Dec. 14, 2021
Global supply chains aren’t going away
As concerns grow over widespread manufacturing disruptions, clogged ports and empty store shelves, so too predictions grow about the impending demise of the global value chain (GVC). The pandemic has taken a huge toll on how the world produces and ships goods and an increasing number of business and academic papers are suggesting radical change is coming to how GVCs are organized.
But Dr. Liena Kano, PhD, suggests the global system is here to stay and rather than radical change there will be “nuanced adaptations.” In Global Value Chain Resilience: Understanding the Impact of Managerial Governance Adaptations, Kano, an associate professor in strategy and global management at the Haskayne School of Business, argues the global supply chain isn’t going anywhere in the near future, and lessons from the pandemic will make it more resilient.
“We're not going to see universal demise of global value chains because, in many cases, that would be impractical and inefficient,” says Kano. “In some industries it's just not possible to relocate activities and transform global value chains from global or regional to national, simply because it's too costly. And even if governments mandate the change, the question arises as to who's going to pay for that.”
Kano and her colleagues, Dr. Rajneesh Narula, PhD of the University of Reading and Dr. Irina Surdu, PhD, of the University of Warwick, argue supply chains will see marginal rather than fundamental changes. “What we're going to see for certain is that managers are going to make changes that are within their control,” says Kano. “A lot of these issues can be addressed at the firm and manager’s level through changes in strategy, management tools and governance.”
How firms are adapting to supply chain issues
The paper identifies barriers and disruption-related governance issues that firms face with GVCs and discusses several different forms of “managerial governance adaptations” that many firms have already starting using to cope with supply chain issues.
First, lead firms—those that govern the global value chain—will invest more in predictive analytics. “We already know, through the pandemic, that firms that have this kind of predictive analytical capacity were able to quickly predict disruptions and reroute their supply chains to get the goods to the final consumers in a hurry,” says Kano.
Firms are also undergoing what the researchers call “entrepreneurial retooling” to adapt management practices to cope with the fragility of global value chains. For example, clothing manufacturers repurposing their production lines to produce PPE, gyms and yoga studios offering online classes or grocery stores and restaurants merging supply chains to reduce food spoilage.
Further, firms are examining their business relationships and redesigning contracts. “We think that there may be more equity contracting and greater emphasis on relationships,” says Kano. “We saw it during the pandemic, because companies that had strong relationships with suppliers suffered less because suppliers prioritized those partners when they had a shortage of supply.”
Companies are also engaging in “supplier upgrading,” wherein lead firms invest in technology for their suppliers and provide training. “This secures commitment,” she says, “because suppliers will be more capable to handle disruptions and deliver on commitments when times are hard.”
Lessons from the pandemic
These adaptations in management practices will enhance GVCs’ long-term resilience, she says. While companies reacted quickly to the pandemic, as the shock wears off, they’ll begin to restructure and evolve GVCs based on long term corporate strategy.
“Lessons learned from responding to the pandemic can help managers enhance their efficiency and resilience and how to be prepared for future disruptions,” she says. “Whatever challenges are going to be in our way are probably going to be solved through investment in sophisticated technology and through relationships and entrepreneurial savvy.”
And collaboration. She points to the large-scale global collaborations between governments, scientists, pharmaceutical companies, and suppliers that led to vaccines for Covid-19. “One opportunity I really hope managers will capitalize on is collaboration.”