Coronavirus May Force Companies to Rethink Global Supply Chains: OECD Economist

By William Horobin | March 3, 2020

The upheaval from the coronavirus outbreak may be the final jolt that the world’s biggest companies need to reevaluate how they operate in a globalized economy, the OECD’s chief economist Laurence Boone said.

The sprawling, continent-crossing supply chains of corporations have already come under pressure from trade tensions and climate concerns, and may face further stress as countries change global taxation rules. If and when the dust settles from the coronavirus, Boone said firms will likely pause to reconsider what they do.

“What characterizes what we have seen over the past decade is effectively real-time management of stocks and very integrated supply chains,” Boone said Monday. “In the same way that central banks can review their monetary policy framework, I think businesses after this outbreak will likely look at how they are managing their stock, how they are organizing their production throughout the world.”

There are some signs that companies are already giving greater consideration to the issue, though it’s too soon to say there will be knee-jerk reactions to the virus. Last week, France’s Sanofi said its plan to create a standalone company to make key ingredients for other drugmakers will help ensure supplies of essential components and reduce reliance on Asia.

Boone was briefing journalists on the OECD’s economic outlook, in which the Paris-based organization slashed its 2020 growth forecast because of the shockwaves the epidemic is sending across the globe. The deeper links between economies that have come with globalization mean that the virus impact is unprecedented.

“The global economy has become substantially more interconnected, and China plays a far greater role in global output,” the OECD said in the report. “Even if the peak of the outbreak proves short-lived, with a gradual recovery in output and demand over the next few months, it will still exert a substantial drag on global growth in 2020.”

The OECD is not the first to raise the point. The longer-term lessons also came up at a meeting of Group of 20 finance chiefs in February, with some officials warning of the risks of depending largely on complex supply chains in strategic and sensitive sectors.

“We clearly see that we are too dependent on supply from foreign countries and China,” French Finance Minister Bruno Le Maire said Monday on France 2 television. “We will review all our industrial supply chains to see how we can re-localize business in most strategic areas and be sovereign and independent.”

–With assistance from James Paton.

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