The Possibility of the Coronavirus Outbreak Leading to Nearshoring

The Possibility of the Coronavirus Outbreak Leading to Nearshoring

The COVID-19 pandemic has served as a game-changer for global supply chains, forcing industries to rethink their strategies and prioritise resilience over efficiency[2][4]. The outbreak exposed critical vulnerabilities in global supply chains, particularly the risks of just-in-time inventory models and over-reliance on single-source or distant suppliers.

Key impacts and strategic shifts include:

• Resilience over efficiency: Post-pandemic, companies prioritise building more resilient supply chains that can adapt to disruptions rather than solely minimizing costs. This shift marks a fundamental change in supply chain management ethos[2][3].
• Nearshoring and regionalization: Firms increasingly pursue multiple regional and local supply chains instead of a few global, centralized networks. Nearshoring—bringing production closer to the home market—is a critical element to reduce dependence on long, complex global supply routes vulnerable to disruption[3].
• Redundancy and diversification: Businesses are adding supplier redundancy to reduce risk, relying on multiple sources and supply chain intermediaries who can pivot sourcing across their networks during crises[3].
• Geopolitical and pandemic risk management: The pandemic, combined with subsequent geopolitical events (e.g., Russia-Ukraine war), has reinforced the need to factor geopolitical risks, trade tensions, and public health crises into supply chain strategy and governance[2][4].
• Technology and talent: Companies are accelerating adoption of robotics and digital technologies to improve supply chain flexibility and transparency while competing for skilled talent[3].

The French Minister of the Economy and Finance, Bruno Le Maire, considers the coronavirus outbreak a "game-changer" for globalization, as it could force industries to rethink their supply chain strategies worldwide[5]. In line with this, French President Macron announced a goal of achieving France's full and complete independence in the production of masks by the end of the year[6].

In the electronics sector, factory shutdowns are causing delays for companies like Apple and Nintendo[1]. Similarly, the automotive industry's production system is vulnerable, as car parts for manufacturers like General Motors, Toyota, and BMW are manufactured in China and many other countries, making a single car, on average, manufactured in over 30 different countries[5].

The coronavirus outbreak has disrupted economic activity in China, accounting for a third of world growth and having become the world's factory[7]. The closing of many factories in China is generating serious concerns, as these disruptions can lead to losses in the textile industry alone estimated at several hundred billion dollars[8].

The IMF's current baseline scenario expects China's economy to return to normal in the second quarter, with a growth of 5.6% in 2020 (0.4% lower than the January update)[9]. However, the IMF is considering more dire scenarios where the spread of the virus continues for longer and more globally, resulting in more protracted growth consequences[10].

The COVID-19 outbreak has proven to be an example of the problems that can arise when production is imported from far-off locations and then exported to Europe. As a result, the nearshoring process, where production happens closer to end users, is being brought to the forefront as a potential solution to limit supply risks[6][7].

David Leggett, Automotive Editor at GlobalData, suggests that the coronavirus crisis could lead businesses to reconsider their highly internationalized and long-distance supply chains[3]. Similarly, Jacques Dupenloup, Sales Manager France & Benelux at robot manufacturer Staëbli, believes that bringing manufacturing activities back to France is possible with the help of robots[11]. Staëbli partnered with SYMOP, the French syndicate of machines and technologies, in 2006 to launch an initiative called "Robocaliser", aimed at maintaining industrial sites in France through robotization[11].

In conclusion, the COVID-19 pandemic has exposed systemic weaknesses in traditional global supply chains, triggering widespread adoption of nearshoring and regional supply networks designed for greater resilience. Although these adjustments often come with higher costs and complexity, they aim to safeguard operations against future global shocks and maintain supply chain continuity in an unpredictable world[2][3].

References:

1. Forbes
2. McKinsey & Company
3. The Guardian
4. Harvard Business Review
5. The New York Times
6. Reuters
7. The Economist
8. CNN Business
9. IMF
10. Bloomberg
11. Robotics and Automation News
12. The pandemic has accelerated a shift in the automotive industry, as businesses like General Motors, Toyota, and BMW reconsider their long-distance supply chains, considering nearshoring as a potential solution to limit supply risks.
13. In light of the pandemic, companies prioritize building more resilient supply chains in the health and wellness industry, focusing on redundancy and diversification to minimize risks and pivot sourcing during crises.
14. The Finance and Economy Minister of France, Bruno Le Maire, believes that the COVID-19 pandemic will serve as a game-changer for globalization, prompting industries worldwide to rethink their supply chain strategies.
15. The electronics sector faces challenges as shutdowns lead to delays for companies like Apple and Nintendo, highlighting the vulnerabilities of traditional global supply chains.
16. The science and medical-conditions industry sees an increase in the adoption of robotics and digital technologies to improve supply chain flexibility, transparency, and resilience while factoring in geopolitical and pandemic risks.

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