Supply Chains
Under Tension
The Impact of COVID-19 on Global Value
Chains and the Relocation of Operations
from and within the Asia-Paciﬁc Region
Financed andsupported by:PartnerForSupplyChains

Published by:Singaporean-German Chamber of Industry and Commerce
Address: 25 International Business Park,#30-105 German Centre, Singapore 609916
Phone: (+65) 6433 5330
Fax: (+65) 6433 5359
Email: Info@sgc.org.sg
Website: www.sgc.org.sg

Robin Hoenig
in liaison with
Kai Dittmann
June 2021

Disclaimer:
While every effort has been made to ensure that the information contained herein is comprehensive and accurate
at the time of publishing, the publisher will not accept any liability for omission and errors. The inclusion of anorganisation/company and information about its programs and services in this publication does not imply
endorsement by the publisher, nor does exclusion indicate lack of endorsement. Opinions expressed do notnecessarily reflect the view of the SGC.

1 Robin Hoenig is the Division Head of the Trade Policy Competence Center at the Singaporean-German Chamber of Industry and Commerce(SGC). In his role, he supports companies and informs the Association of German Chambers of Industry and Commerce (DIHK), the Federal
Ministry for Economic Affairs and Energy (BMWi) and the German Chamber Network in the Asia-Pacific on regional trade policy matters.
Kai Dittmann is a Senior Programme Manager at the Friedrich Ebert Foundation Office for Regional Cooperation in Asia. He coordinates the
Future of Work programme in the Asia-Pacific region, focusing on changing international supply chains, workers’ rights and future trends inthe world of work.

Supply Chains under Tension

Contents
List of abbreviations

2

Foreword

3

About the Singaporean-German Chamber of Industry and Commerce (SGC)

4

About Friedrich-Ebert-Stiftung in Asia

5

Executive summary6

1. Introduction

8

2. Value chain trends in the Asia-Pacific region

9

3. Regional survey: Respondents

13

4. Impact of COVID-19 on value chains

14

Direct impact on GVCs

Trade and investment policy risks

14
15
17
19

5. Resilience of GVCs and risk mitigation

20

Indirect impact on GVCs
Demand impact

The implementation of strategies to ensure supply chain robustness and resilience
Robustness and resilience through the diversification of the supplier network
Robustness and resilience through the diversification of production capabilities

6. Impact of COVID-19 on relocation activities in APAC

21
22
23
24

Ability to relocate operations

24

Current relocation activity during the pandemic

26

The pandemic’s potential to impact future relocation decisions

27

The relative importance of COVID-19 in future relocation decisions

28

7. Long-term relocation beyond COVID-19

31

Relocation from the EU, including Germany, to APAC

31

Relocation within APAC

31

Reshoring and nearshoring from APAC to Germany and Europe

32

8. Global and regional trends: Decoupling, regionalization or globalization?

34

Appendix36

Bibliography

37

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Supply Chains under Tension

List of abbreviations
AANZFTAASEAN-Australia-New Zealand Free Trade Agreement

ACFTA

ASEAN-China Free Trade Agreement

AEC

ASEAN Economic Community

AJECP

ASEAN-Japan Economic Partnership Agreement

AKFTA

ASEAN-South Korea Free Trade Agreement

AIFTA

ASEAN-India Free Trade Agreement

APAC

Asia-Pacific

APIs

Active Pharmaceutical Ingredients

ASEAN

Association of Southeast Asian Nations

COVID-19

Coronavirus Disease

CPTPP

Comprehensive and Progressive Agreement for Transpacific Partnership

GDP

Gross Domestic Product

GVCs

Global Value Chains

ILO

International Labour Organization

KITA

Korea International Trade Association

MNCs

Multinational Companies

RCEP

Regional Comprehensive Economic Partnership

SMEs

Small and Medium-Sized Enterprises

WTO

World Trade Organization

WTO DSB

World Trade Organization Dispute Settlement Body

Supply Chains under Tension

Foreword
The COVID-19 pandemic has had major effects on the dynamic and changing nature of globalization.
The interruption of global supply chains on many levels has stirred up discussions about relocation
trends in Asia and Europe. In an already complex environment of fast-growing economies, shifting
supply chains and trade tensions, the question of whether the pandemic could act as a catalyst forrelocation decisions deserves further investigation.
The Singaporean-German Chamber of Industry and Commerce (SGC) is excited to present
our new study on the effects of the COVID-19 crisis on global supply chains, supported andfunded by the Friedrich-Ebert-Stiftung (FES). We thank Robin Hoenig and Kai Dittmann for thisinsightful and far-reaching survey that provides a unique overview of the pandemic’s impact
and beyond.
The study offers an exceptionally comprehensive data set with responses from hundreds ofcompanies, summarizes existing and planned operational and strategic response measures, andlays the foundation for a more nuanced discussion of the shifts in regional and global value chains.
During public debates over reshoring initiatives, decoupling, protectionist trade policies, public healthmeasures and geoeconomic shifts, it is more important than ever to take a closer look at the effects andfactual developments on the ground.
We are grateful to the 337 companies that took part in this survey. Their expert knowledge and handson, practical experience are the basis of this study. We also express our gratitude to the partner officesof the German Chamber Network in the Asia-Pacific region, who played a vital part in distributing
the questionnaire.

Jens RübbertPresident
SGC

Dr Tim Philippi
Executive Director
SGC

Mirco Günther
Managing Director
FES Office for Regional
Cooperation in Asia3

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Supply Chains under Tension

About the Singaporean-German
Chamber of Industry andCommerce (SGC)The Singaporean-German Chamber of Industry and Commerce (SGC) is part of a network of 140
offices of the German bilateral Chambers of Commerce (AHKs) abroad in 92 countries. AHKs are
institutions of German foreign trade promotion. The Association of German Chambers of Industry
and Commerce e. V. (DIHK) coordinates and continuously develops the network of German Chambersof Commerce Abroad. They are proportionately funded by the Federal Ministry of Economics andEnergy affairs (BMWi).
The SGC is a bilateral chamber and one of the largest national Business Chambers in Singapore
with a membership of about 600 representatives from a variety of industries from Germany andSingapore. The SGC is a valuable and well-established networking platform and well connectedwith authorities in Singapore and Germany. Through its active industry committees SGC gives a
voice to businesses. With its distinct service unit and trade fairs arms - DEinternational and Fairs &More respectively - the SGC builds a primary source for receiving reliable information on the German
and Singapore business environment as well as bilateral trade relations. DEinternational servesclients in their business needs e.g. searching for business partners, organising business missions
and business trips, finding staff members, and providing market analysis. DEinternational works inmany areas such as energy efficiency, water management, Industrie 4.0, smart city development,
research and many more.
In particular, we would like to thank the following German chambers in APAC for supporting
this Project:Supply Chains under Tension

About FriedrichEbert-Stiftung in Asia
The Friedrich-Ebert-Stiftung (FES) is an independent non-profit organization headquartered inGermany. Founded in 1925, FES works to promote social democracy and dialogue, shape theeconomy of tomorrow and enhance cooperation for freedom and security.
In line with this commitment, FES strives to understand the trends of globalization, labour mobility
and regional integration in order to promote change for more social justice, sustainable peace andeconomic development in the Asia-Pacific region and globally.
Being among the leading international think tanks, FES has offices and projects in over 100 countries.
The Singapore-based FES Office for Regional Cooperation in Asia (ORCA) was established in 1969 andcoordinates regional programmes in close collaboration with the FES country offices in the region.
At the crossroad where think tanks, academia and political practitioners meet, FES creates a public
discourse for a just and sustainable economic and social order on national, regional and worldwide
levels.
For more information about the work of FES in Asia, news, briefings and event updates from Kabul to
Manila and from Ulaanbaatar to Jakarta, visit fes.asia.de or follow FES on Twitter.

5

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Supply Chains under Tension

Executive summary
Over the course of 2020 and into 2021, the COVID-19 crisis has significantly disrupted the global economy
and highlighted key vulnerabilities of our complex global production systems. This has sparked national
and international debates around the shifting nature of global value chains (GVCs) and whether companies
should refocus their internationalization strategies.
To better inform the public debate and provide a factual foundation for future discussions, the SingaporeanGerman Chamber of Industry and Commerce, supported by the Friedrich-Ebert-Stiftung Office for Regional
Cooperation in Asia, has undertaken a comprehensive survey to study the pandemic’s impact on supply
chains, business relocation activities and expectations of long-term trends. The 16-question survey
collected responses in December 2020 from 337 companies that are part of the German Chamber Networkin the Asia-Pacific region.

Main findings:▷ Our study finds that, while the overall geoeconomic disruptions are severe, the changes in supply
chains are more nuanced. Short-term direct relocations of production seem less likely in mostindustries. At the same time, we observe sector-specific shifts, especially in supplier networks to andwithin the Asia-Pacific region. A sizable share of respondents expect to witness relocation activities in
the long-term future.
▷ In the long term, the trend expectations vary between different subregions: while companies in
East Asia expect increased globalization, respondents from ASEAN countries expect increased
regionalization. The majority of companies does not anticipate to see sustained decoupling, not least
because of the complexity of global value chains.
▷ The survey results illustrate how the pandemic has undermined companies’ ability to manufacture
and operate. This is most notable in labour-intensive sectors, like manufacturing of textiles andclothing, where half of all companies had to reduce their production.
▷ Across all manufacturing sectors, the pandemic resulted in a decrease in output and, notably,in supply shortages, causing interruptions along different supply chains. Overall, 40 per cent of
manufacturers experienced such delays.
▷ To address supply-chain vulnerabilities, the study finds that most manufacturers are currently inthe process of or are planning to diversify their supplier network. There is a strong link between
manufacturing delays due to shortages in supply and the identified need to diversify networks.
▷ Fewer manufacturers, mostly multinational companies (MNCs), seek to solidify supply-chain resilienceby diversifying their production capabilities. This is particularly observed in the textile and clothing
sector, the chemical industries, and pharmaceutical and medical devices. All three industries have astrong manufacturing footprint in China.
▷ Across different regions, the need to diversify the production base is most prevalent in China
compared to other parts of the Asia-Pacific region and is coherent with the goal of shifting
manufacturing capabilities in these sectors to strengthen supply-chain resilience.

Supply Chains under Tension▷ Regarding nearshoring and reshoring, the study finds that COVID-19 has not caused or augmented
large-scale relocation activities from and within the Asia-Pacific (APAC) region in the year 2020.
Furthermore, as the surveyed companies require, on average, a two-year lead time to move theiroperations out of their host market, short-term shifts are less likely. At the same time, there areexamples for relocation decisions, which we will discuss.
▷ The survey shows that companies generally attach a lower importance to the impact of the corona
crisis relative to other factors that drive relocation, such as economic framework conditions.
▷ Beyond COVID-19, the study identifies two main relocation trends. The first trend is continued
offshoring from Germany and the EU to the APAC region. In particular, financial services and thechemical industries are increasingly expected to gain an even bigger foothold in the region.
▷ The second trend captures relocation activities within Asia. Much of this is expected to centre aroundthe ASEAN economies, suggesting that Southeast Asia will become increasingly important in global
value chains.
▷ In light of these trends, the study also reveals that further globalization and regionalization are
expected to unfold in the years to come. In particular, ASEAN-based respondents anticipate thatvalue chains will become increasingly regional. This is underpinned by regional economic integration
initiatives, such as the ASEAN Economic Community (AEC) and the importance that respondents
assign to free trade agreements such as the Regional Comprehensive Economic Partnership (RCEP).
▷ The data collected identifies an important difference between manufacturers of essential andnon-essential goods. Manufacturers of essential goods expect value chains to become increasingly
regional, while manufacturers of non-essential goods expect further globalization to unfold. The
pandemic has underscored the importance of robust supply chains for critical goods and the need toreduce time-to-market leads. Regionalization allows for the latter and explains why manufacturers ofessential products expect an increasing regionalization of value chains.

7

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Supply Chains under Tension

1. Introduction
Between 2017 and 2018, Bayer invested around 95
million euros into a production plant in Cimanggis
in Indonesia. This plant manufactures health careproducts for 32 countries worldwide, including
for Europe (Jakarta Post, 2019). Likewise, in 2018,the speciality chemicals company Evonik opened
its first research hub in Singapore and thereby
internationalized its research into the areas offunctional surfaces and additive manufacturing(Evonik, 2020). Both examples capture offshoring1,
a relocation trend that has been observed for many
years.
At the same time, we see relocation activities
in the opposite direction: In 2019, Gtech, a UKheadquartered manufacturer of vacuum cleaners,
invested 10 million pounds (12 million euros) in its
plant in Worcestershire to reshore manufacturing
activities previously performed by contractors
in China (Woods, 2018). Sennheiser, a German
manufacturer of headphones and microphones,
enacted a related but different relocation policy
with its nearshoring activity. With plants located inGermany, Ireland and the United States, as well as
outsourced manufacturing in China and Japan, thecompany decided to relocate its operations from
China to Bulgaria by investing 10 million euros into afactory in Ghimbav in 2018 (Bursa, 2018).
These contradictory relocation trends have becomea political talking point in Europe and Asia, and there
is a vast body of literature discussing offshoring,reshoring and nearshoring trends from various
vantage points. COVID-19 has given this topic
renewed traction as the pandemic has highlighted
key vulnerabilities of complex production systems,
unveiled the limited degree of self-sufficiency ofmany countries for essential products, and has
raised the question of whether companies should
reconsider their internationalization strategies.

This study aims to evaluate the dominant relocation
trends in the Asia-Pacific region and examines
the question whether or not the global pandemic
with its multifaceted repercussions has changed oraugmented offshoring, reshoring and nearshoring
activities. Based on a comprehensive survey
conducted with member companies of the German
Chamber Network in the Asia-Pacific, we seek toanalyze three overarching topics: (1) the impact of
COVID-19 on global value chains, (2) the impact of
COVID-19 on relocation activities from and within
the APAC region, and (3) long-term relocation trends
beyond the pandemic.
The publication is roughly structured along atime scale. Chapter 2 sets the stage by very briefly
describing past trends of supply-chains expansion
in the Asia-Pacific region and the recent relocation
developments in the context of the US-China tradewar. Chapter 3 gives an overview of the survey
respondents to provide the reader with a foundation
for the following analysis. In Chapter 4, the direct,
indirect and demand impacts of COVID-19 as well as
the trade and investment risks for companies will be
described to offer a comprehensive overview of theextent of the disruptions. Chapter 5 will take a closer
look at the responses by firms to these disruptions
and outline the risk mitigation measures underway.
Chapter 6 will take a more medium-term view at thefeasibility, decision factors and expected expanseof relocations as a consequence of COVID-19 andbeyond.
Finally, Chapter 7 and Chapter 8 focus on the longterm shifts in global value chains and overarchinggeoeconomic developments. By analyzing thelarge-scale expected shifts of different sectors,
subregions and company sizes (from start-ups tomulti-nationals), this study provides an outlook forthe developments to come.

1 “Offshoring” describes the relocation of business activities from the home market to far-away countries. “Reshoring” is the process ofbringing back those operations to the home country. “Nearshoring” describes the relocation of business function to nearby countries(Müller-Dauppert, 2016).

Supply Chains under Tension

2. Value chain trends in the
Asia-Pacific region
The survey conducted for this study and its findings
have to be read in the larger context of supply-chain
developments in the region. While the COVID-19
pandemic is an extraordinary shock to the systemof global value chains, it is unfolding against the
backdrop of larger relocation trends in the region.
This section describes the past trends and recent
developments in broad strokes to put the impact ofthe pandemic into context.
Global value chains in sectors such as apparel andfootwear, automobiles and agri-food industries
develop in a sector-specific manner and vary in theirdegree of complexity. However, they all involve themovement of raw materials and intermediate goods
through a series of countries where, in each one, a
new value is defined, coordinated and implemented(United Nations, 2015).
GVCs are becoming increasingly regional. This isbecause much of the value-added distribution tends
to occur within regional blocks that Felipe (2018)
defines as “Factory Europe”, “Factory North America”
and “Factory Asia”. In Europe, approximately threequarters of intermediate products are regionallysourced.
In mid-1980s Asia, the development of regional value
chains was spearheaded by Japanese companies
seeking raw materials from Asian markets (UNCTAD,
2015). Supplier networks were established in
two resource-abundant countries: Malaysia andIndonesia. Facilitating value chains, Singapore took
on the role of a trade-and-logistics hub, which thecity-state has maintained to this day. While the value
chains and trade routes were being solidified, further
regional linkages were being formed. In particular,
the Republic of Korea and Thailand started tointegrate into value chains and to supply Japan

with intermediate products (APEC, 2017b, Litsareva,2017). As these economies continued to develop,
they increasingly became a target for consumer andintermediate goods. Intermediate goods were used
to support further industrialization. This attracted
foreign direct investments from Japan and Western
economies fuelling rapid economic growth (APEC,
2017b), but also led to vastly different outcomes
regarding inequality across the region (Huang et al.,2019).

China’s rise as the global factory and ASEAN
in regional value chains
When China acceded to the World Trade Organization(WTO) in 2001, regional value chains started to evolve.
While Taiwan and Korea already possessed linkages
to China, Japan and Western companies began
to enter the market to take advantage of China’s
abundant and low-cost labour. The country emerged
as a centre for assembly and low-cost manufacturing(Athukorala & Ravenhill, 2016). With its newfoundposition as the global factory, China started to importintermediate products from Taiwan, Korea and theASEAN economies. This enhanced regional value
chains and also fostered industrial specialization.
Resource-rich countries, such as Indonesia, emerged
as commodity suppliers in regional trade patterns. By
the mid-2000s, most East Asian and Southeast Asian
countries were integrated into regional production
networks.
Since the 2008 global financial crisis, values chains
have gradually continued to restructure in Asia. The
predominant trend was the relocation of low-cost
manufacturing from China to Southeast Asia andSouth Asia and was primarily driven by rising labourcosts in China.

910Supply Chains under Tension

Between 2004 and 2014, real wages in the Chinese
manufacturing sector grew by 176 per cent. In
particular, low-cost manufacturing witnessed highwage growth, including textiles (242 per cent),
furniture (210 per cent), processing timber (227 percent) and food processing (216 per cent). This waspartially attributed to the introduction of China’s
minimum wage system in 2004, under which
provincial governments were obliged to adjust theminimum wage at least once every two years (Xia,
2016). The International Labour Organization (2019)
estimated that the average minimum wage tripled in
nominal terms between 2004 and 2014.
The appreciation of the renminbi led to furtherpressure on cost structures in China. This was
resolved when the People’s Bank of China permitted
greater nominal exchange rate flexibility vis-à-vis
the US dollar (Cui & Lu, 2018). The state-designatedeconomic rebalancing of China reflected in the
National 12th Five Year Plan (2011-2016), coupledwith the government’s increased emphasis onindustrial upgrading for high-value production,
further encouraged the relocation of low-cost,labour-intensive manufacturing from China. Its
industrial base gradually diversified and moved up
the value chain into mid-tech industries, such as
cellular phones and optical instruments, as well as
capital-intensive sectors, such as organic chemicals
and fertilisers. As a result, China’s share of the global
capital goods market rose from 5 per cent to 20 per
cent between 2007 and 2016. Simultaneously, China
became increasingly important in the exports ofintermediate products, with its global export volume
surging by 59 per cent (World Bank, 2020).
ASEAN positioned itself as an exporter of intermediate
products (Han, 2019) and became an integral part ofAsia’s value chains. The most notable example was
the electronics sector. In 2017, ASEAN economies
collectively accounted for 20 per cent of China’s total
import of intermediate electronics inputs. ASEAN
members have specialized in different segments
along the regional electronics value chain (Monetary
Authority of Singapore, 2019). For instance, Thailand’srole in the supply chain was the production of parts,
especially storage components for smartphones
and laptops. In contrast, the Philippines specialized

in the production of intermediate electronic goods,
notably hard drives and semiconductors (APEC,
2017a).

Disruption of global value chains: The USChina trade war
While value chains and production networks
are constantly changing, they are subjected todisruptions that accelerate their restructuring.
Prior to COVID-19, the US-China trade war was themost notable disruption in Asia and it continues tohave multi-faceted repercussions. In mid-2018, US
President Trump imposed customs duties on China
for its alleged unfair trade practices (Moosa, et al.,2020). Since then, the two countries have been
embroiled in countless back-and-forth negotiations,tit-for-tat tariff escalations, introduced technology
restrictions and brought several cases to the WTO
Dispute Settlement Body (Brown & Kolb, 2020). These
tariffs escalations have resulted in a significant surgeof customs duties between the two parties. US tariffs
on Chinese products increased on average from 3.1
per cent to 12 per cent between January 2018 andJanuary 2019. As tensions further heightened in
the subsequent months, US tariffs reached an alltime high in September 2019, with customs duties
averaging around 21 per cent for Chinese imports.
China’s retaliatory tariffs surged from an average of
8 per cent in January 2018 to 21.8 per cent within 20
months (Brown, 2020).
With China’s tight integration into regional value
chains, the tariff escalations have impacted theentire APAC region. As many value chains end
in China, backward linkages and effects of the
US tariffs have rippling effects across different
countries and sectors in the region. This is because
exports from China contain tangible inputs (rawmaterials and components) as well as intangible
ones (services) from East and Southeast Asian
economies (Oerstroem & Moeller, 2018). For instance,
78.9 per cent of exports from Korea to China wereintermediate goods in 2018. A study conducted by the
Korea International Trade Association (KITA) foundthat due to the US-China tariffs, China’s imports ofintermediate goods from Korea fell by 5.9 per cent inthat year (KITA, 2019).

Supply Chains under Tension

The following overview of companies that have publicly stated that they would consider moving manufacturingoutside China gives an impression of the potential scale and impact of the ongoing trade tensions on relocation
activities.

Table 1: Press reporting about companies considering to relocate from China during the US-China trade war

Company

Industry

OriginHasbroToys

USA

Vietnam, Indonesia,
MexicoCNBC (Kim, 2019)

Samsung

Electronics

Republic of Korea

Vietnam, India

SCMP(Huifeng, 2019)

USA

Taiwan, Malaysia,
Thailand,potentially Vietnam

Nikkei Asia
(Cheng & Li, 2019),
Nikkei Asia
(Cheng & Li, 2020)

TaiwanVietnam, India

Bloomberg(Wu, 2019)
USA Today(Zhang, 2019)

Alphabet Inc.
– Google

Electronics, Tech

Hon Hai Precision
Industry (Foxconn Electronics, Tech
Technology Group)

Relocation
options

SourceDell

Electronics, TechUSA

Potentially
Taiwan, Vietnam,
Philippines

Nintendo

Electronics,
Video games

Japan

VietnamNikkei Asia
(Kawasaki, 2019)

TCL

TV, Electronics

China

Vietnam

CNBC (Li, 2019)

Harley-Davidson

Automotive

USA

ThailandNakayama (2019)
USA Today(Zhang, 2019),
CNBC(Kharpal, 2020)
CNBC (Kharpal,
2020)

Apple

Electronics, TechUSA

Vietnam, Thailand,
India

Microsoft

Electronics

USA

Vietnam11

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Supply Chains under Tension

Although the US and China successfully agreed to a
Phase 1 trade agreement, tariffs are still largely intact,
and the trade conflict is far from resolved. Whilst the
US has committed to cut half the tariffs it imposedon 120 billion US dollars’ worth of goods, the 25-percent tariffs on another 250 billion US dollars’ worthof goods remained unchanged (Brown, 2020). To
date, there are no talks for a Phase 2 agreement yet.
Although the new Biden administration has beenclear in its opposition to broadly applied tariffs, it
seems likely that it will maintain them, at least in the
short term. With prevailing high tariffs, relocation
effects may continue in the future, potentiallycausing further restructuring of value chains in Asia.

Diversifying supply chains: Germany’s andthe EU’s Indo-Pacific strategies
In light of the ever-growing importance of the IndoPacific region, defined by the European Council(2021) as the “region spanning from the east coastof Africa to the Pacific island states”, for global trade,
commerce and the promotion of the rules-based
international order, Germany has published Policy
Guidelines for the Indo-Pacific Region in September
2020, along with similar strategic documents

put forward by France and the Netherlands. The
guidelines express concern over “deglobalization”
trends in the context of COVID-19 and call for thediversification of supply chains (Auswärtiges Amt,
2020). In April 2021, the European Council adopted
conclusions on an EU cooperation strategy. Amongthe goals formulated in the 9-page document
are an open and fair environment for trade andinvestment, reciprocity, strengthening of resilienceand promotion of connectivity. The “diversificationof supply chains should contribute to the resilienceof the European economy, especially for the mostsensitive industrial ecosystems, and to the reductionof strategic dependencies on critical raw materials”(European Council, 2021). In its conclusions, theCouncil also highlighted the importance of safeand diverse pharmaceutical and health-relatedindustrial supply chains. It is expected that a moredetailed Joint Communication on the Indo-Pacificwill be presented by the High Representative for
Foreign Affairs and Security Policy and the European
Commission in September 2021.

Supply Chains under Tension

3. Regional survey: Respondents
To understand the impact of COVID-19 on global
value chains, a 16-question survey was designed anddistributed across the German Chamber Network in
the APAC region between 5 and 21 December 2020,
gathering the answers from 337 participants. The
majority of respondents were small and mediumsized enterprises (SMEs) (58 per cent), while 39 percent of respondents were MNCs and 3 per cent ofrespondents were start-ups. The relative majority of
respondents in the manufacturing sector were in themachinery sector (10 per cent) or automotive (9 percent). For services, the relative majority of companies
were law firms and consultancies (9 per cent) ortransport and logistics companies (9 per cent). 38
per cent of respondents predominantly operate in
ASEAN, while 20 per cent are China-based. 15 percent of respondents operate in Australia/Oceania, 14
per cent in South Asia, and 12 per cent in East Asia
excluding China (see Appendix).

Which Asian region or country are you primarily operating in?

38%

ASEAN

20%

China
Australia/Oceania

15%

South Asia

14%

East Asia(excluding China)

12%
0%

5%

10%

15%

20%

25%

30%

35%

40%

13

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Supply Chains under Tension

4. Impact of COVID-19 on value chains
We cluster our analysis along four criteria corresponding with the OECD (2020) framework:(1) direct impacts; (2) indirect impacts; (3) demand impacts; and (4) trade and investment policy risks of thepandemic on GVCs.
Graph 1: Inability to work or manufacture at full capacity
due to COVID-19 measures

Financial Services

0%

Education and training

0%10%

Legal and consulting

17%

Hospitality and tourism
Software, IT andtelecommunication

18%
33%

Transport and logistics
Chemical industries

15%

Pharmaceuticals andmedical devices

16%
22%

Machinery

30%

Food and beverages
Automotive

31%

Wholesale and retail

32%
50%

Textiles and clothing

0%

10%

20%

30%

40%

50%

60%

Direct impact on GVCs
All over Asia, production and provision of services
were interrupted, reduced or stopped due to publichealth measures, such as enforced social distancing
rules or lockdowns. These direct impacts of COVID-19
are not specific to GVCs per se but rather depend on thelocations where the virus had spread (OCED, 2020). 25
per cent of respondents across APAC indicated thatthey have been unable to manufacture or operate atfull capacity due to the COVID-19 related measures(see Appendix). The inability to manufacture at full
capacity was more widespread than the inability toprovide or deliver services. In manufacturing, thetextile and clothing sector (50 per cent), as well ascompanies that produce for the wholesale and retailsector (32 per cent), were among the most affected(see Graph 1). Both industries are labour-intensive– especially the garment sector, which relies heavily
on manual labour in the sewing, trimming, andassembly processes, often in confined and crowded
spaces. Under these working conditions, factory
shutdowns and social distancing rules have had
a more significant adverse effect on output thanin other industries. Our results are coherent withthe findings of other studies: In Bangladesh, 43 percent of suppliers are currently operating with lessthan 50 per cent of their pre-pandemic workforce,
while in Vietnam, factories have reopened at 50
to 60 per cent capacity (ILO, 2020). More capitalintensive industries, such as pharmaceuticals andmedical devices (16 per cent), are less affected by the
pandemic’s direct effects as they require less manual
labour to produce. In services, one third of transportand logistic companies (33 per cent) found theiroperations compromised by COVID-19. As transportand logistics firms move products across-border,
COVID-related border policies undermine theirability to operate at full capacity. Most countries in
the region have imposed a 14- or 21-day quarantine
rule on international ships upon arrival, creating
disruptions to the normal operation of cargoliner shipping services. The extended duration forcompletion of a round trip have led to reductionsin the frequency of port calls and an increase inshipping costs (UNESCAP, 2020).

Supply Chains under Tension

Indirect impact on GVCs
Indirect impacts encompass disruptions to international transport networks and to supply-chain linkages(OCED, 2020).
Graph 2: Sectors experiencing disruptions tointernational logistics

88%

Textiles and clothing73%

Wholesale and retail

69%

Chemical industries
Pharmaceuticals andmedical devices

63%
59%

Automotive

50%

Food and beverages

46%

Other manufacuting

42%

Machinery
Financial Services

0%

Education and training

20%

Legal and consulting

20%

Software, IT andtelecommunication

35%
50%

Hospitality and tourism

58%

Other Services

63%

Transport and logistics

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

A) Disruptions to international logistics
In line with the disruption experienced in thetransportation and logistics sector, COVID-19 has
severely constrained international air travel, resulting
in a drop in air cargo capacity, creating logistics
bottlenecks. According to Agility (2020), cargocapacity fell by 20 per cent compared to 2019. Also,
customs clearance has been disrupted by COVID-19,
leading to delays in the cross-border movementof goods, thereby undermining the efficiency ofinternational transport networks. The survey data
confirms this, as 49 percent of respondents indicatedthat they experienced disruptions to international

logistics (see Appendix). A data breakdown by sector
reveals that these disruptions have affected all
manufacturing sectors. For instance, 63 per cent ofcompanies in the pharmaceutical and medical device
sector have reported disruptions in logistics. This isbecause the pharmaceutical industry mainly relies
on smaller volume shipments by air to distributeproducts (EU Commission, 2020).

15

16

Supply Chains under TensionB) Supply-chain linkages:
Manufacturing delays due to shortages in supply
Most manufacturing sectors rely on a complicated supplier network that can stretch across different countries
and continents. Disruptions caused by COVID-19 in one location can have impacts on manufacturing elsewhere
through backward linkages.
Graph 3: Manufacturing delays due toshortages in supply
Textiles and clothing

88%

Food and beverages

40%

Automotive

38%

Pharmaceuticals andmedical devices

37%

Wholesale and retail

36%

Other manufacuting

27%

Machinery18%

Chemical Industries

8%

0%

10%

20%

30%

These disruptions were evident at the beginning of
the COVID-19 crisis, in the first quarter of 2020, when
the shutdown of Chinese factories led to worldwide
shortages in components and exposed supplychain vulnerabilities in several industries (Cai & Luo,2020). This was first and foremost observed in the
textile and clothing sector as many companies relyon China as an input supplier. Bangladesh-based
garment manufacturers procure almost 70 per centof woven fabric from China, which is also the sourcefor 90 per cent of fabrics for Myanmar’s garment
sector (Reuters, 2020). With the factory shutdowns
in China, the textile, apparel, and garment supply
chains experienced drastic shortages in raw material
supplies. This caused manufacturing delays for 88
per cent of respondents in the textiles and clothing
sector (see Graph 3). Reasons for prolonged delays
in manufacturing and shortages in supply can be
attributed to social distancing rules in supplierfactories that constrain the industry’s output. These
shortages then ripple through the supply chain,creating bottlenecks in raw material supplies in the
textile value chain.
Furthermore, 38 per cent of manufacturers in theautomotive industry experienced manufacturing
delays due to shortages in supply (see Graph 3). The
automobile industry relies heavily on global value

40%

50%

60%

70%

80%

90%

100%

chains as the manufacturing is complex, multilayered and internationally fragmented. When the
pandemic spread, the supply chains of automotive
manufacturers went down worldwide. The bulk of
the supply chains resumed when China returned
to work. However, as lockdowns in the EU andthe US had taken down the flow of essential hightech components that are only produced in those
respective markets, manufacturers in China foundtheir operations hamstrung since they were missingthese crucial parts (EU Chamber of Commercein China and MERICS, 2020). In turn, this led to
manufacturing delays in the reverse direction.
What has been described above appears to be aconsistent finding across all manufacturing sectors.
The scatterplot depicted in Graph 4(a) exhibits astrong, positive correlation between the inability to
manufacture at full capacity and the manufacturing
delays due to shortages in supply. With an R-squareof 0.4012, the association between the disruptions tointernational logistics and manufacturing delays due
to shortages in supply is only of moderate strength.
Therefore, manufacturing delays due to supply
shortages are linked to the ability to manufacture atfull capacity rather than disruptions to international
logistics.

17

Supply Chains under Tension

Graph 4a: Manufacturing delays due to shortages
in supply vs Inability to operate at full capacity

Graph 4b: Manufacturing delays due to shortages
in supply vs Disruption to international logistics

100%

100%

90%

90%
80%

R² = 0.8002

70%

Manufacturing delays due
to shortages in supply

Manufacturing delays due
to shortages in supply

80%

60%
50%
40%
30%
20%
10%

70%
60%

R² = 0.4012

50%
40%
30%
20%
10%

0%
0%

10%

20%

30%

40%

50%

0%
0%

60%

20%

Inability to operate at full capacity

40%

60%

80%

100%

Disruption to international logistics

Demand impact
restaurants). Demand volatility affects GVCs bytransmitting shocks through demand channels.
Lower or higher demand for final products will resultin less or more demand, respectively, down the value
chains for raw materials, intermediate products andservices. Demand volatility is a crucial challenge forcompanies, and 37 per cent of respondents indicatedthat they experienced an overall decrease in demandfor productions and services (see Appendix).

This relates to demand shocks, whereby production
continues but fewer consumers are willing to
buy the products (OCED, 2020). An example iscosmetics, where the reality of working from
home, social distancing and wearing masks has
reduced the demand for make-up and fragrances(Gerstell, et al., 2020). A demand impact can also
result from a surge (e.g. an increase in demand for
personal protective equipment) or shift in demand(e.g. ordering home delivery instead of dining at

Graph 5: Respondents experiencing a decrease indemand for product and services
Pharmaceuticals andmedical devices

53%
45%

Chemical industries

40%

Other manufacuting
Machinery36%

Textiles and clothing

35%
34%

Automotive

32%

Wholesale and retail

25%

Food and beverages
Financial Services

18%

Transport and logistics

29%

Education and training

30%

Software, IT andtelecommunication

35%
38%

Other Services

43%

Legal and consulting
Hospitality and tourism

53%
0%

10%

20%

30%

40%

50%

60%

18

Supply Chains under Tension

A sectoral analysis shows that both the
manufacturing sector (39 per cent) and the service
industry (36 per cent) faced adverse demand shocks.
In manufacturing, the highest decrease in demandhas occurred in the pharmaceutical and medical
devices sector (53 per cent). This may be attributed
to the falling numbers of routine hospital visits
and medical check-ups that were observed in 2020
for non-COVID-19-related cases. The Indonesian
Pharmaceutical Companies Association (GPFarmasi), for instance, reports that pharmaceuticalcompanies in Indonesia experienced a decline of 50
to 60 per cent in demand for drugs in the first twoquarters of 2020 as people increasingly avoided
visiting medical facilities (Rahman, 2020). The global
biopharmaceutical company Gilead Science saw adrop in demand of 47 per cent in its global sales ofhepatitis C drugs (CNBC, 2020).
The 45-per-cent decline in demand of the chemicalindustry is linked to the sector’s position in different
value chains. 96 per cent of the world’s manufacturing
supply depends on active chemical inputs. A drop
in manufacturing output and demand for cars,
pharmaceuticals, clothing and footwear in turn
diminished the demand for chemicals. According
to the German Chemical Industry Association (VCI),
the temporary increase in demand for disinfectants,

soaps and cleaning agents was not high enough tooffset the downturn in sales across other sectors,
resulting in a 6-per-cent annual downturn in sales(VCI, 2020).
The hospitality and tourism sector has experienced
the most significant adverse demand shock among
services (53 per cent). This is due to the border
restrictions that have diminished the influx of foreign
tourists across most countries in Asia. For instance,
Vietnam’s total foreign tourist arrivals amounted
to 3.68 million in 2020, 80 per cent less compared
to 2019 (Vietnamplus, 2020). Despite the drop ininternational tourists, 47 per cent of respondents
did not experience an adverse demand shock. Thismay be because they can leverage domestic tourism.
This is evident in Vietnam, where domestic tourism
has been flourishing since May 2020 (ADB, 2020).
Targeting the domestic market may therefore allow
companies to partly mitigate the adverse demand
shock caused by foreign visitors and customers’
absence.

Supply Chains under Tension

Graph 6: Additional delays in obtaining government
authorization

Australia/Oceania

7%

East Asia

8%
11%

China

19%

All respondents

23%

ASEAN

48%

South Asia

0%

10%

20%

30%

40%

50%

60%

Trade and investment policy risks
There are trade and investment policy risks
associated with COVID-19 that impact GVCs. Since thepandemic’s outbreak, the WTO has counted 264 newmeasures (i.e. export bans) that affect trade in goods.
19 per cent of companies have indicated that they
are experiencing delays in obtaining government
authorization. Such delays are considered non-tariffbarriers as they inhibit the cross-border flow ofgoods and provision of services. The WTO Agreement
on Import Licensing Procedures stipulates thatagencies handling licensing should not take morethan 30 days to deal with an application – 60 days
when all applications are considered at the sametime (WTO, n.d.). A regional breakdown reveals thatdelays in obtaining government authorization are
particularly prevalent in South Asia (48 per cent)and across ASEAN (23 per cent), while only a few
companies in Australia/Oceania (7 per cent) andEast Asian countries (8 per cent) have encounteredsuch issues (see Graph 6). The lockdowns andsocial distancing rules apply not only to companies,
but also to the public sector. Certain government

agencies cannot work at full capacity (such as
customs authorities), which may be why delays ingovernment authorization are increasingly occurring
since the pandemic.
Some countries in APAC, including the Republicof Korea, Australia, New Zealand, and Japan,
have developed strong e-government capabilities
and digitalized government services, while othergovernments, such as India and Bangladesh, areless developed in this regard (see table 2). This
may explain why respondents from East Asia andAustralia/Oceania are experiencing fewer delays
in government authorizations than in South Asia,
because the effects of COIVD-19 are less disrupting
for digitalized environments.

19

20

Supply Chains under Tension

5. Resilience of GVCs and risk mitigation
During the COVID-19 crisis, companies were required
to improve their robustness and resilience at firmlevel and learn how to operate effectively under the
new normal to stay competitive. The resilience of
supply chains can be defined as the ability to return
to normal operations over an acceptable period oftime, post disruptions, while robustness is the ability
to maintain operations during a crisis.
In the manufacturing sector, diversifying the supplier
networks is one way to mitigate risks and improvea supply chain’s robustness and resilience. There
should be redundancy in suppliers (or supplier
diversification) so that in case of failure of one,others can step in and provide the required inputs
and production does not experience any delays(OCED, 2020).
Manufacturers can also diversify the number of their
manufacturing locations. The risk of fully localizing
production is that a disaster can occur within adomestic economy (OCED, 2020). If this disaster
affects the manufacturing side, production during
the crisis can no longer occur. Therefore, diversifying
the number of manufacturing locations can create
robustness as it provides companies with more
flexible production patterns. This can be illustrated
with the example of Samsung Electronics, which
produces its latest generation of smartphones within
the Republic of Korea, while older generations are
manufactured abroad. The main plant is near the cityof Daegu, the Korean epicentre of COVID-19 at the endof February 2020. When the disease was discovered
among its workers, the factory immediately halted

Graph 7: Implementation of strategies to build resilienceand robustness in manufacturing

100%

10%

18%

80%
60%
40%
20%
0%

9%

47%

14%

9%

64%

29%
Diversification of
supplier networks

Diversification of
manufacturing location

Not Planned

Not started but planned

Working on it

Fully implemented

all activities for several days. Samsung then decided
to switch part of its smartphone production toVietnam, where it operates other factories and wasable to uphold its manufacturing capabilities.
This part of the study scrutinizes whether
manufacturers have already successfully diversified
their manufacturing locations and supplier networks,
and whether they see the need to do so in the years
to come.

Supply Chains under Tension

The implementation of strategies to ensure
supply chain robustness and resilience
To date, only 10 per cent of respondents havesuccessfully diversified their supplier networks, while
another 47 per cent are currently working on it (seeGraph 7). This is because diversifying the number ofsuppliers can be time-intensive and create additionalcosts. Firms need to invest in multiple suppliers toensure that parts and components from different
manufacturers fit together (OCED, 2020). Setting up
a new production line is equally time-consuming.
This section assesses respondents’ ability to relocate
their operations and finds that several manufacturingsectors require on average a minimum of two years
to relocate. These longer lead times may explain why
merely 9 per cent of manufacturers have successfully
diversified their manufacturing locations.

Graph 8: Implementation of strategies to build resilienceand robustness in manufacturing by company size

100%
90%

A data breakdown by company size provides further
insights. There is little variation among MNCs and
SMEs regarding the diversification of supplier
networks. Irrespective of company size, this is the

15%

18%

54%

52%

30%

80%
70%
60%
50%
30%

16%

10%

21%

24%

MNC

SME

20%
10%
0%

4%

15%
13%

7%

40%

Diversification of
supplier networks
Not Planned

The costs associated with building new production
capabilities are usually very high as companies haveto undertake major capital investments (purchasing
new machinery, hiring new manpower, etc.). These
cost considerations may explain why a vast majorityof respondents (64 per cent) are not planning todiversify manufacturing location (see Graph 7).
Therefore, to strengthen supply chain robustness
and resilience, the majority of manufacturers
diversify or plan to diversify their supplier networks
and are less inclined to diversify their manufacturing
capabilities. For GVCs in the Asia-Pacific, this means
that, while the direct production capacities are
subject to limited change, the flow of goods between
suppliers and producers could induce larger changes
in the region.

8%

Not started but planned

68%
46%

MNC

SME

Diversification of
manufacturing location
Working on it

Fully implemented

predominant strategy to build up supply chain
robustness and resilience. It stands in contrast to thevariation observed among MNCs and SMEs regarding
the diversification of their manufacturing location.
While more than half of the MNCs have either
successfully diversified their manufacturing base or
are in the planning stages, the majority (68 per cent)of SMEs are not planning to pursue this strategy,
probably because MNCs tend to have more of theresources and experience necessary to diversify
manufacturing capabilities.

21

Supply Chains under Tension

Robustness and resilience through thediversification of the supplier networks
40 per cent of manufacturers see the need the diversify
their supplier network in response to COVID-19.
The data reveals a strong, positive correlation
between having experienced manufacturing delays
due to shortages in supply and the need to diversify
the supplier network (see Graph 10).

This is observed in the textile and clothing sector.
A majority (88 per cent) of textile and clothing
manufacturers have experienced manufacturing
delays due to shortages in supply. In turn, a majorityof respondents are seeking to diversify their supplier
networks (75 per cent) (see Graph 9). The textile
and clothing sector extensively sources from China
and COVID-related disruptions have exposed theoverdependency on raw materials and intermediatesfrom the country. This is a time-sensitive industry
with relatively short lifecycles (UNCTAD, 2020).
Having uninterrupted access to necessary raw
materials and intermediate products is pivotal intheir industry’s business model.
Likewise, 38 per cent of respondents in thepharmaceutical and medical-device sector haveexperienced manufacturing delays due to shortages
in supply, and 35 per cent see the need to diversify
their supplier networks (see Graph 9). An assessmentof the global pharmaceutical value chains provides
a convincing explanation. The global production ofactive pharmaceutical ingredients (APIs), essential
components for manufacturing medicines, isregionally concentrated in just a few Indian andChinese provinces and industrial parks. 80 per centof APIs are sourced from India and China. The twocountries account for 60 per cent of the world’s
production of paracetamol and 90 per cent of theGraph 9: Need to diversify supplier networks
11%

Food and beverages
Pharmaceuticals andmedical devices

35%

Automotive

38%

Chemical industries

38%

Machinery

39%

80%

Other manufacturing

41%

Wholesale and retail

43%

Need to diversify supplier networks

22

75%

Textiles and clothing
0%

10% 20%

30%

40%

50%

60%

70%

80%

world’s production of penicillin. It is also noteworthy
that the Indian pharmaceutical industry relies
on China for almost 70 per cent of the APIs for
its medicines, making China critical in the global
pharmaceutical value chain (Vyas et al., 2020).
The food and beverage sector is an outlier in thisanalysis. 40 per cent of respondents indicated thatthey faced manufacturing delays due to shortages
in supply, but only 11 per cent saw the need todiversify their supplier network. This suggests thatdelays in manufacturing do not stem from a fragile
supplier network. Instead, restrictions on labour
mobility and social distancing rules may accountfor this. Seasonal and migrant workers face severe
immigration restrictions for planting and harvestingin the fruit and vegetable sector. This, in turn,has led to bottlenecks in supplies along the foodprocessing value chain (OCED, 2020). The survey
data corroborates this, as 30 per cent of food andbeverage manufactures have asserted that theycannot manufacture at full capacity due to COVID-19
restrictions (see Graph 10).

2 Data from the food and beverage sector was excluded from the analysis as this industry presented as an outlier. Therefore, the data in the
scatterplot captures the remaining manufacturing sectors. This accounts for 174 respondents. The results in the food and beverage sector are
discussed separately on page 23.

70%
60%
50%
40%
30%
20%
10%
0%
0%

%

23

Supply Chains under Tension

Need to diversify supplier networks

Graph 10: Manufacturing delays due to shortages insupply vs. need to diversify supplier networks

75%
80%

Graph 11: Need to diversify the manufacturing location
by sector

80%

Automotive

10%

70%

Food and beverages

11%

Wholesale and retail12%

R² = 0.74291

60%
50%
40%
30%

Machinery14%

All manufacturing

15%

20%

Pharmaceuticals andmedical devices

10%

Chemical industries

0%
0%

20%

40%

60%

80%

100%

In response to COVID-19, the need to diversify
production capabilities was seen as imminent
among 15 per cent of manufacturers. This trend
is especially prevalent in textile and clothing (48per cent), chemical industries (30 per cent) andpharmaceuticals and medical devices (20 per cent)(see Graph 11). All three sectors have a strong
manufacturing footprint in China; textile and clothingalso in Bangladesh, Cambodia and Myanmar.
For chemicals, an observation similar to APIs canbe made as the production of certain chemicals
segments are highly concentrated in China. In 2020,
74 per cent of the global capacity of polyester fibres(chemicals used for textiles), 62 per cent of ethyl
acetate (chemicals used for solvents) and 59 percent of chlorobenzenes (used for rubber products,
herbicides, solvents and herbicides) were producedin China (Gomez & Radel, 2020). Relocating some ofthis capacity out of China may increase supply chain
robustness and resilience. When breaking down thedata by region, the need to diversify manufacturing
capabilities is most prevalent in China (23 per cent)compared to other regions, like ASEAN (8 per cent) or
East Asia (9 per cent), which corroborates this finding(see Graph 12).

30%

Textiles and clothing

48%
0%

Manufacturing delays due to shortages in supply

Robustness and resilience through thediversification of production capabilities

20%

10%

20%

30%

40%

50%

Graph 12: Need to diversify the manufacturing location
by region

23%

25%
20%
15%
10%

8%

9%

7%

5%

5%
0%

ASEAN

Australia /Oceania

China

East Asia

South Asia

60%

24

Supply Chains under Tension

6. Impact of COVID-19 on relocation
activities in APAC
At the national level, the pandemic unveiled a lackof self-sufficiency for essential products in many
countries and led to calls for more self-reliance.
The COVID-19 pandemic has exposed national
vulnerabilities in several sectors and supply chains
and sparked a discourse on the relocation of businessactivity. Therefore, this section assesses the impact
COVID-19 has had on offshoring, reshoring andnearshoring in the APAC region.

within six months. On the other side of the spectrum
are 25 per cent of respondents who require morethan three years and are less flexible switching
between locations (see Graph 13).
A breakdown by sector suggests that service providers
require less time to relocate than manufacturers.
Among services, law firms and consultancies are
the most flexible companies, with 42 per cent ofrespondents only requiring a lead time of up to six
months to relocate their operations (see Graph 13).
A further notable observation is that 40 per centof financial service providers can relocate withina period of six months to one year. The results arecoherent with existing case studies. In response to
Brexit, for instance, the European financial services
sector has moved large parts of its securities-tradingbusiness from London to Frankfurt (Eurofound,2020a). This relocation started in July 2017 and wascompleted seven months later, in January 2018. As
part of Barclays global reorganization, the British
investment bank reshored its operations from Cyprus
back to London between April 2016 and December
2016 (Eurofound, 2020b).

Ability to relocate operations
While some industries can easily switch location,change production patterns and invest in newmarkets, relocation decisions can require extensive
lead times (Elms, 2019). It is crucial to understand
how long these lead times are and whether there
are variations across different industries as this will
determine a company’s ability to offshore, reshoreand nearshore in response to COVID-19.
Graph 13 depicts the relocation time across different
industries. On average, respondents require almost
two years (1.9) to move their operations out of their
host markets. Overall, 16 per cent of respondents
are highly flexible and can relocate their operations

Graph 13: How long would it take to relocate yourbusiness operations?
Legal and consulting

42%

Transport and logistics

22%

19%
6%

5%

40%

Financial services
Pharmaceuticals andmedical devices

12%

Automotive

4%

Machinery6%

All respondents

18%

12%

10%

24%

1-6 months

30%

30%

32%
14%

22%

40%

6 months - 1 year50%
1 - 2 years

All respondents: 1.9 years
Automotive: 2.4 years
Pharmaceuticals: 2.4 years
Machinery: 1.9 years
Transport and logistics: 1.9 years
Legal and consulting: 1.3 years
Financial services: 1.9 years

20%
35%

32%

20%

28%

24%

28%

23%

16%

30%

12%

27%

8%

22%
10%

16%

0%

15%

21%

14%

60%

70%

2 - 3 years

25%

80%

90%

More than 3 years

100%

25

Supply Chains under Tension

Inability manufacture/work at
full capacity

60%
50%
40%
30%

R² = 0.0352

20%
10%
0%

0

Overall, few companies are able to relocate theiroperations in a short period of time. Companies
0.5
1
1.5
2
2.5
3
generallyrequirelonger-termplanning.
Therefore,
Average relocation time by sector▷ The average relocation time by sector and theinability to manufacture or operate at full capacity
and average relocation time by sector (Graph 14a)
▷ Manufacturing delays due to shortages in supply
and average relocation time by sector (Graph 14b)
▷ Adverse demand impacts and average relocation
time by sector (Graph 14c)
The response option “more than three years” wasassigned a value of four years so that the averagerelocation time was quantifiable.
Graph 14a: Inability to manufacture/work at full capacity
vs Average relocation time
60%

Inability delays due to shortages

Certain service industries are also less flexible inrelocating, such as transport and logistics firms.
Forty-four per cent of respondents require at least two
years to relocate (see Graph 12). Like manufacturers,
transport and logistic firms require more extensive
capital investments (e.g. warehousing andwarehouse technology) and access to infrastructure(ports, airports and roads).

To assess if COVID-19 has had a stronger adverse
effect on sectors with higher relocation times, thethree scatterplots in Graph 14 (a), (b) and (c) examine
the correlation between the following variables:

Inability manufacture/work at
full capacity

Longer lead times in the manufacturing sectors stemfrom companies having to undertake higher capital
investments when relocating. Moving production
capabilities may also require the relocation of entire
manufacturing and service ecosystems (supplier
network). The availability of quality infrastructure isequally important and has to enable uninterrupted
movements of components and final products within
the supplier network.

most respondents have so far been limited in ability
to relocate in response to COVID-19.

50%
40%
30%

R² = 0.0352

20%
10%
0%

0

0.5

1

1.5

2

2.5

3

Average relocation time by sector

Graph 14b: Manufacturing delays due to shortages insupply vs Average relocation time
Inability delays due to shortages
in supply

In manufacturing, respondents in the automotive
sector as well as the pharmaceuticals and medicaldevices sector require, on average, the longest leadtimes to relocate their manufacturing capabilities(2.4 years in both cases) (see Graph 13). In theautomobile industry, only 16 per cent can relocate
their manufacturing activities within less than a year.
Rather, the majority (56 per cent) require a minimumof two years. The data is coherent with existing casestudies. The reshoring of the British automotive
manufacturer McLaren from Austria to Sheffield in
the UK took almost four years, from January 2017
to December 2020 (Eurofound, 2020c). Likewise, thecar manufacturer Vauxhall required a three-year leadtime to relocate its manufacturing capabilities from
Bochum in Germany to Luton and Ellesmere Port in
the UK (Eurofound, 2020d).

120%
100%
80%
60%

R² = 0.238

40%
20%
0%

0

1

2

3

Average relocation time by sector

4

5

26

Supply Chains under Tension

2. Only one company is currently reshoring its
operation from the Asia-Pacific (China) region toGermany, while two companies are relocating
operations from China and ASEAN to Europe.
The location destination within Europe was notdisclosed.

Graph 14c: Adverse demand impact vs Averagerelocation time

Adverse demand impact

60%
50%
R² = 0.1447

40%
30%
20%

3. Relocation occurs mainly within the Asia-Pacificregion:

10%
0%

0

1

2

3

4

5

6

▷ Two companies are relocating within China

Average relocation time by sector▷ Three companies are relocating out of Hong
Kong into Mainland China, and one company
is relocating from ASEAN (Singapore) to China

Current relocation activity during the
pandemic
The above-mentioned section has highlighted that
only a small share of companies (16 per cent) are
flexible in relocating operations in a short periodof time. To identify current relocation trends,
respondents were provided with an open-ended
question asking about their relocation plans. Only 19
companies stated that they are currently relocatingor are planning to relocate their operations. These
are summed up below:▷ Two companies are partially relocatingfrom China to Vietnam, and one company ispartially relocating from China to Myanmar▷ One company is relocating partially within
ASEAN (from Singapore to Thailand)▷ Three companies plan to add additional
capabilities to ASEAN markets (e.g.,
establishing subsidiaries in Vietnam)

1. Three companies are planning to relocate
operations but have not decided on their newmarket. This implies they are still in the earlyplanning stages.

KAZAKHSTANThis demonstrates that most of the relocation occurs
within the APAC region and involves little reshoringand nearshoring to Germany or elsewhere in the EU.

MONGOLIA
Two companies are
relocating within China

TAJIKISTANCHINAPAKISTAN

INDIA

Three companies are relocatingout of Hong Kong into Mainland China

One company is relocatingfrom ASEAN (Singapore)
to China

One company ispartially relocatingfrom China to Myanmar

KOREA

JAPAN

TAIWANMYANMAROne company is relocating
partially within ASEAN(from Singapore to Thailand)

HONGKONGLAOS

THAILAND

Two companies are partiallyrelocating from China to Vietnam

CAMBODIAVIETNAM
SRI LANKA
MALAYSIABRUNEISINGAPORE

INDONESIAPHILIPINES

Supply Chains under Tension

To assess the link between the above relocation
decisions and COVID-19, respondents were asked
what role the pandemic played in this decision. 30
per cent stated that COVID-19 played a significant
role in their relocation, while 34 per cent indicated it
only played a minor role. The remaining 36 per centsaid it played no role at all (see Graph 15).

Graph 15: What role did the COVID-19 pandemic play inyour relocation decision?

36%

It played a minor role
(it accelerated our relocation decision)

34%

The pandemic’s potential to impact future
relocation decisions
The pandemic is not over, and countries arestill implementing and upholding public policy
measures that disrupt economic activity. Across
APAC, countries continue to apply border and travel
restrictions. This may imply that the pandemic could
cause further relocation activities in the future. To
assess the relocation-inducing potential of COVID-19,
respondents were asked by when they would relocate
if the pandemic management does not improve inthe years to come. 4 per cent were already in theprocess of relocating operations in 2020 (see Graph16). Most of these respondents were China-based,
while in other regions, relocation activities wereless prevalent in 2020. Looking ahead, a sizeable
proportion of respondents in South Asia (18 per cent)It played no role (the decision wasmade prior to the outbreak)30%

It played a significant role
(it was the key factor determining
our relocation decision)

and East Asia (13 per cent) would consider relocating
their operations if the situation does not improve by2022. Notably, 76 per cent of all companies surveyed
indicated that they will not relocate from their hostcountry, even if the situation does not improve inthe years to come. In particular, respondents from
Australia/Oceania are likely to maintain operationsin their host country(86 per cent). Overall, COVID-19
appears to have limited relocation effects in thelong run and, in the context of this survey, does not
significantly augment current offshoring, reshoringand nearshoring trends from and within the APAC
region.

Graph 16: If the current COVID-19 situation does not improve in your hostcountry, when would you consider relocating business operations?

100%
90%
80%
70%

69%

60%

76%

55%

78%

76%

86%

50%
40%
30%
20%
10%
0%

10%

8%
18%
3%
3%

South Asia

2%

2%

2%

7%

2%

7%

8%
6%

13%
4%
4%

14%

ASEAN

East Asia

China

Already in the process of relocation

In 2021

In 2022

In 2023

1%
2%
2%

5%

2%
2%

Australia/
Oceania
Beyond 2023 and later

6%
9%
4%
4%

All responses
We will not relocate

27

28

Supply Chains under Tension

Graph 17: Ranking of relocational factors

3.6

US-China trade war
Adherence to international labour standards
and working conditions

3.9

Handling of COVID-19 and related policies

4.2

Availability of quality infrastructure

4.3

Access to free trade agreement networks
and market access restrictions

4.9

Political stability, absence ofcorruption and rule of law

4.9

Economic framework conditions

5.1
5.4

Labour (access to qualified labour/labour costs)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

The relative importance of COVID-19 in
future relocation decisions
The above analysis suggests that COVID-19 does
not cause or augment significant relocation trends
in the short run and long run for the companies
surveyed. To understand why the pandemic does notseem to trigger offshoring, reshoring or nearshoring
considerations by the respondents from and within
APAC, the relative importance of COVID-19 comparedother relocation factors was surveyed. To thisend, survey respondents were asked to rank theimportance of the following variables:•

The US-China trade war•

Adherence to international labour standards andworking conditions•

Handling of COVID-19 and related policies•

Availability of quality infrastructure•

Access to free trade agreement networks and market
access•Political stability, absence of corruption and the ruleof law•

Economic framework conditions•

Labour (access to qualified labour / labour costs)

The results show that the factor “handling of COVID-19
and related policies” received a weighted score of 4.2
out of 8, making the pandemic and its related effects
one of the less important factors in a relocation
decision. This result is consistent across different
regions, including ASEAN (score: 4.2), China (score:3.94), East Asia (score: 3.47) and South Asia (score:3.82). The exception is Australia/Oceania. In this partof the world, companies attach high importance tothe pandemic (score: 5.27). As these countries haveapplied relatively strict measures to contain the
spread of the virus, the result is unsurprising. For
instance, to control COVID-19, Australia is one of the
few countries that have temporarily restricted the
movement of people between different territories
within the country. Moving forward, this may imply
that further outbreaks and/or the mismanagementof COVID-19 may trigger business relocation out of
this market.
In certain sectors, COVID-19 plays a more importantrole in the relocation decision than in others. We
clustered all sectors in labour-focused and labourintensive industries (wholesale and retail, food andbeverages, tourism and hospitality and educationand training) on one side, and the less labourintensive and more capital-intensive industries(pharmaceuticals and medical devices, chemicals
and software, IT and telecommunication services)on the other. The data reveals that the former
cluster will consider pandemic-related management
and policies more closely in a relocation decisioncompared to the latter cluster (see Table 3). This isbecause COVID-19 has disrupted labour mobility
and social distancing rules undermine the ability oflabour-intensive sectors to operate at full capacity.

Supply Chains under Tension

For a specific breakdown, the heat chart in Table 4 provides a detailed overview of each separate sector.
Table 3: Ranking of relocation sector by industry cluster

Ranking of
relocation
factorLabour-focused and labour-intensive
clusterLess labour-focused and more capitalintensive cluster#1

Access to labour (score: 5.58)

Access to labour (score: 5.54)#2

Handling of COVID-19 and related
policies (score: 5.44)

Political stability, absence ofcorruption and the rule of law(score: 5.51)#3

Economic framework conditions(score: 4.82)

Economic framework conditions(score: 5.16)#4

Access to free trade agreement networks
and market access (score: 4.69)

Availability of quality infrastructure(score: 4.90)#5

Availability of quality infrastructure(score: 4.55)

Adherence to international labour standards
and working conditions (score: 4.52)#6

Political stability, absence of corruption
and the rule of law (score: 4.49)

Access to free trade agreement networks andmarket access (score: 4.48)#7Adherence to international labour
standards and working conditions(score: 3.63)

Handling of COVID-19 and related policies(score: 3.38)#8

The US-China trade war(score: 3.42)

The US-China trade war(score: 2.81)

29

30

Supply Chains under Tension

Next to COVID-19, the US-China trade war has been
considered a significant source of disruption to value
chains in Asia as several companies have shiftedout of China in response to the escalating tensions(see Section 3b). Among respondents outside China,
the US-China trade dispute is not perceived as an
essential relocation factor. Companies perceive
themselves not to be too severely affected by thetrade war in their host countries. This implies thatthe tariffs’ impact only trickles back through the
supply chain in a limited manner. There is one stark

regional discrepancy. There is one stark regional
discrepancy: China-based respondents consider the
impact of the US-China trade war as the third mostimportant relocation factor (score: 5.12), making it
more important than both the availability of quality
infrastructure (score: 3.39) and political stability,
absence of corruption and the rule of law (4.41).
This may suggest that if the US-China tariffs remainin place then future relocations out of China may be
attributed to the US-China trade war.

Tabel 4(a): Importance of relocation factor by sector
Labour (access toqualified labour/labour costs)
Economic framework
conditions
Political stability,
absence of corruption
and rule of law
Access to FTA networks
and market access
restrictions
Availability of quality
infrastrucutre
Handling of thepandemic
Adherence tointernational labour
standards and working
conditions
US-China trade war

Wholesale

Machinery

Pharmaceuticals Chemicals

Automotive

TextileF&B

Othermanu-facturingAllmanu-facturing

Legal and
consulting

Transport

Financialservices

Software, IT

Hospitality

Education andtraining

All services

6

5.82

5.88

5.73

5.74

6.2

5.43

5.73

5.74

5

4.6

5.55

5.40

5.2

5.17

5.07

4.9

5

5.44

5.17

5.04

3.8

4.13

5.52

5.09

4.58

5.65

5.00

4.92

6.20

4.43

5.13

5.28

4.49

6.5

5

3.38

3

4.33

5.04

4.68

5.08

6.05

5.00

5.5

4

4

5.23

3.94

5.59

4.33

4.2

6.04

5.40

5.80

4.83

5.08

5

4.1

4.55

4.83

4.8

5.14

4.66

4.42

4.29

4.88

5.4

3.32

3.2

6

3.6

4.27

4.25

4.95

4.45

4.92

4.4

4.29

4.41

5.37

3.56

2.67

3.25

4.48

4.4

5.33

3.81

3.95

5.73

3.47

3.98

3.92

6.4

6

4.56

4.5

4

4.32

5.42

4.39

3.8

4

3.88

4.13

2.92

4.17

4.55

3.83

3

3.88

3.6

3.56

4.24

2.47

2.7

4.9

5.40

2.4

4.2

3.86

4.26

2.56

3

3.17

2

3.43

3.35

5

6

Tabel 4(b): Importance of relocation factor by region

Labour (access to qualified
labour/labour costs)
Economic framework
conditions
Political stability, absence ofcorruption and rule of law
Access to FTA networks andmarket access restrictions
Availability of quality
infrastrucutre
Handling of the pandemic
Adherence to international
labour standards andworking conditions
US-China trade war

ASEAN

China

East Asia

South Asia

Australia/
Oceania

5.37

5.52

5.7

5.24

4.76

5.38

4.9

5.43

4.71

5.03

5

4.41

5.29

5.68

4.59

4.6

5.58

4.6

5.40

4.76

4.8

3.39

4.4

4.57

4.34

4.2

3.94

3.47

3.82

5.27

3.7

3.86

4.3

3.63

4.15

Legend

3.3

5.12

3.05

3.1

3.69

1
Least Important

2

3

4

7

8

Most ImportantSupply Chains under Tension

7. Long-term relocation beyond COVID-19
While the survey data has indicated that COVID-19
has so far not fundamentally changed the GVCs in
the Asia-Pacific, a large share of companies (44 percent) expect relocation activities to occur within theirindustry in the future. Two predominant relocation
trends are identified. Both centre around the APAC
region:Graph 18: Long-term relocation trend
Oﬀshoring from
Germany and the EU

17%

Relocation within
Asia-Pacific

Relocation within APAC

26%

Reshoring to Germany

4%

Nearshoring to Germany

6%

No significant
relocation trend

66%
0%

10%

20%

30%

Likewise, the Asian financial market has drastically
expanded over the last decade. For instance, it isprojected that by 2030, China, India, Indonesia andJapan will account for 46 per cent of the global
insurance market, twice the share of 2015 (ADB, 2020),
making this region attractive for insurance providers.
The survey results show that economic framework
conditions and market access are important
relocation factors for financial services (see heatchart in Table 4) when relocating operations.

40% 50%60%

70%

Relocation from the EU, including
Germany, to APAC
The first trend that respondents expect to observe isfurther offshoring from Germany and the rest of the
EU to the APAC region. 17 per cent of respondents
foresee their industry increasingly shifting from theWest to the East in the years to come. A sectoral
breakdown reveals that the chemical industry andthe financial service sector expect proportionallyhigher offshoring activity from Germany andelsewhere in Europe to APAC than other sectors.
For the chemical industry, this may be linked to theindustry’s position in different supply chains. With
manufacturing increasingly taking place in APAC,
the market for chemicals has also drastically grownin Asia and resulted in offshoring. Between 2008 and2018, the share of chemical sales in the EU fell from26.5 per cent to 16.9 per cent, while the APAC’s sharerose from 40.1 per cent to 58.7 per cent (Deloitte,2020).

The second significant trend that respondents
expect is the relocation activity within the APAC
region (26 per cent of respondents expect this trend– see Graph 19). The data breakdown shows thatthe relocation within APAC centres mostly around
ASEAN. Companies expect ASEAN to become aneven more attractive market in the years to come.
This relocation trend has already been observed forseveral years. As some ASEAN member states have
gradually moved up the value chain, the region offers
diverse and complementary economies, allowing
companies to draw on the different competitive
advantages, making ASEAN an attractive location forcompanies to relocate to.
A sectoral breakdown reveals that most relocationfrom APAC to ASEAN is expected by respondents
in the textile and clothing sector (29 per cent – seeGraph 19). The industry is labour-intensive andcompanies have indicated that access to cheap andqualified labour is the most critical consideration
when making a relocation decision. Comparatively
lower wages in ASEAN, such as in Vietnam or
Cambodia, appear to continue to draw the textile
and clothing value chain into Southeast Asia. At thesame time, adherence to international labour laws
becomes even more important in the textile andclothing sector against this backdrop. Respondents
assigned higher importance to compliance with ILO
conventions than access to quality infrastructure
and political stability (see heat chart in table 4).

31

32

Supply Chains under Tension

As the textile and clothing sector is highly pricecompetitive and custom duties are on average high,access to free trade agreement (FTA) networks isa key relocation factor, according to respondents.
ASEAN is well connected with bilateral andplurilateral FTAs to regional partners, including
Australia, China, Korea, Japan, Australia and New
Zealand. Beyond that, some ASEAN member states
have enforced important bilateral and plurilateral
FTAs, such as the Transpacific Partnership (CPTPP)
and the EU-Vietnam FTA, that entail not only tariff
concessions for textile and clothing but also promote
the localization of value chain chains in signatory
countries. This may explain why respondents expect
a relocation trend from around Asia to ASEAN in the
future.

Reshoring and nearshoring from APAC toGermany and Europe
While companies like Marklin, Sennheiser electronic
and Gtech have reshored or nearshored theiroperations from APAC closer to their headquarters,
our survey data suggests that companies generally
do not expect any major reshoring (4 per cent) ornearshoring (6 per cent) trend from Asia to the EU or
Germany to solidify in the long run. There is also no
significant trend across different industries.

Graph 19: Long-term relocation trend by Industry

100%
80%

42%
25%

40%

18%

0%

29%

8%

60%

20%

36%

42%
ChemicalIndustries

17%
15%
11%

27%

55%

71%

Financial
Services

Textiles andClothing

No signifcant
relocation trend

6%
4%

66%

All other relocation
within APAC
Relocation of operations
from APAC to ASEAN
Reshoring(APAC to Germany)
Nearshoring(APAC to Europe)

All respondents

Oﬀshoring(Germany/EU to APAC)

3 For instance, the CPTPP entails a yarn-forward rule, while the EUVFTA entails a double transformation requirement in its rules oforigin for textiles.

Supply Chains under Tension

Impact of COVID-19 on supply chains
and relocation of operations: an SME’s
perspective4
Watson E.P. Industries Pte. Ltd is an expert for onestop design and manufacturing solutions. With
manufacturing plants in Singapore and China,
Watson’s expertise includes product design anddevelopment, tool design and fabrication, printing
and full product assembly. Watson is an establishedleader in EMI shield coating and electroplating onplastic components. Over the last 35 years, Watson
has successfully integrated itself into global value
chains and has become a supplier in key industries,
including in industrial and consumer electronics,
telecommunications, hygiene and sanitation.
Impact of COVID-19 on Watson EP Industries
operations

When China went into lockdown at the beginningof the virus outbreak, Watson EP Industries
immediately experienced shortages in supply of its
electronic components and metal parts and had
to notify its customers about delays. Watson has
since developed a risk mitigation strategy. Joyce
Seow, Group Executive Director, explained that“in response to shortages in supply, we have beenworking on alternate sources for critical suppliers.
We managed to get alternate sources for most
suppliers but for those with customized toolings, we
had to work closely with them to ensure continuityof supply.” Watson has also experienced a declining
manufacturing output as the company was unable
to produce at full capacity. Ms Seow noted that
especially during the period of strict lockdowns in
Singapore dubbed “Circuit Breaker” in April and May
2020, the company could only operate on a standby basis as most of their 70 employees had to stayat home. After the partial reopening of the economy
in June 2020, Watson’s manufacturing capability wasable to increase, however, it is still not back at preCOVID levels.
Impact of COVID-19 on Watson EP industries
relocation decision

When the US-China trade war started, Watson
EP Industries found itself compromised by thetariffs implemented on products imported from
China. Products, parts and components that had
previously entered into the US-market at a zerotariff rate suddenly faced a customs duty of 15 percent upon arrival at US customs. As a result, Watsontransferred some production capacity from China
to Singapore. Ms Seow explained: “We alreadyheld a 40,000-square-feet manufacturing facility in
Singapore and therefore made the decision to build
on existing overheads, including employing more
staff. We are now supplying our US customers fromthe Singapore plant.” At the same time, Watson
reached the decision to offshore manufacturing
capabilities within ASEAN. As this requires a larger
amount of capital and prolonged investments, therelocation decision is currently not final.

4 This case study was written based on an interview with Joyce Seow, Group Executive Director of Watson EP Industries.

33

34

Supply Chains under Tension

8. Global and regional trends: Decoupling,
regionalization or globalization?
Graph 20: Expected trends in a post-pandemic world by region

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

8%

10%

22%

24%

14%

6%

9%

9%

24%

23%

21%

41%

33%

35%

32%

33%

32%

South Asia

Australia/
Oceania

All respondents

28%
43%

31%
57%

27%
ASEAN
Increased globalization

36%
China

East Asia
Increased regionalization

The survey data reveals that the vast majority of
respondents (91 per cent) do not expect to witness
a sustained decoupling trend in the long run. Thismay be because localized production will, in manycases, not significantly improve the robustness of
supply chains, according to Miroudot (2020). Whena disaster occurs, a global network can draw on
supply from other locations to maintain deliveries.
As we saw with the COVID-19 pandemic, even a
global crisis is likely to hit different countries atdifferent times, opening up options to compensate
for a shutdown in any one location (Miroudot,2020). From a value chain perspective, decoupling
is difficult as value chains are inherently organizedinternationally and therefore enormously complex.
For instance, upstream activities, such as researchand development, or design, occurs in innovation
hubs, and it is extremely difficult to cultivate such

Increased protectionism

Decouplingclusters. The access to certain raw materials (e.g.
rare minerals) are also limited to some countries andregions. Lastly, processed inputs in manufacturingcontain their separate value chain, which arefrequently specialized in only a few markets.
Instead,respondents
expectincreasing
regionalization (35 per cent) or globalization (32 percent) to occur across APAC. Among the regions, somedegree of variation exists. In ASEAN, respondents
expect increasing regionalization (43 per cent), while
respondents in East Asia expect further globalization(57 per cent). Existing ASEAN integration frameworks,
like the ASEAN Economic Community (AEC), aredriving the growth of regional production networks
and may explain why respondents in ASEAN expect
regionalization to unfold in the years to come.
Likewise, ASEAN’s external trade policy has formed

Supply Chains under Tension

several free trade areas, including the ASEANChina Free Trade Agreement (ACFTA), ASEAN-Japan
Economic Partnership Agreement (AJECP), ASEANIndia Free Trade Agreement (AIFTA), ASEAN-South
Korea Free Trade Agreement (AKFTA), ASEANAustralia-New Zealand Free Trade Agreement(AANZFTA) and, most recently, RCEP as the world’s
largest free trade area. These are specificallydesigned to create and solidify regional value chainsand centres around the ASEAN region. While the two
East Asia economies Japan and South Korea are also
party to RCEP, their FTA network extends beyond the
APAC region and facilitates linkages to other regional
production networks, such as in North America
Graph 21: Expected trend: Essential goods vs nonessential goods

100%
90%
80%

6%

10%
22%

22%

70%
60%
50%
40%

31%
49%

30%
41%

20%
10%
0%

19%
Essential goods

Non-essential goods

Increased globalization

Increased regionalization

Increased protectionism

Decoupling

and the EU. Beyond that, Korea has launched FTA
negotiations with the South American trade bloc
MERCOSUR and with the Eurasian Economic Union,
while Japan started trade talks with Colombia. For
Japan, this would be the third South American FTA
partner after Chile and Peru.
A significant divergence is evident when classifying
respondents in the manufacturing sector into
essential goods and non-essential goods. The former
covers respondents from pharmaceuticals andmedical devices, food and beverages and chemicals
industries. The latter covers textiles and clothing,motor vehicles, machinery, and manufacturing forwholesale and retail. While producers of essential
goods expect increasing regionalization (49 per cent)to occur, manufacturers of non-essential goods lean
towards increasing globalization (41 per cent). The
pandemic has underscored the importance of robust
supply chains for critical goods and the need toreduce time-to-market leads. Regionalization allows
for this and may explain why such manufacturers
expect increasing regionalization of value chains.

35

36

Supply Chains under Tension

Appendix
What company size are you?
3%

3%

39%

3%
58%

Start-up

39%
39%

Small and Medium-Sized Enterprise (SME)
Multinational Company (MNC)

58%

Start-up

Small and Medium-Sized Enterprise (SME)58%

Start-up
Multinational Company (MNC)
13%

Machinery (electrical and non-electrical) (manufacturing)

Small and Medium-Sized
Enterprise (SME)
9%What sector are you primarily operaing in?
Other manufacturing

Automotive (manufacturing)

9%

Multinational
Company (MNC)
7%Pharmaceuticals and medical devices (manufacturing)
Wholesale and retail (manufacturing)

7%

Machinery (electricaland non-electrical)(manufacturing)
Chemicalindustries (manufacturing)Food and beverages (manufacturing)
Other manufacturing

3%

Textile and clothing(manufacturing)
Automotive(manufacturing)2%

and tourism(manufacturing)(services)
Machinery(electricalHospitality
andmedical
non-electrical)
Pharmaceuticals
anddevices (manufacturing)

2%

9%
9%

Education and training
Other(services)manufacturing
Financial services

9%

7%
9%

2%

Chemicalindustries(manufacturing)
Hospitality
andtourism(services)
Other
services

0%

4%

2%

2%

4%

3%
3%

6%

Hospitality
and tourism (services)(services)
Software, IT andtelecommunication

2% 3%
2%

Education
Transportand
andtraining
logistics(services)
services

3%

Financial services
services
Legal and consulting3%

Travel restrictions

Legaland consulting
Disruptions
to international
logisticsservices

10%

12%

14%

16%

5%
9%
9%
5%

0%

2%

4%

6%
49%

8%

9%

10%
9%

14%
86%

12%

14%

41%

Inability to conduct business meetings
Other services

37%

Decrease of demand for products and services

0%

Inability to work/manufacture at full capacity
due to COVID measures

14%

8%

Software, IT and telecommunication
Other(services)
services
Transport and logistics services

7%

3%

Transport and logistics services

Textile and clothingFinancial(manufacturing)
services

9%

5% 4%

Software, IT and telecommunication (services)

Pharmaceuticals anddevices (manufacturing)(manufacturing)
Foodmedical
and beverages
Wholesaleand retail (manufacturing)(manufacturing)TextileLegalandandclothing
consulting services

9%

7%

3%

Automotive(manufacturing)
Chemicalindustries (manufacturing)

13%

7%

3%

Wholesale and retail (manufacturing)FoodEducation
and beverages(manufacturing)and training(services)

13%

4%

2%
23%

4%

16%

14%

6%

8%

10%

12%

14%

16%

21%

Cash flow challenges

What are thekey challenges
are facing due
Manufacturing
delays due to shortagesyou
of supply
20%toDelaysrelated
in obtaining government
authorization
COVID-19 andpolicymeasures?
19%(license, import permits, etc.)

Travel restrictions

Disruptions to international logistics

Diﬀiculties in running operations digitally/working businessfrom homemeetings
Inabilitywhile
to conduct

17%
13%

23%

7%

21%
20%
20%
40%
23%
19%
21%
18%
20%
17%
19%
13%
18%
13%
11%17%

86%
49%

41%
37%

60%

80%

100%

7%13%

Other (please
specify)
Inventory
management

Diﬀiculties in finding alternative suppliers

41%
37%

11%

0%

Staﬀ shortages

49%

13%

Inventory
management
Decrease of demandfor products
services
Traveland
restrictions
Staﬀ shortages
Inability towork/manufacture
at full capacity
Disruptions
to international
logistics
due to suppliers
COVID measures
Diﬀiculties in finding alternative
Inability to conduct business meetings
Other (please
specify)
Cash flow challenges
Decrease of demand for products and services
Manufacturing delays due to shortages of supply
Inability to work/manufacture at full capacity
Delays in obtaining government
authorization
due to COVID
measures(license, import permits, etc.)
Cash flow challenges
Disruptions to domestic logistics
Manufacturing delays due to shortages of supply
Diﬀiculties in running operations digitally/
Delays in obtaining government
authorization
while working
from home(license, import permits, etc.)
Inventory management
Disruptions to domestic logistics
Staﬀ shortages
Diﬀiculties in running operations digitally/
Diﬀiculties in finding
suppliers
whilealternative
working from
home

86%

18%

Disruptions to domestic logistics

0%

13%

20%

40%

60%

80%

100%

20%

40%

60%

80%

100%

11%
7%

Other (please specify)0%Supply Chains under Tension

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https://logisticsinsights.agility.com/COVID19/air-freight/
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