With no quick escape in sight for the Covid-ravaged economies, authorities throughout the world are going back to the drawing board to find strategies to deal with this nightmare. The global spread of the Covid-19 has brought about an unprecedented halt to the activities in all major economies. A problem that once looked like a crisis that was local to China and limited to the supply-side story about factories and sellers has now blossomed into a global geopolitical story affecting nearly everyone of us, everywhere around. WTO has forecast the global trade volumes to drop sharply by 13-32 per cent, which has not been seen before in the modern era ever. In this unprecedented new reality, we will witness a dramatic restructuring of the economic and the social order in which business and society have traditionally operated. And, in the near future, we will see beginning of discussions and debates about what the next normal could entail and how sharply its contours will diverge from those that have previously shaped our lives.
While lockdown is essential for containing Coronavirus, prolong isolation is not the ideal solution to bring back the economy on growth path. In the post-pandemic period, along with the new trade standards and certifications, e-commerce and new value chains may pick up the pace, where trade facilitation means connecting countries over digital platforms (e.g. interoperability of digital interfaces) and paperless trade. The freight forwarding market is also one of evolution. In this new situation, according to recently launched ‘Global Freight Forwarding Report’, continued automation and inclusion in fully-encompassing platforms that are managing all modes of transportation and data analytics will dominate freight forwarding in the years ahead.
Opportunities may also expand manifolds in crypto currency, Fintech, Artificial Intelligence and Machine Learning (AIML), Blockchain technology, to mention a few. Countries will also seek for faster, cleaner, safer transportation, instead of an ordinary FTA, which just talks about trade liberalisation and ‘shallow’ trade facilitation. Countries may preferably opt for safe and secure trade than “free” trade. The New “pandemic” related trade barriers (can be classified as another NTM) may replace the traditional quota and other tariff and the non-tariff barriers. The new global order will also create many new jobs and skills. Global institutions require reforms to deal with the emerging situation. Countries at this point of time should also undertake reform to strengthen digital economy and e-commerce not only to manage the pandemic but also to facilitate trade. Trade barriers should not be allowed to happen in trade in goods and services particularly those that feed the health science.
Could the next normal emerge from Asia
The COVID-19 outbreak began in Asia—but so have the early indications of containment, new protocols, and resumption of economic activity. Although risk of another outbreak remains, economic-activity indicators in China suggest urban activities are returning to pre-outbreak levels. Traffic congestion and the residential-property sales are close to where they stood in early January 2020. Air pollution and coal consumptions have returned to 74 and 85 percent, respectively of their January 1 levels. A recent McKinsey survey of 2,500 Chinese consumers indicates that “cautious optimism”—a gradual regaining of confidence, which should increase
spending. At this moment, strong public-health responses in China, Singapore, and South Korea appear to have been very successful. Significant evidence indicates that the curve of the cumulative confirmed COVID-19 patients in Asia is becoming flatter now.As companies in the Asian region resume activity, they may be the world’s first to shape the “Next normal.” What will that look like?
- Defining the future of work and consumption- The crisis has propelled new technology across all aspects of the Asian life, from e-commerce to remote-working and also e- learning tools, including Alibaba’s DingTalk, WeChat Work, and Tencent Meeting. New working and shopping practices will probably become a permanent fixture of our next normal.
- Mobilizing resources at speed and scale-Within weeks, China has added tens of
thousands of doctors and hospital beds. Several governments invested in many new tools to map transmission and rolled out huge economic-stimulus plans. Asia has a proven ability to mobilize resources in crisis.
- Moving from globalization to regionalization-The pandemic has exposed the world’s risky dependence on vulnerable nodes in the global supply chains. China, for example, accounts for about 50 to 70 percent of the global demand for copper, iron ore, metallurgical coal, and nickel. We could see massive restructuring as production and sourcing move closer to the end users and companies localize or regionalize their supply chains.
The South Asia countries in the post-pandemic period can provide additional solatium. For example, The exporters and importers may be waived from the customs bonds till the situation improves and trade picks up the momentum or faster payment of incentives to exporters or waving the interests on bank loans, etc. India’s SWIFT is a great example here. India’s trade partners must work on interoperability of trade transaction digital interfaces such as SWIFT.If this crisis is prolonged, value chains, both regional and global, will break. This might be an opportunity for India to leapfrog its export. Is India ready to choose new markets? India may design a strategy to replace too much reliance on China for its imports, particularly Pharma APIs. Shifting the supply chains from China also offers many FDI opportunities.
People who are ill with Coronavirus need doses of the new medicines, which then would go on building antibodies, save lives, improve oxygen levels and speed up the recovery. In the same way, countries today need “economic antibodies” to save economies from further disasters. Gradual opening of economies and adjusting in the “New Normal” is the need of the hour. India must now step up its diplomatic strength in South and Southeast Asia as there is new scope and opportunities. For example,RCEP is gone, but India can bounce back if we follow up some of our pending tasks in trade, physical and digital connectivity, health and non-traditional security areas. Activating the Indo-Pacific this time may return high dividends in post-pandemic period. India’s diplomacy has played a major role in managing the crisis on a 24×7 basis, be it lifting the distress people from several parts of the world or following the pandemic minute by minute or settling immediate and complicated queries. The Indian diplomacy should not stop here. India must continue to play a larger role in building cohesive neighborhood in this “New Normal” at this time when the partnership will be guided by new ethics, challenges and responses.
2008 was the financial crisis but 2020 is the Supply Chain crisis, 94% of all the Fortune 1000 companies are seeing COVID19 supply chain disruptions - as per a Fortune Report.
The current focus is all on China. This isn’t surprising given that the virus originated there and also given the share of China in Global Trade. As per a recent Economist Article, China now accounts for 16% of the global GDP. Its share of all exports in textiles and apparel is 40% of global total. It generates 26% of world’s furniture exports. It consumes 20% of all the global mining imports. The world relies on Chinese factories because of cost efficiencies they offer. Yet, there is a flip side to this cost optimization –the supply chain vulnerability to disruptions. American firms shares with strong exposure to China have under-performed s&p500 index by 5% since early January, when news of outbreak first broke.
Yet the bigger story isn’t China. It is the Supply Chain Disruption. In India, the reverse migration of the urban poor to rural areas has created a huge logistics challenge in last mile delivery services. The shutdown of the factories is having a ripple effect on their suppliers - some of whom may also collapse due to financial pressure & lack of liquidity. There is no doubt that the organizations will still use price as an important factor when selecting suppliers. However, the parameters post COVID19 would be more multi-dimensional: they must include weighting other variables higher than ever before. What is financial risk of a supplier? How quickly can the supplier ramp up/down capacity? What share of your business is critically dependent on a supplier? The Companies need to understand their supply chains more deeply and in more dimensions. COVID19 is likely to result in long-lasting transformations of supply chains to build much resilience.
Across experts there is a growing consensus on how Supply Chains need to evolve post the pandemic-
1. Create transparency in the multi-tier supply chains
Organizations rarely have visibility into operations & capacity beyond their first tier
suppliers, if that This lack of visibility translates to a much higher risk &that is the first bottleneck in achieving supply chain resilience. According to the Allianz’s Business Risk Report of 2014, 51% of supply chain disruptions originate with the Tier 2 and Tier 3 suppliers. Fortunately, technologies like that of Blockchain & IoT have the potential to dramatically improve visibility across end-to-end supply chain.
2. Estimate The Inventory & Demand - upstream & downstream
Most organizations know exactly how much inventory they are presently holding. Very few know how much inventory is actually available in their upstream and downstream supply chain. By going further into the supply chains, organizations can get a more complete profile of where these components are coming from, whether existing inventory could be re-purposed for new-product productions or whether re-manufacture with used stock could address the supply issues. Such visibility is very critical when evaluating the resilience of your supply chain and its ability to respond to these disruptions
3. Identify and secure capacity
In the current COVID19 situation, the logistics contracts may specially benefit from such an approach. When manufacturers look to ramp up the production and make up time in their supply chains, pre-booked logistics capacity will keep costs in control, and enable the priority access to logistics.
This is the time of a major medical emergency. Such crisis times calls for togetherness and partnership. All the Countries have to work together while dealing with the crisis, particularly for post-crisis recovery. Stable and strong leadership is the real command. A stronger network between all the countries is vital to design a strategy for the entire World and thus Growth may eventually happen and we all would very soon bounce back out of this havoc.
– Pratibha Sahoo