What happens when a factory reopens, but the country they get their parts from doesn't?

in LeoFinance7 months ago

There was an interesting article in Der Spiegel International recently about deglobalisation.

Here is a small snippet quoted under fair use terms:

Grimme has consistently refused to adhere to modern-day management principles, such as the idea that large industrial manufacturers must produce globally and outsource services to remain as flexible and efficient as possible.

...The company, if you will, is more old school, preferring to produce as much as it can at home, particularly critical parts like screens and reels. In-house production depth, a reference used by economists to measure how much a company makes itself, is around 85 percent. "We've always been laughed at because of it," says Feld. Now, though, the erstwhile critics have become envious.

They've managed to continue production throughout the crisis, because they make their own parts. Their competitors have had to shut-down, even though under German lockdown rules their factories were allowed to stay open, because they couldn't get parts (they had sourced parts from other countries that had locked down factories).

As countries come out of the lockdowns, and do it in a staggered way, this inability to get parts is going to hinder manufacturing production.

If you have exited lockdown, but the country that supplies you with parts hasn't, you either have to source those parts elsewhere, or continue to keep your factories shut. And lose business to those who are able to keep their factories going.

This poses a series of dangers and opportunities. Nimble parts makers can secure contracts if their competitors are locked down. More businesses will look to source parts in their own country (which means that they get locked down at the same time their parts suppliers do, and they come out of lockdown together).

Businesses will also be worrying about the second-wave of the illness, likely in the winter, which may shut them or their parts suppliers down again.

And then there is the customer: what if you export most of your stuff, and while you and your parts suppliers are open, your customers are locked down? If that happens for any length of time, someone is going to go bust from lack of revenue. More likely your parts supplier, because they tend to be small without a lot of cash at hand. If that happens to a lot of small businesses, then finding substitutes will also be difficult.

The lesson of this whole sorry crisis is that having both your customers and parts suppliers in the same country as you are, gives you the greatest chance of surviving the crisis, providing your government gives you support during the lockdown.

Those businesses with customers and suppliers in foreign countries are dealing with situations and governments they can't lobby and can't control, and are the most vulnerable in this crisis. In a year's time, these will be the companies filing the most profits warnings.

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This is a very valid point. The coronavirus, more specifically, the results of it, will change how business is done. Many companies are going to be evaluating their supply chain and making adjustments.

They simply cannot get caught in this situation again.

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