Global Supply Chain Restructuring Due to COVID-19: "Prepare for De-Chinaization and Self-Reliance"

Industrial Research Institute: "COVID-19 Accelerates Supply Chain and Production Base Restructuring"
"Major Industry Exports Expected to Decline 2-5%P... Must Prevent Bankruptcies"
"Infrastructure Investment for Domestic U-Turn Companies... Improve Regulations for Contactless Industries"

[Image source=Yonhap News]

[Asia Economy Reporter Kim Bo-kyung] It is anticipated that the novel coronavirus infection (COVID-19) will serve as a catalyst for restructuring global supply chains and production bases in the manufacturing sector.

The Korea Institute for Industrial Economics and Trade (KIET) announced this in a report titled "The Impact of COVID-19 on Global Manufacturing Supply Chains and Countermeasures" released on the 30th.

In the report, KIET predicted, "To avoid uncertainties in the expanded global network, changes in the structure of global supply chains will accelerate even after COVID-19 stabilizes."

While market accessibility and cost reduction have been the primary decision factors in establishing global supply chains and locating production bases, biological factors caused by infectious diseases and potential mobility restrictions are expected to emerge as new factors going forward.

Recognizing the need to diversify global supply chains concentrated in specific countries, the report forecasted that the New Southern regions such as Vietnam, Malaysia, and Indonesia will emerge as new frontiers in the expansion of the global value chain, coinciding with the trend of de-Chinaization.

It also anticipated that COVID-19 will promote supply chain self-reliance and the establishment of domestic industrial ecosystems, while encouraging reshoring of manufacturing production due to digital transformation and production intelligence.

[Image source=Yonhap News]

Furthermore, it expressed concerns that if the global demand contraction caused by COVID-19 continues to reduce domestic and overseas production and sales in key industries, it could lead to worsening corporate liquidity and credit crunch risks.

The institute stated, "If the impact of COVID-19 persists until the first half of the year, exports of major industries are expected to decline by 2 to 5 percentage points compared to a scenario without the shock, with exports of automobiles, shipbuilding, and petrochemicals expected to decrease by more than 5 percentage points."

By item, general machinery is facing additional costs due to delivery delays, and petroleum and refining industries are experiencing rapid profit deterioration due to inventory valuation losses.

Automobiles, steel, petrochemicals, and displays have also seen performance declines due to decreased sales and falling product prices, and semiconductors are unlikely to escape the effects of the global economic downturn.

Accordingly, the institute advised, "It is necessary to review our manufacturing global supply chains and find countermeasures to gain a competitive edge after the pandemic."

To minimize damage to the industrial ecosystem, it emphasized the need for ▲ prevention of insolvency through financial and tax support ▲ active creation of domestic demand ▲ expedited customs clearance and overseas marketing support.

It also suggested securing domestic supply capabilities through new manufacturing linked to smart manufacturing and industrial intelligence, as well as promoting infrastructure investment to support the domestic return of manufacturing plants.

Finally, the institute highlighted the importance of improving related regulations such as supporting entry into online markets and activating remote medical services, given the expected growth of non-face-to-face business after COVID-19.

This content was produced with the assistance of AI translation services.