A post by our new Junior Consultant, Laura Pérez, on COVID-19’s effect on the development of global value chains and the business opportunities that are opening up as a result.
A global value chain is the combination of activities necessary for the production of a good or service that are carried out in different geographical locations – in other words, the fragmentation of the production process.
This fragmentation has been taking shape over the last forty years, while globalization has been developing, since both phenomena are closely related. The ease of communications, the liberalization of trade flows and the improvements of transportation systems have been key factors which have facilitated the development of global value chains (GVC).
Changes due to COVID-19
The pandemic has affected international commerce in many ways, and particularly the development of global value chains. Whereas efficiency used to be the main criterion for companies, security and resilience are now being prioritized and new trends are emerging.
We are seeing a relocation of production activities and a shortening of the global value chains, since relying on geographically distant supplies could entail a greater risk. The temptation of relocating the global value chains totally in national territories to avoid greater difficulties in the production processes is also increasing.
Global value chains are also moving closer together, which could open up opportunities for Africa due to its proximity to Europe, and, likewise, there is a growing trend towards regionalization.
Gedeth Network’s study
According to the study carried out by Gedeth on the effect of COVID-19 on international business, 35% of respondents considered that this crisis could lead to a rupture of supply chains, a concern mainly for associations and the food sector. For 18% of the companies surveyed, COVID-19 presents an opportunity to improve the supply chain, mainly for European companies.
Predictions about global value chains
The supply chain encompasses an entire logistics system, from the supply of raw materials to the distribution and production of goods, and the overall value chain depends on this to a great extent.
Companies and industries have been affected by many changes recently, many of them with immediate effects and conditioned by the evolution of the pandemic. But it is possible that some of these changes will remain in the long term. The tendency towards protectionism is becoming more and more deeply rooted in society and it is feasible that the relocation of production processes is also a trend that is here to stay. Commercial dependence in an environment where security cannot be guaranteed is not at all attractive, regardless of the cost reduction it may provide.
At Gedeth, we specialize in international markets, and we understand how they are changing because of COVID-19. If you want to grow your company or would like more information, contact us.