Global Value Chains and Resilience

Interconnected networks require validation of the data being exchanged — think of digital contracts and signatures that need legal validation, and border and custom processes.

Around 70 percent of international trade today involves global value chains (GVCs). These are made up of domestic and international enterprises that trade and transfer materials, goods and services.

A global value chain (GVC) is the series of stages in the production of a product or service for sale to consumers. Each stage adds value, and at least two stages are in different countries.

Source by WTO GLOBAL VALUE CHAIN DEVELOPMENT REPORT 2019

Regardless of the shape of GVCs, the possibility of fragmenting production across borders gives rise to a finer international division of labor and greater gains from specialization.

Global value chains make it easier for developing countries to move away from export reliance on unprocessed primary products to become exporters of manufactures and services.

GVCs allow resources to flow to their most productive use, not only across countries and sectors, but also within sectors across stages of production.

The international trade system is especially valuable in a GVC world. Because the costs of protection are magnified when goods and services cross borders multiple times, the gains from coordinated reduction of barriers to trade are even larger for GVCs than for standard trade.

Today, however, the international trade system is under tremendous pressure.

The growing symmetry in the economic size of countries is placing in sharp relief the persistent asymmetry in their levels of protection.

Source: Risk, resilience, and rebalancing in global
value chains report 2020 by McKinsey Global Institute

On the other hand building supply chain resilience for the shocks can take many forms beyond relocating production.

Also resilience starts with awareness.Continue with understanding the full range of what can happen and the damage that can result.But not every global value chain is equally susceptible to every kind of threat.

The inverse can be said about related with for the value chain risk. It is what happens when an unforeseen event exploits weaknesses that were there all along.

If we look sector oriented based on geographic footprint, factors of production and expose shocks ;

Source: Risk, resilience, and rebalancing in global
value chains report 2020 by McKinsey Global Institute

Strengthening risk management capabilities and improving transparency in the processes;

building redundancy in supplier and transportation networks; reducing product complexity; creating the capacity to flex production across sites; and improving the financial and operational capacity to respond to shocks and recover quickly from them.

Stress Test Supply chain exposure from Mckinsey Global Institute
Stress Test Supply chain exposure from Mckinsey Global Institute
Source: Risk, resilience, and rebalancing in global
value chains report 2020 by McKinsey Global Institute

Disruptions are costly to societies, too:

after disasters claim lives and damage communities, production shutdowns can cause job losses and goods shortages.

Source: Risk, resilience, and rebalancing in global
value chains report 2020 by McKinsey Global Institute

In addition resilience measures could more than pay off for companies, workers, and broader societies over the long term.

References;

Digital nomad , Data science and computer science, electronic music enthusiast, lifelong learner.