The report stated that the COVID-19 pandemic had caused significant disruptions to supply chains in the APEC region and underscored the need for governments to consider strategies for greater resilience, according to a release issued by the APEC Policy Support Unit and received here on Friday.
"Most of the concerns raised about supply chain resilience have been echoed by the business community, but more can be done to manage resilience at the policy level," Akhmad Bayhaqi, a senior analyst with the APEC Policy Support Unit, stated.
The APEC region has been producing close to 60 percent of the global manufacturing value added (MVA) over the past two decades, spread mainly across four main hubs.
When COVID-19 lockdowns affected these hubs, it led to acute supply chain disruptions. In the initial four months of 2020 alone, the APEC region witnessed a 6.3-percent decrease in exports and a 5.5-percent decrease in imports as compared to 2019.
"Businesses’ attempts to reduce supply chain costs by focusing on lean manufacturing, offshoring, and supplier consolidation seem to have increased the overall global supply chain risk and reduced flexibility," Satvinderjit Kaur Singh, an APEC Policy Support Unit researcher, stated.
"This has led to calls for greater resilience in the aftermath of COVID-19," Singh noted.
However, improving resilience is not an easy or cost-free exercise, according to the report. Global supply chains were created on the basis of business linkages that would offer the most cost-efficient outcome, so that businesses can position themselves competitively in the global markets.
The recent disruptions have brought forward the difficult conundrum for businesses in choosing between efficiency and greater resilience.
"While the concepts of relocation and reshoring were widely considered in the earlier part of the pandemic, it comes with higher production costs and hurts the long-term global outlook," Singh explained.
Meanwhile, Bayhaqi emphasized the need for investments in order to build more resilient supply chains.
"Improving just-in-time manufacturing, combined with the right technology and other strategies, such as creating cushions in the form of inventory, capacity, or lead times and designing contingency plans for possible supply chain shocks can boost resiliency," he remarked.
Hence, the report calls for governments to avoid policy interventions that may disrupt the efficient configuration of global value chains. Rather than looking at trade as the root cause of the supply chain’s vulnerability, the report suggests policymakers to look at global trade as part of the solution to achieving resilience.
"Governments can focus on promoting digitalization and supply chain visibility and by enhancing regional cooperation on trade, connectivity, and economic openness," Bayhaqi stated.
"Customs operations and cooperation can be improved by applying automation and digitization through platforms, such as the Single Window System," he noted.
Governments should leverage knowledge transfers and productivity spillovers gained from global value chains for local firms and support them in maintaining the skills and know-how that they have acquired from their supply chain networks.
Structural reforms could also play a crucial role in developing a stable and predictable regulatory environment that enables global value chains to operate and recalibrate their network structures during recovery from a pandemic.
"There is no easy fix for supply chain disruptions. The focus for economies today is to build long-lasting resilience by looking at their supply chains more holistically, harmonizing regulation, digitizing processes, and creating some level of redundancy to allow flexibility," remarked Rebecca Sta Maria, APEC Secretariat’s executive director.
"The important thing moving forward is to ensure that stronger trust in trading partners and deeper regional integration, by involving micro, small and medium enterprises, form an integral part of APEC’s strategy toward a resilient and inclusive economic recovery," Sta Maria concluded.
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