KGRI Seminar Reports
No. 1

Supply Chain Management in the “With Corona” Age

Version1.0
June 2020

Jiro KOKURYO

Keio University, Cyber Civilization Research Center
Keio University Global Research InstituteThis is a revised transcript of a talk at IP-Asia on-line forum on June 15, 2020.

© Copyright 2020 Jiro KOKURYO
Professor, Faculty of Policy Management/Vice-President, Keio UniversitySupply Chain Management in the“With Corona” Age
Jiro Kokuryo
Keio University
jkokuryo@sfc.keio.ac.jp

Hello. My name is Jiro Kokuryo. I am vice president of Keio University, the person
who convinced the University to launch the Cyber Civilization Research Center, tosecure funds to invite Dave, and to retain Jun as university professor when he wasscheduled to retire. Perhaps even more importantly, I invited Cherry from Hong
Kong to Tokyo to work for CCRC. I am proud that these moves resulted in thecreation of such a wonderful forum as this. Thank you all for joining us.
But today, I am talking as a business major who did his doctoral dissertation atHarvard Business School on supply chain management. And I am going to talk likean MBA today.

Note 1: “With Corona” in the title is an expression often used in Japan to express theanticipation that our societies will have to live with the threat of Covid-19 and possibly
other diseases for a prolonged time.

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Twin Engines: Lost Both?
Since Deng Xiaoping Reforms①Globalization and②Urbanization
have been the twin engines of the global economic
growth….
Have we lost both?

Since the days Deng Xiaoping introduced major reforms in the Chinese
economy, the twin engines for global economic growth have been, ONE,globalization, and TWO, urbanization. Globalization of the supply chain broughthuge efficiency gains to the world economy, while urbanization and associatedasset price increases helped finance to grow.
One of the huge implications of COVID-19 is that we might have lost both ofthese twin engines simultaneously. While they are closely linked, let me focus
on supply chain tonight.

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Major Supply Chain Disruption
caused by Covid‐19
Uncertainties over second and third waves linger.
Uncertainty is nothing less than cost.
Should we stop globalization?
⇒ loss of efficiency ⇒higher cost
⇒ loss of economic growth= Stagflation??

I am sure many of you have had similar experience as I, of not being able tobuy webcam and other gadgets for remote classes because the supply from
China was put on hold. We had to wait for the Chinese to defy the disease andreopen their economy to move our economy. In the meantime, the auto
industry suffered huge parts supply disruption resulting in most Japanese auto
factories to close until very recently.
Even after the resumption of the supply chain, uncertainties around a second
and third wave of the virus are lingering, and such uncertainty is nothing shortof additional economical cost. So should we reverse globalization? That does
not sound encouraging. Reversal of globalization efficiency gains can result inhigher prices and simultaneously produce economic growth slowdown. Thelong forgotten word, stagflation, may see a revival.

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Globalization was ending even
before Corona?
Geopolitical reason⇒ Cyber security concerns⇒ Now spreading to medical and others

Economic Reason⇒ Low marginal return for seeking lower wages⇒ Economic divide leading to anti‐globalization
sentiments. Failure of “creative industries” togenerate middle income class.

As much as we desire to avert such stagnation and return to “normalcy,”
however, we must also take note that signs of the approaching demise ofglobalization have been surfacing even before the Covid-19 pandemic for two
reasons, ONE, geopolitical and TWO, economic.
Geopolitical concern has been deepening over national security in overreliance on
foreign supplies. This has been a burning issue in the IT sector in the context ofcybersecurity, but has now spread into other critical supplies such as medicineand even ordinary ones such as face masks.
On the economic side, there has been the rise in labor cost in emerging
economies. Companies have been continuing to shift their supply source tolower labor cost countries for optimal sourcing, but such moves seemed tohave encountered lower marginal returns.

4Another factor we cannot ignore is animosity toward globalization, which isblamed for the widening economic divide between the haves and have-nots. I
have very little sympathy for Mr. Trump, but he does have a point in that thedestruction of manufacturing jobs in the developed economies, as a result ofglobalization, has been a major cause of the divide. We need to admit that hightech, particularly software and information service industries have not been able
to generate a “middle class” so much as the manufacturing industries once did in
the developed countries. Polarization of society into rich versus poor is a grave
threat to our future, and we know it.

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Trends (1)?
1. Split between digital software/service industries andphysical goods industry
2. Digital services (experience industry) continuing toglobalize
3. Physical: Conflicting scenarios(1) Continuation of globalized mass production model(2) Return of flexible (small lot, large variety) production
systemTechnologies exist to advance either scenarios

So what will we see in the future? I do not claim to have a clear answer. But I do
see a couple of important trends that may affect it.
One is the split between the digital service world, which might be characterized
as experience industry, and the physical goods world. On the digital service side,
we see no less than acceleration of globalization. The digital service providers
include both software vendors and platform providers. So we certainly had to pay
a lot to international digital service vendors in the last few months to bring Keio
University online. The fact I see you more frequently than most other people inmy own institution via Zoom is just a symbolic example of the trend at work.
We see a very different picture in the physical world, where we are faced withthe uncertainties I mentioned. I have to assume that corporations in view ofpotential disruptions will at least be trying to hedge risks by sourcing some
supplies closer to markets.

5As a business major who is focused more on micro impact than macro factors, I am
interested in how such a shift in supply chain design may affect business models
and business processes.
In that context, I have been observing how globalizing supply chain models of
the last thirty years have seen a reversal of the earlier trends toward flexible
manufacturing systems in which diverse product lines were manufactured insmall lots in more localized production lines. Such a model had led Japanesemanufacturing to prosperity in the 1980s. In contrast, the world of iPhones isone in which tens of millions of units of the same hardware models areproduced, principally in China, and sold worldwide to bring huge mass
production benefits. In fact, one hundred thirty-seven million units of iPhone 6
were shipped. Such massive production requires sales in the global market tojustify the investment.
Whether or not the iPhone production model will change, then, is the bigquestion. We may see a return to flexible, more localized manufacturingsystems that are more resilient in uncertain markets. We may, on the other
hand, see the current mass production and distribution systems prevail, atleast for the time being, as COVID-19 subsides. We note that technologies areavailable to allow either business model to evolve to the next phase.

5Trends (2)?
• Enhanced traceability• By whom and how will supply chain be monitored?
• Emergence of “digital bloc” economy? Hopefully
without a third world war.

Another factor exerting pressure on the supply chain is the requirement forincreased traceability. In view of the heightened concerns over national
security issues, by whom and how the supply chain should be monitored isset to become a major aspect in the design of future business architectures.
There cannot be too many players in this. The implications of this are hardto assess. We may see the return of “bloc economies,” as experienced after
the first world war. We must remember, however, that fragmentation of theglobal economy of that kind resulted in a gravely bloody war one hundredyears ago. We would certainly like to avoid a war between a Chinese and an
American digital bloc.

6Thank You.

There are other things to talk about, but I think I talked enough. The onlything that is clear is that we are at a critical juncture. I will be very keen on
hearing your thoughts on what the future may and SHOULD look like. We
must think out of the box to develop new models for the world economy toprosper in the new context we now live in.

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