Fans of Harry Potter movies will remember the Grand Staircase and its constantly moving stairs. Stairs, parted apart to break the existing links and came together to form new ones. Today’s global trade environment resembles the Grand Staircase, and moving stairs are like supply chains — the global trade environment witnesses partition and the formation of new links. However, unlike the Grand Staircase, new connections in international trade are formed not randomly but rather deliberately.
Recently, disruptions took place, causing significant impact. There are many reasons for such a situation:
1. Global trade witnessed a rise in trade tensions. The US and China point fingers, accusing each other of unfair trade practices, protectionism, and economic coercion. Accordingly, they take measures, such as subsidising industries, introducing tariffs, and restricting trade to protect their economic and national securities.
2. The multilateral system is eroding, and the focus is shifting towards a bilateral or multilateral system that involves groups with fewer countries. For instance, the bastion of the multilateral trade system, the World Trade Organization’s (WTO) dispute settlement system, has not been functioning for a long time. Such a situation means the deterioration of rules-based trade relations among countries due to less consideration of WTO’s rules.
3. Climate concerns are increasingly taking centre stage. Countries swing between environment- friendly countries and unfriendly countries with cheap energy.
4. Countries are still struggling with the consequences of the Covid-19 pandemic. Following the Covid-19 pandemic and China’s zero-Covid policies, businesses continue diversifying their supply chains to avoid future shocks.
5. Finally, Brexit, the Russian invasion of Ukraine, the ensuing energy shock, and events such as the US withdrawal from the Trans-Pacific Partnership are the finishing touches shaping the links. All those lead to the reorientation of global supply chains.
In such an environment, developing countries try to benefit most from supply chain reorientation. The industries that are most affected by such change of direction are the tech and big pharma given their cruciality for national and economic security.
The new realities of the world also indicate that there will be no such thing as “being the new China” or, in other words, being a one-stop-shop country for all manufactured goods. The world is moving towards multiple countries as nodes within global supply chains. Those with strategic locations, cheap and abundant labour, and political and economic stability will play a significant role, while those lacking adequate regulations, quality products, and affordable energy will be ignored.
The new realities also risk reinforcing poor labour standards, lax environmental policies, and corrupt practices. Search for cheap labour and energy creates that risk as poor labour standards, flexible ecological guidelines, and unethical approaches lower the prices. However, this situation harms people and the environment in the short and long term. Therefore, this aspect should be considered while reorienting supply chains.
This discussion paper will review the current chain supply reorientation, focusing on the tech and pharmaceutical industries in three countries: Vietnam, India, and Mexico.
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