As the world deals with COVID-19, global supply chains have come under examination, as they rightly deserve. The past few decades saw an increasing concentration and relocation of manufacturing in China. Even before the pandemic struck, there was a clamor in the manufacturing industry about risk diversification and locational centralization of the facilities. This debate and urge were aggravated by the strategic considerations of various nations and growing disquiet in US-China relations.
The pandemic proved to be that moment when the world suddenly realized the risk that it was dealing with. Around February 2020, when COVID-19 hadn't struck the world hard, manufacturing factories across the globe had started to halt production because of component shortages originating due to the lockdowns in China. As the world came under the grip of the pandemic, China began to restrict the exports of essential medicines and resources, including masks and sanitizers, to supplement its own war against COVID-19. Countries across the world started to realize the risk of overdependence on one nation.
The solution to this crisis is generally visible in two types of policies being followed by governments worldwide: One, developing domestic manufacturing capabilities in strategic goods and other necessary commodities to ensure self-reliance in case of any such future cataclysmic event. Second, risk diversification as well as investment in reliable supply chains has brought focus on the element of trust and partnership in supply chain management.
In India, the first policy has been manifested in the form of the "Atmanirbhar Bharat" Policy. The focus is on investment towards increasing domestic manufacturing capabilities. The most underrated has been the Production-Linked Incentive (PLI) scheme which attracted billions (USD) in investments in 13 sectors, primarily mobile and electronic components, focusing on strategic resources like APIs for pharmaceuticals and medical devices. In its current form, the government aims to simplify investment and business processes, as evidenced by India's better Ease of Doing Business Rankings from 142 (2014) to 63 (2020).
This increased preference for domestic manufacturers has not only been seen in India but worldwide. U.S. President Trump had been pushing to rejuvenate the U.S.' sleeping manufacturing capacity for a long time. Current President Biden's package of 300 Billion USD is also a testimony to achieve the same goal. Nations no longer wish to be dependent upon others to maintain strategic autonomy and want to avoid negative repercussions from events such as the recent Suez Canal blockage. Some countries have moved ahead to make other counties increasingly reliant on them with Vietnam, Bangladesh, the Philippines, and others successfully attracting investment that would have been targeted for China. These manufacturing investments also bring thousands of jobs that contribute towards maintaining stability in developing nations.
The second policy option involves re-engineering global supply chains. There is concern among MNCs and producers to diversify the supply chain risk. It doesn't matter if there are ten suppliers in the same region; it is essential to diversify not just the supplier but also the countries and areas of origin to deal with contingencies. Manufacturers are also looking for substitutes and backups to deal with any crisis. Besides that, there is a focus on "Reliable" and "Transparent" Supply Chains. Groups such as D10 (10 Democracies ), Quad, etc., are emerging to collaborate on strategically safer supply chains. Chinese 5G equipment manufacturer Huawei has been kept out of trials and biddings over safety concerns. In its recent summit, QUAD decided to take its collaboration beyond defense into the field of supply chains and coordinated productions. However, it would be foolish to assume that supply chains do not have a security dimension.
With trade deals and relations becoming weaponized, as the recent case of China bullying Australia to drop its aggressive anti-China stance, businesses, productions, and strategic goods contain a strategic and security aspect now. Supplies can be arbitrarily struck or levies imposed to build diplomatic and economic pressure at any moment. When the world faces such a mammoth opponent as China, all this becomes even more significant.
The world won't be the same place post-pandemic. The alliances, supply chains, and realities will have heavily changed. Countries are going through the pandemic's different phases, making the running of a unified supply chain even more complex and encourages the building of domestic manufacturing abilities and investment in 'Reliable' supply chains.
Falit Sijariya is the Founder of Studomatrix, an all India school students' organization with over 25000 students in India and Diplomatron. He is currently majoring in Political Science and Economics from St. Stephen's College, Delhi. His writes on Geopolitics, Public Policy and Political Economy for various Think Tanks. He is engaged in reforming the school education landscape across India with Studomatrix and empowers students specially Tier-2 and Tier-3 cities.