Manufacturers Must Rethink Global Operations Following Covid-19
A new study by the University of Birmingham reveals that in light of the coronavirus pandemic, manufacturers must move away from single production facilities in low-cost regions, in order to minimise risk.
The study suggests that production should instead focus on having numerous facilities around the world, including re-shoring, to strengthen resilience.
Researchers reported that the concept of value should be broadened beyond profit to include factors such as speed, customisation, reliability, and “place-based affiliations” to redraw global production networks (GPNs).
Based on a study of 91 US manufacturing companies, the report found that Covid-19 had shown the most effective GPNs balanced cost control and risk – “balancing production facilities in core markets against over-reliance on facilities located in lower-cost locations”.
Professor John Bryson, co-author of the report, 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 ongoing critical reframing that accepts that a fundamental rethink is required by global manufacturing concerns.”
In reaction to the US-China trade war, the study revealed that most firms had switched from suppliers with manufacturing facilities in China to suppliers in other low-cost countries including Vietnam, India and Mexico. Yet around a fifth were either opening new manufacturing plants in the US or expanding existing US facilities.
The report also noted that the second group used a broader definition of value to guide its decision-making, taking into account “non-priced-based forms of value”.
Bryson said: “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."
“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 on globalisation around the benefits and risks associated with deepening globalisation.”