BEIRUT: A prolonged global recession tops the list of most feared risks driven by the disruption of various industries and supply chains amid the outbreak of the Covid-19 pandemic.
In January, as COVID-19 was taking its toll on China, experts were debating supply shocks, caused by shortages in finished goods sourced from World's second largest economy.
These concerns were justified. According to an analysis by advisory firm Deloitte, more than 200 of the Fortune Global 500 firms have a presence in Wuhan, the highly industrialized province where the outbreak originated.
Covid-19 struck at the core of the global value chain hubs (China, Europe, and the US.) The increased fragmentation and geographical dispersion made global value chains gradually exposed to the vulnerabilities of many organizations, particularly the ones that have a high dependence on China to fulfill their need for raw materials or finished products.
With the pandemic crisis deepening and nations instituting lockdowns, the once resilient system started facing its biggest challenge: systemic demand shocks, where people were stocking up on consumer staples in order to comply with restrictions on movements.
According to a recent supply management report by CAPS Research, 40% of 115 global companies identified increased demand as their top challenge.
The classic planning models have not been built to accommodate such severe peaks in demand, yet, with a herculean exceptional effort, store shelves have been restocked and this has provided a measure of reassurance to people in a distressing time.
At this point, risks of supply chain disruptions have fully entered the public consciousness and are undergoing a greater degree in trade calculations and naturally, politicians and economists started reassessing the risks of a globalized system.
The World Trade Organization has forecast that goods trade would shrink more steeply this year than in the global financial crisis a decade ago. World trade is expected to fall by between 13% and 32% in 2020 as the pandemic disrupts normal economic activity and life around the world. Nearly all regions will suffer double-digit declines in trade volumes in 2020, with exports from North America and Asia hit hardest, according to the WTO.
Fortunately, some new technologies are emerging allowing improvement across the end-to-end supply chain, and support companies’ ability to resist such shocks.
Can the interdependency and connectedness that partially contributed to the global spread of Covid-19 also offer hope for creative efforts to address current and future threat?
Will Covid-19 define a new era of globalization?
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