How pandemic-related supply chain constraints changed industrial operations

With travel restrictions, closed factories and social-distancing measures in place for much of the year, 2020 was particularly challenging for industrial companies around the world. However, despite such constraints, many countries were able to successfully repurpose production to meet needs associated with the Covid-19 pandemic, while others look set to benefit from shifting trends in global supply chains.

Early Challenges

Industry was affected from the moment Covid-19 began spreading across China, which is the world’s largest industrial producer and was responsible for around 28% of global pre-crisis manufacturing output. The closure of factories across the Asian country had a dramatic impact on supply chains and industrial activity worldwide. With China producing many parts and processed goods necessary for manufacturing elsewhere, the halt in production had a ripple effect that led to widespread supply constraints. These early challenges were exacerbated when other countries were subsequently forced to cease production as the virus reached their borders.

In parallel to this, the reduction of overall economic activity as a result of lockdowns, travel restrictions and curfews meant that demand dropped rapidly in many industrial segments. In a survey of manufacturers in Asia released by McKinsey in June 2020, a shortage of materials was cited as the main factor disrupting operations (45%), followed by a drop in demand (41%) and labour constraints (30%).

The primary challenges associated with the pandemic often differed by segment. Automotive manufacturers were affected by material shortages, while those producing consumer goods such as apparel, fashion and skincare suffered from a fall in demand. Moreover, some segments witnessed far more significant losses than others. While companies producing medical supplies performed well during the pandemic, those focused on the manufacture of aircraft and aviation parts were among the hardest hit.

Repurposing Operations

Despite disruptions to industrial production, a number of countries were able to repurpose or expand their industrial capacity to assist in the virus response. For example, in the early stages of the outbreak many of Tunisia’s 1600 textile companies contributed to meeting the country’s need for medical supplies; Tunisian medical equipment manufacturer Consomed operated double shifts in March and April 2020 to produce 50,000 face masks per day. Meanwhile, many companies in Kenya converted their operations to assist national health efforts, one example being the partnership between Haco Industries – a fast-moving consumer goods producer – and East African Breweries, which joined forces to produce hand sanitiser for free distribution.

Elsewhere, some countries were able to expand production of health-related products to a level that allowed them to export their goods. Vietnam took advantage of its successful containment of the virus to boost production of personal protective equipment. This allowed the country to donate medical supplies to Europe and other Asian countries. With 40 firms producing 7m fabric masks a day – and capacity for an additional 5.7m surgical masks – by mid-April 2020 the country had donated 550,000 masks to France, Germany, Italy, Spain and the UK, along with a further 390,000 to Cambodia and 340,000 to Laos. Furthermore, US company DuPont sold 450,000 Vietnam-made hazmat suits to the US government in the first half of 2020.

Global Shifts

The disruptions to industrial production, transportation and logistics caused by the pandemic resulted in governments and private companies reassessing their supply chains and domestic industrial capacity, as well as their vulnerability to international crises and rapid changes in supply and demand. This has led to what is expected to be lasting structural shifts in global industry.

A number of countries have sought to bolster local processing capacity as part of a strategy aimed at developing greater self-sufficiency. In OBG’s Africa CEO Survey released in May 2020, 66% of respondents said that the crisis was either likely or very likely to boost industry and manufacturing in their respective countries, compared to 33% answering the same in the Middle East. Meanwhile, 43.5% of CEOs in Latin America said they were likely to relocate their supply chains locally in response to Covid-19.

Furthermore, some international companies have sought to diversify their supply chains or move offshore production closer to home in strategies known as China+1 and nearshoring. In the case of China+1, companies seek to diversify production capacity by setting up factory lines in other countries while maintaining significant operations in China.

Emerging Asia

While this reassessment has been under way for a number of years, the challenges stemming from the pandemic have accelerated the debate around the importance of such an operational relocation. With low labour costs, supportive government policies and well-established industrial sectors, a number of countries in South-east Asia have emerged as natural contenders in this space.

In particular, Vietnam has absorbed much of the manufacturing capacity that China lost over this period. The country has signed a raft of trade deals – including being a major supporter of the Regional Comprehensive Economic Partnership – and invested significantly in industrial infrastructure over the past decade. An additional consideration is that labour costs are around 50% less than in China. This has led to growth in labour-intensive industries such as textiles and apparel, as well as more advanced industries, such as electronics. In May 2020 regional media reported that US tech giant Apple planned to shift around 30% of production of its AirPods from China to Vietnam. This was followed by a report from international media in November of that year that plans were also in motion to relocate iPad and MacBook production to the country. Vietnam is not the only beneficiary of Apple’s diversifying shift: in March 2021 the company indicated it would move 10% of its iPhone 12 production from China to India.


Moreover, some multinationals are employing the strategy of nearshoring, whereby production is shifted closer to a company’s headquarters or target market. Countries in North Africa are likely to be among the options for firms focused on the European market. For companies exporting to the US, Mexico – with its well-established industrial sector and skilled labour force – is an attractive destination, particularly since the signing of the new US-Mexico-Canada Agreement in January 2020. “International companies already active in Mexico who are looking to relocate some or all of their manufacturing bases away from China could benefit Mexico substantially, given that the country offers a sustainable local supply at only a marginally higher cost initially,” Martin Toscano, managing director of Evonik México, told OBG.

Digital Solutions

In addition to changes in the geographical spread of manufacturing, the pandemic looks likely to usher in changes to the nature of industrial production. In particular, there will likely be an increased focus on digital solutions and high-tech manufacturing as the transition to Fourth Industrial Revolution gathers pace. This will include greater use of innovations such as artificial intelligence, virtual and augmented reality, automation and the internet of things. The Sharjah Research, Technology and Innovation Park, for example, offers advanced 3D-printing capabilities, which is helping to position the emirate as a global industry leader.

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