COVID-19 has compounded pressures on global supply chains from trade tensions and rising operating costs and has uncovered a range of supply chain vulnerabilities for multinational companies. However, what companies can actually do about these challenges is more complex than simply reducing dependence on individual countries or reshoring.
COVID-19 is just one more factor that will contribute to the ongoing recalibration of global manufacturing footprints in 2022, as companies try to make supply chains faster, more efficient, and more resilient.
MNCs will continue to feel pressure to localize their businesses across multiple markets: In some cases, this is driven by explicit government pressures; in others, it is by the need to improve their cost competitiveness and speed to market; in still others, localization is a response and way to insulate from tariffs, quotas, or unpredictable currency movements.
Firms should reassess their global manufacturing and distribution footprints in light of significant changes in recent years: The attractiveness of different locations to host regional or global manufacturing, and the shape of the supply chain, needs to be assessed in terms of cost, quality, resilience, and time to market.
Excessive geographic concentration of key suppliers, lack of surge capacity to deal with sudden spikes in demand, insufficient information-sharing and visibility along the chain, and missed automation opportunities that render operations too vulnerable to unexpected labor restrictions have all proven to be major liabilities for businesses globally.
Companies adding production capacity, whether to reduce geographical concentration or to localize production in key markets, will have to deal with higher supply chain costs that they might not be able to pass on to their own prices. This could lead to structurally lower margins unless companies find ways to increase their pricing power, reduce their costs in other areas, or both.
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