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What a global pandemic does for globalisation

MAR 02, 2021 | Jim Morrish
 
region: ALL sector: ALL technology: ALL

The Covid pandemic of 2020/21 has acted as a force for change for many enterprise sectors and functions, change that might otherwise have taken decades. This rapid shift has created challenges and opportunities.

In this article we unpick some of the medium-term impacts that Covid will have on globalisation where we expect that the net effect will be to expand markets for services and make these more global. On the other hand, supply chains for physical goods will become more fragmented and less global.

Both of these dynamics will clearly have a huge impact on technology adoption. Services will drive the adoption of cloud-enabled solutions to support global capabilities, whilst there will be an increased need for technology to track, manage, and enable more complex physical supply chains.

Remote working and globalisation

The first and most obvious impact of the pandemic is that it has been proven that a lot of work that has historically been undertaken in a workplace can in fact be undertaken just as well (if not better) by employees working from home.

Clearly there is a broad swathe of employees that must be physically present at their workplace (ranging from refuse collectors to healthcare workers, and, one day soon, bar staff and waiters). There is another group of employees for whom the formalities of web conferencing have proven to be a significant hindrance to creativity, and these include advertising executives and product designers. Somehow the creative juices flow better when you’ve cracked open a beer and you’re standing around a whiteboard.

But for a broad range of administrative and other staff between these two extremes, home working works just fine. This may be a temporary benefit for these staff though. Once employers realise that much work can be undertaken by employees at home on a long-term basis, then they might see that there is no reason why those jobs should not be relocated to a lower-cost country.

More interesting from a Transforma Insights perspective is the acceleration of adoption of remote models in manufacturing and operations support. This is not a new concept: for many years Ericsson has run global Network Operations Centre (NOC) facilities in India, supporting networks worldwide. Remote monitoring and maintenance of assets has been a fast-growing area for some time, for example Signify (formerly Philips Lighting) manage the lighting on bridges in New York from an India-based operations centre. But the pandemic has accelerated these trends, and also extended the reach of such remote techniques.

In short, the pandemic has both pushed the boundaries of what could be termed ‘a service’, and also enabled the performance of more services remotely. The ‘services’ part of the economy has just grown, and become more global.

Supply chain diversity and resilience

On the flip side, supply chains for physical goods so far have been relatively unaffected by the pandemic. In the medium term, however, the pandemic is likely to impact supply chains in two main ways. Firstly, companies will place a greater emphasis on diversity of supply chains so that any future market-specific disruptions can be more easily absorbed. Secondly, companies are likely to reassess the risks associated with supply chains that include China as a critical location, although the desire to limit supply chain bottlenecks will not be limited to China by any means. On 24 February 2021, the Biden administration issued an executive order requiring federal agencies to conduct 100-day reviews of supply chains for semiconductors, pharmaceuticals, electric vehicle batteries and critical minerals used in manufacturing products such as cars and weapons, aiming to “get ahead” of any future supply chain problems.

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There is also a wider dynamic that is relevant, which is that as manufacturing processes become increasingly high-tech and automated, so the profile of the manufacturing cost base changes: the proportion of costs associated with machinery increases, whilst the proportion associated with labour falls. And as the labour proportion of costs falls, so it makes less sense to locate manufacturing plants in cheap-labour locations and more sense to locate such facilities nearer to end consumers. This will, however, be a relatively gradual shift: to a great extent the location of production facilities is currently heavily influenced by the location of production of upstream parts and raw materials (often China again). But 2020 may prove to be the point where the direction of travel in global manufacturing changed from being increasing globalisation to increasing near-shoring.

This article is drawn from our “2020 Review of Top Digital Transformation Use Cases and Technologies”, published on 27 January 2021 and available to members of the Transforma Insights User Group, a new member community, connecting business leaders who spearhead digital transformation strategies and enterprise change management.

This blog post was originally published as an article in The Evolving Enterprise.

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