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Politics and supply chains collide as the trend towards localization is accelerated by COVID-19
Published in The Saudi Gazette on 22 - 09 - 2020

Supply chains around the world are being reshaped — not just by the pandemic but also by the political landscapes in different regions, according to PwC experts. Many of the world's global supply chains saw extreme disruption through the pandemic, furthering the case for nationalism and bolstering calls to develop more regional and local capabilities.
These are some of the key findings from the virtual panel session involving leading experts at PwC from across the world at the Global Manufacturing and Industrialization Summit's #GMIS2020 Digital Series. A core theme throughout the conversation was the many ways in which politics intersects with supply chain management.
Dr. Bashar El-Jawhari, partner and leader of Industry 4.0, procurement and supply chain, PwC Middle East highlighted the importance of a steady supply of critical goods and services for sustenance.
"The pandemic has shown that while there have been localization programs in place, it has been mostly driven by the energy sector.
"When it came to healthcare, as an example, they discovered that there was a shortage in pharmaceuticals, protective gear and some of the other critical elements within healthcare. The third point that became critically important in the region is food security."
He highlights how the availability food and critical goods was the key concern and said: "That's why they started thinking a little differently on how they can diversify their sources, and how to speed up the digital applications for better forecasting and scenario testing and so on."
Domestic elections are shaped by how the public in different nations view the opportunities and challenges of globalisation and glocalization, while international relations also play a fundamental role. Cara Haffey, partner and leader of manufacturing and automotive, PwC UK, said: "In the UK, our industrial manufacturing companies had the added benefit as COVID-19 hit that they had spent the previous year looking at their supply chains, because of the impending Brexit.
"Some of my clients understood their supply chain to a level that they hadn't previously. At the height of the pandemic in the UK, there was a lot of talk about going back to local yet some of the manufacturing associations were cautioning that it takes a long time to change your supply chain. It's generally not something that you can suddenly change overnight."
Brett Cayot, partner, strategy & operations, PwC US, highlighted the impact of increased costs in both labour and logistics. He said: "One of the solutions might be manufacturing or having your suppliers closer to the point of use.
"In the US, we envision more moves into areas like Mexico or dual strategies in the US and Mexico or Mexico and another low-cost country in Asia. Labor rates have gone up, and logistics costs are higher than anybody ever imagined.
"Duties are a big factor as well. People are starting to think more about other factors that aren't in the total cost model, looking at resiliency and flexibility, and figuring out how to provide a better customer experience."
Dr. Michael Wagner, partner and leader of PwC's Fit for Growth transformation platform in EMEA, Strategy& Germany, part of the PwC network, said that in Germany COVID-19 had exposed insufficient resiliency in industrial supply chains.
While he does not foresee a rollback in globalization, he believes that for German companies, it is the right time to balance efficiency and scale with flexibility and robustness.
He said: "We are seeing a transition to localization; a shift to a far more flexible global manufacturing footprint with global planning. We are expecting that physical value chains will become more localised within a regional setup.
"We believe it goes beyond the location. What we are seeing in Germany is that many industrial companies will deploy multi-sourcing strategies to move towards a more flexible supplier footprint, and will maintain or even accelerate investments in digital technologies."
Shashank Tripathi, partner, government strategy & transformation leader and leader of aerospace & defense practice, PwC India, said: "While India may not be a big manufacturing power, we have a fairly strong point of view on digital; we are known as a digital nation.
"India is a large democracy reshaping its own image for the Western and Eastern worlds, which is an important element for anyone looking at global supply chain rearrangements. As a deep and wide nation, there's also hyper-local supply chains that are coming along."
Jan Nicholas, partner and leader of operations consulting team, PwC Hong Kong, said: "There are a lot of companies that see China as an attractive market. When we think about globalization, a piece of that is, how do we balance the needs of two major superpowers, who have different views on how they might interact, without offending either party.
The panel, titled ‘The Journey from Globalization to Glocalization', was moderated by Dr. Bashar El-Jawhari, partner and leader of Industry 4.0, procurement and supply chain, PwC Middle East, and brought together some of PwC's leading experts from around the world to discuss the increasing shift to ‘glocalization' on a national scale brought on by COVID-19, and its impact on operations and supply chains.
The panel offered detailed views on different regional approaches and drivers used to forge a path to success amid this shift. Dr. Jawhari, was joined by Haffey, Cayot, Nicholas, Tripathi, and Dr. Wagner.
The virtual panel discussion is the first in a new sequence of weekly sessions of the #GMIS2020 Digital Series that commenced Tuesday, following the Virtual Summit that was held on Sept. 4-5, 2020. — SG

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