecting various sectors in different ways. Some industries such as aerospace, may be facing the prospect of prolonged periods of suppressed demand.
Other sectors, on the other hand, such as consumer packaged goods and medical supplies, are racing to maintain high and volatile demand. On the supply side, even in the parts of the world where COVID-19’s initial effects started to recede, dislocation appears to remain a fact of all different aspects of life. For an example, a recent McKinsey survey of manufacturers in Asia showed that company are still struggling with sudden material shortages, and along with the steep drop in demand and worker vulnerability.
The network overall has begun to falter and is changing rapidly as regulation and border closures continue to disrupt supply chains. Looking forward, global trade will likely continue to grow, but perhaps at a slower pace. Due to an increased need for resilience, countries will need to adopt different strategies for growth, and companies will need to reconfigure their supply chain and consider alternatives.