How to build resilient global supply chains as a result of COVID-19? Enabling and supporting businesses

20.08.2020 Lisa McAuley
How to build resilient global supply chains as a result of COVID-19? Enabling and supporting businesses

Around the world, businesses are experiencing both distress and cautious optimism as they grapple with the effects of COVID-19. While thousands of them, particularly micro, small and medium enterprises (MSMEs), have had to close, many others continue to engage in global value chains (GVCs), or supply chains more broadly. While some parts of the manufacturing and services sectors, like the automotive and hospitality industries, have been severely affected, other sectors such as medical devices and telecommunications have seen demand grow exponentially.

The way large businesses and MSMEs are experiencing disruptions also differs greatly, and within MSMEs themselves, the reality has been different for women-led businesses and MSMEs in small and developing economies. The current crisis, thus, offers opportunities to business and hopes for the future of global trade, but at the same time will require the largest business rescue and support programmes of the past century.

Opinion of Ms Lisa McAuley, CEO of GTPA and Dr Tomás Quesada, Vice president for Research and Policy of GTPA

In this context, how to build resilience in global supply chains? What would it entail?

The answer seems to be in both enabling and supporting businesses participating in global supply chains, without inadvertently making their operations more complicated.This is the main conclusion summarising the insights of panellists and participants from government agencies, academia and business in the recent virtual workshop of the Asia-Pacific Economic Cooperation Forum (APEC) “Building Resilient Supply Chains in APEC”, organised by the Australian Government Department of Foreign Affairs and Trade (DFAT) and the Global Trade Professionals Alliance (GTPA).The workshop gathered more than 20 experts and 100 participants from the Asia-Pacific region and other economies to discuss ways to build resilience in global supply chains. Issues like the law of comparative advantage, transparency and digitization were examined, as well as ideas on how to support businesses, maintain healthy supply chains, and build resilient teams for trade.

To inform APEC’s work on supply chains resilience, recommendations were presented in four main areas of action:

1. Prioritising enabling regulatory frameworks and economic environments that facilitate trade, cut red tape, avoid protectionism, bridge the digital divide, and increase competitiveness.

2.Setting up international standards to enhance supply chains’ traceability, visibility and integrity, with special attention to rules of origin analytics and data collection, and harmonising fragmented national rules on data governance, privacy and consumers protection.

3.Supporting MSMEs directly with capacity building and upskilling programmes on rules of origin, eCommerce, supply chain risk management, and how to adapt in an agile way to a more uncertain and rapidly changing international trade environment.

4.Increasing international cooperation, for which regional economic integration forums offer a clear advantage and immense opportunities to develop and share common policies and resources, bringing together governments, large businesses and MSMEs.

Regarding the first of those areas, the Secretary General of the International Chamber of Commerce, John Denton, warned in his keynote address against further disruptions in global supply chains if governments intervene with the wrong policies to ensure their resilience: “attempts to manage or regulate supply chains are likely to fail because supply chains themselves are incredible complex […]”.

Instead, he argued that governments should:

“prioritise an economic environment conducive to trade and investment. Business know their supply chain better than governments ever can. Allowing companies the space to learn from the current pandemic and respond in kind is a better approach than trying to force decisions upon them. Protectionist policies taken even for the noble aim of increasing supply chains resilience would only undercut competitiveness and raise prices for consumers.”

This approach was supported by the panellists and participants in one of the breakout sessions, who raised concerns over the rise in protectionism and efforts to re-shore supply chains. Instead, they recommend that governments focus on creating their comparative advantage and improving competitiveness.

Regarding the second area of action, specifically on rules of origin, experts and participants identified an opportunity to rationalise the complexity of determining origin and tariff classification through automation and Artificial Intelligence. Neither origin analytics nor the collection of data and documentation that is required to prove origin are standardised. Therefore, a primary objective in trade facilitation efforts should be to establish an origin data standard. This would not only facilitate trade and origin verifications for all parties, including MSMEs and customs authorities, but also improve trade and origin data quality before it became digitized into distributed ledger technology (DLT) systems.

Concerning supply chains risk management, the participants mentioned the need for collaboration and relationship management between buyers and sellers as a key element to create effective responses to global supply chain trade flows. As a valuable addition to the theoretical discussion, the term “supply chain immunity” was put forward as a preferable way to think about resilience, as it involves creating “anti-bodies” for effective transparency with critical participants in supply chains. The panellists also mentioned the need to advance integrity standards in GVCs.

On the third area of action, supporting MSMEs directly, experts and panellists asserted that in order for policy to support businesses effectively, governments must understand the real needs of business, which starts by speaking their language rather than the language of government. This should also be complemented by creating the right spaces in which governments, large and small businesses can interact trilaterally, rather than just one way with the government. These dynamics could increase the chances of mutual learning between large and small businesses, while creating opportunities for new global supply chains linkages. MSMEs also require access to resources, finance and capacity building programmes on rules of origin, trade policy, and the development of skills and capabilities for adaptability and agile management.

Finally, all experts and participants agreed on the importance of international cooperation to build resilience in global supply chains, something for which APEC is well prepared and equipped. The benefits of economic integrity are becoming more apparent given the fact that GVCs “in a post-COVID-19 world will become more regional, more neighbourly and more digital”, according to Dr Bo Meng, Senior Research at JETRO. While this highlights the importance of trade and economic integration projects around the world, it raises concerns for small and emerging economies who are at the periphery of major trade blocks. International cooperation, thus, while happening more naturally amongst trade partners, must include big and emerging economies.

This should be a priority to enhance inclusivity in trade but also to make possible the recovery of the global economy, as a whole, considering the current context of distress and cautious optimism. In the words of Anabel González, Non-resident fellow at the Peterson Institute:

“In the context of supply chains restructuring, countries will find new opportunities to attract foreign direct investment, upgrade in value chains and grow their economies, but the fundamentals will still matter, and competition will be fierce.”

Australia’s Trade Minister, Simon Birmingham, launched the APEC Global Supply Chains Resiliency Survey at the APEC Trade Minister Meeting on 25 July 2020:

“This is an area of critical importance given the disruption during the COVID-19 pandemic. Australia is launching and funding work in APEC on gathering data on the true business impact of supply chains disruptions, and how we can better use these systems in the future.”

The survey responds to APEC Trade Ministers call in their May COVID-19 statement for building greater supply chain resilience:

“We acknowledge the importance of strengthening regional connectivity by intensifying our efforts to make global supply chains more resilient and less vulnerable to shocks, to advance sustainable economic growth.”

The survey is implemented by GTPA and we encourage all businesses to provide their input into the survey which can be accessed from the website: www.gtpalliance.com.

The results of the survey will be explored at a follow up APEC workshop on the 28th October 2020.

For media enquiries please contact:

Ms Lisa McAuley

CEO

Global Trade Professionals Alliance (GTPA)

E: lisamcauley@gtpalliance.com

P: + 61 430 172458

W: www.gtpalliance.com

 

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