The COVID-19 pandemic has impacted almost all areas of human activity and notably slowed down manufacturing production across the globe. The Asia Pacific region has been one of the most deeply affected. As the central node of the largest network of global value chains (GVCs) in the world, it has, in turn, led to major disruptions internationally.
According to ESCAP (Economic and Social Commission for Asia and the Pacific of the UN), the Asia Pacific region makes up for over 50% of GVC production lines and 78% of GVC-related information and communication technologies The current GVC arrangement was facing troubles even before the pandemic hit with the major challenges, including climate change, natural disasters, trade wars and more. However, compounded by the effects of the pandemic, countries, and organizations may need to speed up the reorganization of the current global value chain structure.
In this post, we will explore what potential methods may be used in the readjustment of GVC and supply chains and how modern technology can play a leading role in restoring global production.
What Is a Global Value Chain (GVC)?
GVC is a broad term used to describe the people and activities related to the production of goods and services: supply, distribution, post-sales activities and so on. In a more specific sense, it is used to denote the new production models enabled by globalization where companies can optimize their performance by basing different stages of their manufacturing processes in different countries and, thus, getting the added value on their investment.
In order to function well, GVCs need a smooth and efficient supply chain. A supply chain is the connection of all the elements involved in the making of a product: all the way from the raw materials used to the distributors that get the finished product to the final market.
How Badly Have GVCs Been Affected by the Pandemic?
It is too early to talk about the overall extent of the disruption that the pandemic has caused to GVCs. However, what we do know for sure is that it is felt across all sectors and countries. According to Resilinc, a US-based company that tracks GVC and supply chains, the number of GVC disruptions hit 300 just in the month of April.
Due to the increasing number of disruptions, manufacturing companies across the globe have been looking for ways to re-stock and refurbish their production networks. The Asia Pacific region has been one of the most proactive when it comes to implementing changes and adjustments in order to reset and restart global economic exchange. Given the high number of GVCs based in the region, this is quite understandable. Moreover, when the pandemic hit, the region was also going through a historic transition when a large number of investments into new factories and processing bases were shifting from China to other countries in the area: Vietnam, Malaysia, and Thailand.
As companies are looking for ways to recover from the impact of the pandemic, new measures and approaches are being used to restore activity and prevent further damage. While the World Economic Forum has highlighted the need to establish common denominators like open ports, new clear standards for sanitation and quality, and the facilitation of customs processes, sanitary and quality standards, accomplishing any of these tasks would be difficult without re-establishing global governance.
Global governance defines the ability of companies, organizations, and states to coordinate their actions in order to manage problematic situations. By their very definition, GVCs can’t function properly without global governance and efficient communication—but how can this be achieved?
IoT and Global Value Chains: How Are They Connected?
One of the key ways to restore the proper functioning of GVCs is seen in the transition to a supply chain enabled by IoT. What is an IoT enabled supply chain? At this point, it is mostly seen as a smart interconnected network that brings together different tiers of suppliers, manufacturers, service providers, distributors, customers and other participants of the process who are physically located in different countries or even on different continents. The intelligent network where information will be processed, interpreted, and shared with the help of distributed technology will come with several added benefits.
We can expect IoT to help get rid of visibility gaps and allow for an extensive level of flexibility into operating the network. Thanks to the recent advances in communication technology, there is also a generous selection of tools available that make remote cooperation and organization a real and workable possibility: from messaging and project management apps to professional time tracking tools, and more.
While IoT and Artificial Intelligence (AI) are still relatively new concepts, there has been a general consensus in the industry for quite a while that a transition to a digital paradigm is the best solution for increased efficiency. However, the current situation has added a sense of urgency to the transition: in many ways, the impact of COVID-19 on IoT has been a fueling one leading to more and more businesses and organizations adopting and developing new technologies in communication and collaboration to stay competitive in today’s rapidly changing environment.
As more businesses at every level of a GVC operation recognize the benefits of digitalizing their cooperation and production networks, we may witness an important transformation in a global economy that, in addition to managing the aftermath of the pandemic, could lead to the creation of a more stable, productive and sustainable production model.