Coronavirus and its Impact on Global Supply Chains

Despite measures to contain the coronavirus epidemic, its impact on global supply chains may be catastrophic.

The deadly COVID-19 Novel Coronavirus epidemic has killed thousands of people worldwide. Despite measures to contain the virus, its impact on global supply chains may be catastrophic. As a manufacturing superpower, China exports valuable goods that many countries depend on. Due to its quarantines and labour shortages, the country’s logistics lack their usual precision. As a result, countries that rely on China’s resources now lie at the mercy of the coronavirus epidemic and every supply chain it touches. 

Tourism and Retail

Quarantines and labour shortages have left China’s busiest streets comparably deserted. As a result, retail businesses are suffering a loss in revenue. According to CNBC, the epidemic will continue to prolong factories from restoring regular production levels.1

“The extended shutdown in China due to the coronavirus outbreak brought the economic giant to a virtual standstill, as factories struggle to get back on their feet and consumers stop traveling, shopping or eating out…progress on the return to work has been slow, analysts say. Even after workers come back they must follow quarantine orders, limiting production at factories.”

Major retailers such as Lululemon depend on China to provide a high percentage of their international sales. However, the retailer closed the majority of its stores in China in early February to help lower the dent in its yearly revenue.2

Other retailers will experience a loss of profit because the tourism industry’s sales have also decreased. Many of them rely on international tourism because it helps raise their bottom line. Foreigners rely on China for its online sales. One of these is Alibaba3, a leading online B2B marketplace that attracts consumers across the globe. China’s traffic restrictions and logistics roadblocks are inevitably lowering the shipment of these profitable goods to customers. 

Pharmaceuticals

China is one of the biggest pharmaceutical providers in the world. However, its dwindling supply chain means it may become difficult for other parts of the world to attain important life saving medications.

“Experts say the market for generic drugs may be the one to watch because it has tight margins and is key to American health care. Ninety percent of prescriptions dispensed in the United States are generics and the US buys a wide range of Chinese-made generic drugs, including antibiotics, birth control pills, cancer treatments, medicine to fight HIV/AIDS and diabetes, and drugs for Parkinson’s disease, among others.”4

India is another of the largest drug exporters but relies on China for roughly 70% of the raw pharmaceutical ingredients that are used to create medications.4 Unfortunately, the dependence on China for raw materials like pharmaceuticals makes countries particularly vulnerable because “If your company, or its key suppliers, carries limited raw material inventory and relies heavily on Asian sources of supply, you are at high risk of disruption.”5

According to FDA commissioner Dr. Stephen Hahn: “FDA is keenly aware that the outbreak will likely affect the medical product supply chain, including potential disruptions to suppliers [and] shortages of critical medical products in the US.”4

China’s weakened logistics can obstruct the adequate export of raw materials. Given the supply and demand imbalance, drug prices will likely rise and countries may suffer from a shortage of important medicines. As a result, hospitals might operate above capacity as more people will fall ill from pre-existing conditions. Overall, the coronavirus epidemic impairs pharmaceutical supply chains.  Thiscan prevent people from accessing the drugs in the consistent treatment regime that keeps them alive and healthy.  

Tech

Much of the world’s technology is manufactured in China. This includes video games, computers, smartphones and more. Apple has already considered how the coronavirus epidemic may influence its business results. According to the BBC, “the iPhone maker is the first major US company to say that the epidemic will hit its finances.”6

It is also important to note that, because China is also the biggest market for smartphones, analysts have estimated that the coronavirus may decrease the demand for smartphones by 50 percent in the country’s first quarter.6

The repercussions of product shortages may be devastating for companies that rely on the digital ecosystems that brands like Apple and Samsung include in their operating systems. Many companies depend on these ecosystems to organize and distribute important business data. Many of China’s smartphone and computer parts are used to refurbish malfunctioning technology. 

The COVID-19 Novel Coronavirus epidemic brings into question any long term impacts it may have on people, countries and industries worldwide. As a major exporter of valuable goods, dependent countries must work with China to keep supply chains moving. Even after the coronavirus danger is gone, China’s renewal of its supply chains and factories could pose further economic challenges.

Assuming that China will need to rebuild its economy, dependent countries could face even longer waiting periods to restore their usual shipments. Supply chain expert Opher Baron “believes that the growth of China’s own domestic market could create an additional backlog for international customers, as much of the post-coronavirus production might first go to Chinese consumers before being shipped internationally.”7

 In the Financial Post he adds, “This (coronavirus) is a very significant problem. Think about it: one-third of the world’s manufacturing capacity was idling for weeks and is still idling. That’s a big deal.”7

 

Citations 
1 Tan, Weizhen. “Here Are the Chinese Industries Likely to Be Hit Hardest by the Coronavirus Outbreak.” CNBC, February 20, 2020. https://www.cnbc.com/2020/02/20/here-are-the-chinese-industries-likely-to-be-hit-hardest-by-coronavirus.html.
2 Wassell, Bryan. “Coronavirus Update: Tourism, Supply Chain Impacts Will Soon Make Their Mark On Retail.” Retail TouchPoints, February 26, 2020. https://retailtouchpoints.com/topics/supply-chain-sourcing/coronavirus-update-tourism-supply-chain-impacts-will-soon-make-their-mark-on-retail.
3 “Find Quality Manufacturers, Suppliers, Exporters, Importers, Buyers, Wholesalers, Products and Trade Leads from Our Award-Winning International Trade Site. Import & Export on Alibaba.com.” Alibaba, n.d. https://www.alibaba.com.
4 Christensen, Jen. “Coronavirus Outbreak in China Could Lead to ‘Critical’ Shortages of Medical Products in the US.” CNN, February 26, 2020. https://www.cnn.com/2020/02/25/health/coronavirus-fda-drug-supply/index.html.
5 “Impact of the Coronavirus on the Global Supply Chain.” MH&L, February 14, 2020. https://www.mhlnews.com/global-supply-chain/article/21122993/impact-of-the-coronavirus-on-global-supply-chain.
6 “Apple Warns Coronavirus Will Hurt iPhone Supplies.” BBC, February 17, 2020. https://www.bbc.com/news/business-51539322.
7 Subramaniam, Vanmala. “How the Coronavirus Could Wreak Havoc on the Global Supply Chain.” Financial Post, February 27, 2020. https://business.financialpost.com/news/economy/how-the-coronavirus-could-wreak-havoc-on-the-global-supply-chain.

 

2020-03-03T10:37:01-08:00March 3rd, 2020|