How supply chains are shifting from global to local

Vaccine shortages in different parts of the world are a stark reminder of how global supply chains have been hit by the COVID-19 pandemic and…

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Suren Naidoo

May 5, 20214 minute read

Vaccine shortages in different parts of the world are a stark reminder of how global supply chains have been hit by the COVID-19 pandemic and how serious such disruptions can be.

While first-world countries, such as the US and UK, have vaccinated large parts of their populations, emerging market countries, such as South Africa, haven’t even started vaccinating the most vulnerable and critical people yet.

India’s experience is a particularly cruel example of this disparity. India’s Serum Institute is the world’s largest vaccine manufacturer. It produces more than 1.5 billion doses of all kinds of vaccines that are sold globally every year. Yet as daily new COVID-19 cases hit 400,000 in early May, and with India’s health system at a breaking point, the Serum Institute’s CEO warned that the COVID-19 vaccine shortage in the country will continue for months.

At a business level, more than 80 percent of organizations reported that their supply chains have been negatively affected by the pandemic, according to a study released by the Capgemini Research Institute last November. These challenges include shortages of parts and materials, delayed shipments and longer lead times, and difficulties in adjusting production capacity to meet fluctuating demands.

Another recent, high-profile example is the global shortage in semiconductors, fueled by both an increase in demand for electronics during the pandemic, and issues in the supply chain.

From global to local

Given this disruption, it’s no surprise that many organizations are rethinking their global supply chains to increase both resilience and flexibility in a post-COVID-19 world. Logistically, organizations are looking at different ways to do this.

One trend is the move toward more local and regional supply chains, with production and skills located closer to the customer. In fact, the same Capgemini study found that almost two-thirds of organizations are now actively investing in localizing or regionalizing their supplier and manufacturing base to be closer to their customers.

For the emerging markets in Africa, Eastern Europe and the Middle East, this presents an opportunity. While such markets have been used in recent years as an offshore resource for low-cost skills and production to fulfill first-world market demand, the pandemic has leveled the playing field. This opens the door for these emerging markets to drive their own advancement and economic growth through digital transformation and innovation.

I talked in a previous blog about the necessity and opportunity that has driven some amazing innovation in emerging markets during the pandemic. This trend isn’t a mere blip. Talent is now everywhere. And organizations can use digital and cloud technology to open new opportunities in their own markets in all sorts of creative ways.

One reason for this is that some big US tech and ecommerce giants are not yet present or well-established in many emerging markets. This has left a gap that local entrepreneurs have seized upon. Look at South Africa’s homegrown e-commerce success story, Takealot, which has flourished over the past decade in the absence of Amazon in the country. And there is still also plenty of room in the market for other local companies to compete with Takealot.

In the Middle East, a new, fully independent digital bank in the UAE is set to challenge incumbents. It claims to be the first in the world to offer both retail and corporate banking services.

Investing in local skills

These types of innovation need investment in digital infrastructure and skills in these emerging markets. This means a change in past practices, where governments have sometimes been reluctant to spend money on technology and people. Spending was often focused on infrastructure megaprojects, resource extraction, and low-cost manufacturing and services outsourcing. But I believe that is changing.

There are signs of a commitment to build and develop skills locally in these markets too. One example is in South Africa, where the government plans to bring in Cuban engineers to help with the country’s water infrastructure issues. A key part of this two-year secondment will be for the Cuban engineers to pass on their expertise to the local workforce, allowing South Africa to reduce its reliance on expensive overseas resources in the future.

Of course, it’s a fine line between local investment and protectionism in this new era of regional and local supply chains and skills. But right now, this is being driven by the lessons of the pandemic. By investing locally, you can guarantee your supply chain, your service delivery and execution. In some cases, that might come at the expense of higher manufacturing or staff costs. But in the post-COVID-19 landscape, that is what will provide the resilience needed to survive.

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Suren Naidoo

Suren Naidoo is the Vice President for Pre-sales in the Emerging Markets for OpenText, responsible for pre-sales and business value consulting for the emerging markets. With more than 20 years of experience in senior and executive management enterprise consulting, Suren brings a proven ability to help organizations transform and adapt to the ever-changing market conditions.

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