The GVC Narratives and Trade winds - A reset
GVC or Global Value Chains is like the world wide web of trade flows. Interconnections between countries and regions, their roles and repertoire in global trade can be explained using GVCs as a map. And by viewing shifts in GVC interconnections over the past three decades in the light of current global, regional, national narratives of growth and development, trade agreements and disagreements, emergence of strategic initiatives and supply chain predicaments we are able to develop scenarios which could predict which way the trade winds will blow and what could preparations look like.
Global Value Chains (GVCs) underpins global trade and supply chain decisions and dilemmas. The concepts of ‘globalization’ and ‘industrialization’ as a pivot of economic growth and shared prosperity for all formed the basis of re-organizing trade and development under global institutions like the World Trade Organization (1995), the International Monetary Fund (1944-45), the World Bank (1944-45), and in particular UNIDO (1966) which focuses on turning industrialization into a ‘force for achieving greatness’ by developing nations emerging from decolonization.
Reconstructing a conflict-free post-war world on the tenets of dialogue, diplomacy and good faith held us in good stead. But the global development agenda, goals, frameworks and commitments are called to question from time to time, as it was between 1996-2000, leading to the Millennium Development Goals (MDGs) and subsequently once again in 2016 -18 (Post-2015 Development Agenda) which birthed the United Nations Sustainable Development Goals (UNSDGs). However, COVID-19 pinched the GVC map in way which made the interconnections surface unlike ever before, accelerated certain resets in the global, regional and national view on the role and participation of countries impacting the supply chain challenges during the crisis.
How the GVC shapes up in the future would directly and indirectly impact trade winds and therefore supply chain prerogatives throughout the world.
The Global Value Chain Development Report, 2021, Global Trade and Value Chains during the Pandemic, 2022, The New Face of Tradeand Global Value Chains in Light of Covid-19: Trade Development & Climate Change are key resources which reinforce our faith in the role of GVCs in achieving the global & national agenda despite signs of resets.
Some of the key resets are:
1. Changing intra-regional and inter-regional dynamics:
Intra-regional trade share of Asia (with PRC) has grown significantly higher (from 5.8% in 1990 to 26.6% in 2020) while Asia’s share of regional trade with North America and the EU+UK dropped to 12.6% and 10.7% by 2020 from 24.8% and 17.6% respectively. India’s success with its bilateral trade agreement initiatives and engagements within the ASEAN region under the Act East Policy are an indication of deepening intra-regional trade much further.
Source: ADB calculations using data from International Monetary Fund. Direction of Trade Statistics.
2. Emergence of two new manufacturing hubs with greater resilience in the face of crisis:
Asia has consistently shown greater resilience against global financial shocks, stronger economic rebound from the COVID-19 crisis as well as the confidence in managing crisis. Two names featured strongly during the COVID crisis – India & Vietnam. India particularly, known as the ‘Pharmacy of the World’ is fast emerging as a Medical Tourism destination (ranked 10th among the top 46 nations), with strong R&D capability as indicated by its development of indigenous Vaccine within extremely stressful timelines and taking it a notch further by timely distributing aid globally amid lockdowns. Emergence of India as a Global Manufacturing Hub (India ranked 2nd, surpassing the US in the Global Manufacturing Index 2021 report) amid the ongoing the national narrative and policy measures supporting India’s ambition to contribute more than $500 billion a year to the global economy by 2030 is a strong lead to the shape of the supply chain future. Vietnam on the other hand was applauded by the world during the first wave for its efficient management of the contagion. Vietnam is also emerging as a new manufacturing hub while its logistics sector contributing 2.5 percent to the GDP, is already among the fastest growing sectors.
3. Emergence of new international, regional, national ‘Standards’:
Diversification of inputs and substitutability calls for standardization to decide the fragments (of trade connections) and information symmetry or asymmetry with growth in the geographical length of GVCs. 5G rollout, for example has big implications on the status quo, seamless trade flows as well as supply chain predicaments. Intra-regional and inter-regional tie-ups like the QUAD are an important factor which will influence GVC intensive industries like Electronics, Automotive, Medical Equipment in the near future.
4. Climate change call-for-action across industries, ESG inclusion in brand narratives and business choices:
We would probably look back at 2022 as a turning point in the GVC roles and ramifications depending on how far is the brand narrative from real business action on ESGs. Energy equation in consumption and developmental roadmaps are key to board the recovery and rebound bandwagon. The movement of people, products and investments are greatly influenced by the action on ESGs globally – also an imperative in designing resilient supply chains.
The above resets are not all. And yes, it is complex and dynamic. But it is not complicated if one refers to the GVC as a map of movements that were, could be and/or would be.
This is a version of the article published in the July 2022 Issue of Supply Chain Tribe Magazine.