showCASE 108: Global Value Chains Reconfigured: Risks and Opportunities of the COVID-19 Networks Disruptions
In this issue of showCASE, we analyse the COVID-19-induced Global Value Chains (GVCs) disruptions and discuss related risks and opportunities. While the outbreak of the pandemic fueled debates on the relevance of vulnerabilities of the current GVCs, the available estimations and country examples suggest that benefits from globalised trade and production networks offset the potential risks.
At the same time, the growing global uncertainty provides a perfect context for a timely and much needed reconfiguration of the existent GVCs and related regulatory frameworks.
Written by Kateryna Karunska
The recent decades of globalisation and ever-growing international trade resulted in unprecedented integration and interdependency of the local and global production networks. Specifically, with trade-in, intermediate goods and services accounting for about 70% of total international trade, Global Value Chains (GVCs) play a crucial role in global growth and the ‘catching-up’ process of developing countries. Yet, while GVCs provide many opportunities for companies and small and medium-sized enterprises (SMEs), in particular, they remain highly concentrated and largely embedded within multinational enterprises which account for more than 30% of the global production. While beneficial at normal times, such a degree of interdependence creates risks of deep economic implications for companies operating within GVCs and, by cascade, for the economy as a whole. Indeed, the history of extreme weather events provides examples of rapid and profound economic disruptions of the supply chain linkages. Thus, while the 2010 flood in Pakistan has largely affected local cotton and textiles production, the effects of the 2011 flood in Thailand were felt well beyond the national borders, affecting tech companies in the United States and Japan.
The outbreak of the COVID-19 has further boosted debates on the relevance and intrinsic vulnerability of the GVCs. Thus, some argue that GVCs’ mechanisms contributed significantly to the transmission of economic shocks and proliferation of the crisis from local industrial production drop in a number of Chinese provinces first-hit by the pandemic to the vast majority of advanced and emerging economies worldwide. Further, the supply of essential goods (including food and medical supply) has been impaired by the high concentration of production in China and, largely, the rapid expansion of demand. In this light, prior reshoring of production would have provided insulation and allowed to cushion the negative effects of the global trade disruption.