Why is resilience a key factor in the development of Global Value Chains?

The recent pandemic has affected in different ways all Global Value Chains. It is expected that the supply chain disruptions intensity will increase at an accelerating rate in the coming years. Impacts severity will vary from a stakeholder to another. Given their limited capacity to adapt, local actors will be the first victims of the pandemic. Multinational companies and their subsidiaries would also pay the price and should expect a sharp increase in production costs. A different trade-off between economic efficiency and resilience in the long term must therefore be considered.

Resilience refers to the ability of a GVC, multinational company, country or local supplier to return to positive development after a crisis:

• Would a local supplier have the means to adjust to a supply disruption of imported components or a payment delay?
• ?GVC resilience may include local sourcing, supplier redundancy, or new, broader, sustained governance. GVCs have different structures and capabilities, e.g., a primary GVC with limited resources does not have the same flexibility as an automotive GVC with greater access to capital.
• At country-level, we may ask whether the government has put in place a high-risk strategies and adaptation policies.

For example, the report "Building Resilient Supply Chain, Revitalizing American Manufacturing, and Fostering Broad Growth," released in June 2021 by President Joe Biden's administration, identified five GVC vulnerabilities: semiconductors, batteries, metals, active ingredients, and large-scale public services. In this context, the authors of the Mckinsy Global Institute report on "Risk, Resilience and Rebalancing in GVCs" suggested a dozen of measures: relocation of production, regionalization, diversification of suppliers, strategic stockpiling, risk management capabilities, redundancy of transportation networks, reduction of product complexity...

Thus, the development of GVCs is not only a question of cost, but other requirements are also crucial such as shared governance, fast and reliable access to information and adaptation tools. Therefore, instead of focusing on emergencies, multinational firms should structure and orchestrate their GVCs based on long-term governance considerations. The objective of this new perspective would be to regularly assess the costs, risks, and potential for value creation through existing structural and managerial governance mechanisms and make necessary adjustments.

?A number of researchers have highlighted the importance of platforms and advanced technologies in better integrating suppliers and monitoring their inventories and capacities. Automation is used, nowadays, to detect changes instantly in retail trends allowing for quick adjustments in needed projections. Similarly, artificial intelligence (AI) and automation can help improve efficiency and productivity. Not to mention, the increase of e-commerce delivery solutions and the importance of short, decentralized, and customer-focused supply chains.

?Companies are actively seeking ideas to achieve innovative redesign of their GVCs, leveraging existing technological innovations such as 3D printing. Reconfigurations during (and after) COVID waves can help GVCs reap the benefits of not only value co-creation, but also open innovation. However, over-reliance on traditional GVCs has increased the demand for more localized, resilient, and agile value chains to produce products tailored to local needs and with reduced environmental footprints. Thus, foreign affiliates adhere more to home country perspectives on pollution and human/labor rights related to locally developed businesses.

?Growth prospects with the regionalization of global value chains (i.e., collaborations and innovations among geographically close national economies to limit the risks of supply chain disruptions) exist, but their application in North Africa will take several years. North African countries are vertically integrated into global value chains within a framework of mutual competition and with few horizontal interconnections (this is the case of Morocco, Egypt and Tunisia). Let's not forget the existing political, transportation and logistical problems that affect value-added trade in the Maghreb region. This is likely to involve more integrated foreign partners that require innovative technologies and supplier ecosystems not available at regional/local level and significant transformative and sustainable investments.

However, a 2020 McKinsey report reports that some multinational firms have already begun processes to diversify and transform their supplier base by fostering longer-term cooperative and innovative relationships at the regional level.

?Furthermore, other authors have pointed out that we are moving into a phase of "techno-nationalism."?That is, post-pandemic governments are likely to play a much larger role in orchestrating GVCs, especially for more sophisticated products, where they will actively support local knowledge development and production.

The current double crisis of energy and the military conflict in Ukraine is greatly slowing down the processes that were developing in the post-Covid 19 era. The context is a source of great uncertainty.

It is still difficult to define the future evolution of Global Value Chains (GVC):

• Fragmentation, due to the effects of shortages along supply chains.?
• Regionalization, a reorientation of investment flows and an organization of the location of production units to enable Western countries to reduce their degree of dependence.

A recent IMF report criticized the relocation of global value chains by supporting the idea of supplier diversification.

Ultimately, resilience presents the "middle ground" between short and long term, global and local actor, public and private governance, cost and sustainability positioning.

List of references

?Report Building Resilient Supply Chain, Revitalizing American Manufacturing, and Fostering Broad Growth, 2021. https://www.whitehouse.gov/wp-content/uploads/2021/06/100-day-supply-chain-review-report.pdf?utm_source=sfmc%E2%80%8B&utm_medium=email%E2%80%8B&utm_campaign=20210610_Global_Manufacturing_Economic_Update_June_Members

Mckinsy Global Institute report on "Risk, Resilience and Rebalancing in GVCs. https://www.mckinsey.com/business-functions/operations/our-insights/risk-resilience-and-rebalancing-in-global-value-chains

Kano Liena ,?Narula Rajneesh ,?Surdu Irina , 2022. Global Value Chain Resilience: Understanding the Impact of Managerial Governance Adaptations, California Management Review.

Panwar Rajat ,?Pinkse Jonatan ,?De MarchValentina i, 2022.?The Future of Global Supply Chains in a Post-COVID-19 World. California Management Review.

Enderwick, P., & Buckley, P. J. (2020). Rising regionalization: Will the post-COVID-19 world see a retreat from globalization? Transnational Corporations Journal, 27.

Gereffi, G. (2020). What does the COVID-19 pandemic teach us about global value chains? The case of medical supplies

Gereffi Gary (2021).?Increasing resilience of medical supplu chain during the covid 19 pandemic. Industrial Analytics Platform

?Gereffi Gary,?Pananond Pavida ,?Pedersen Torben , 2022. Resilience Decoded: The Role of Firms, Global Value Chains, and the State in COVID-19 Medical Supplies. California Management Review.

Phillips Wendy ,?Roehrich Jens K. ,?Kapleti Dharm a,?Alexander Elizabeth , 2022. Global Value Chain Reconfiguration and COVID-19: Investigating the Case for More Resilient Redistributed Models of Production. California Management Review.

Ryan Paul ,?Buciuni Giulio ,?Giblin Majella ,?Andersson Ulf , 2022. Global Value Chain Governance in the MNE: A Dynamic Hierarchy Perspective. California Management Review

Shih, W. (2020, March 19). Is it time to rethink globalized supply chains? MIT Sloan Management Review.

Zhan, J. X. (2021). GVC transformation and a new investment landscape in the 2020s: Driving forces, directions, and a forward-looking research and policy agenda. Journal of International Business Policy, 4, 206–220.