Pandemic set to regionalize international trade
St.Gallen – The coronavirus pandemic is hardly likely to diminish the appeal of highly coordinated supply chains to avoid large stock volumes. This conclusion has been reached by a study conducted by the University of St.Gallen. International trade could, however, become more distinctly regionalized.
Frank Pisch, Assistant Professor of Economics at the Swiss Institute for International Economics and Applied Economic Research (SIAW) at the University of St.Gallen (HSG), has been looking into the anticipated changes to the international trade landscape as we move into a post-coronavirus society. For this, the scientist analyzed data from French industrial companies covering the period from 1997 until 2006, HSG states in an article relating to Pisch’s study. To this end, data from companies with traditional supply chains was compared against that obtained from companies operating under what are known as just-in-time (JIT) supply chains. In the case of the latter, HSG explains how: “Suppliers and customers along the value chain coordinate in such a way that any finished intermediate or final goods are immediately collected and processed further, rather than put on stock”.
Crises such as those triggered by the coronavirus pandemic increase the sense of uncertainty for companies, the article explains further. The research conducted by Pisch indicates in this regard that “all supply networks, regardless of their organizational structure or management, will see an increase in inventory holdings to cushion future blows”. However, Pisch additionally explains that this development is not expected to cause JIT supply chains to recede.
Among other things, Pisch states that this because the costs of managing additional inventory for companies with JIT supply chains are lower than for traditional companies. Due to a “complementarity between spatial proximity of business partners and JIT supply chain management”, international trade could experience “a push towards more regionalization”, according to the HSG article.