Comprehending Global Value Chains (GVC)
The Global Value Chain (GVC) encompasses the entire sequence of activities that companies undertake to bring a product or service from its initial concept to delivery and beyond. This process includes design, production, marketing, and distribution across various global locations. GVCs are defined by:
Fragmentation: Different production stages can take place in multiple countries, capitalizing on local strengths.
Coordination: Effective management of international operations to minimize costs and improve quality.
Innovation: Cross-border collaboration encourages technological progress and innovative solutions.
As COVID-19 crisis is over and we jump into the so called new normal then governments and any regulatory body would consider developing new trade policies and restrictions in the wake of Security against such unknowns. These decisions can lead towards Localizing value chain in Projects for Resources which is certainly not a favorite for any economist would consider. Global Value chain brings with it many benefits specially in terms of Design, Production and Distribution of goods in Manufacturing Processes. Simultaneously for Information Technology in Design, Code Development to running Platform Operations and OTT Applications or services finally consumed by end users.
While you are reading this article, some major global economies and their stakeholders might be thinking of re-locating their supply-chain and localizing Production which has a little advantage to the cost and benefits reaped from Global Value Chain. With ongoing Pandemic we might always get a biased view in analytical studies and less attempts would be made to correctly project a trade-off between GVC's efficiency and security against such Unknowns.
During crisis of COVID-19 we certainly must have felt and seen shortage of what we purchase and consume as resources in a Project or in daily walk of life. The pandemic has painfully reminded us of the vulnerability of the global economic shocks. The recent OECD Economic Outlook projects that “five years or more of income growth could be lost in many countries by the end of 2021”. The US unemployment rate jumped to 4.4 percent in March 2020, the highest since August 2017 and well above market expectations of 3.8 percent, as the Covid-19 crisis threw millions out of work (Source: https://www.macrotrends.net).
Effects of COVID-19 on GVCs
The COVID-19 pandemic has profoundly disrupted global trade and the operation of GVCs. Major effects include:
Supply Chain Disruptions: Lockdowns and restrictions caused production halts and transportation delays.
Shift in Demand: Alterations in consumer behavior led to variable demand for different goods and services.
Increased Costs: Companies faced higher expenses due to new safety measures and inventory management needs.
Post-COVID-19 Economic Environment and Its Effects
As the world moves into a post-COVID-19 economic environment, several trends are emerging that will influence the future of GVCs:
Resilience and Diversification: Companies are reassessing their supply chains to lessen reliance on single sources and boost resilience.
Digital Transformation: Growing dependence on digital technologies for remote work, e-commerce, and supply chain management.
Sustainability Focus: An increasing focus on sustainable practices and ethical sourcing due to consumer demand and regulatory pressures.
Conclusion
The COVID-19 pandemic has highlighted vulnerabilities in global value chains. In the future, businesses must adapt to the evolving economic environment by emphasizing resilience, innovation, and sustainability to succeed in a post-pandemic world. More localization in Value Chain means more dependency on local resources. This dependency has its own pitfalls during such Unknowns as it is much harder to find substitutes which creates a greater Risk to any products or projects delivery. In Manufacturing language, no one country can or tends to specialize in production of all goods and in Information Technology no one country has enough skilled resources to meet the current demand and produce quality output. As an alternative localization might work in some cases and not all with conversion of assembly lines and supportive International agreement can be achieved as mitigation during such Unknowns.
Author of this Article can be reached at JPBhatia@loadncode.com
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