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HSBC REPORT SHOWS BUSINESSES WILL TIGHTEN SUPPLY CHAIN CONTROLS POST-PANDEMIC

2020-07-27 16:45:20

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HSBC REPORT SHOWS BUSINESSES WILL TIGHTEN SUPPLY CHAIN CONTROLS POST-PANDEMIC

 

 

The Covid-19 pandemic has forced businesses around the globe to change rapidly, with over half moving more of their operations online and two thirds planning to increase control over their supply chains through digitalisation, diversification and increased intra-regional trade.

 

That is according to the annual Navigator report published by HSBC this week. The survey, conducted between late-April and mid-May, quizzed 2,600 businesses across 14 territories at varying levels of business activity, including in China where domestic business was resuming, and Europe, where many firms were operating under lockdown measures.

 

Firms have reacted swiftly to the pandemic, with 63% modifying their operations and 44% adapting their products and services, either by diversification or by reducing their offering to become more specialised, finds the report.

 

However, the impact of Covid-19, which the World Bank predicts will cause a 5.2% contraction in global GDP this year, has left many leaders believing they must find new ways to conduct aspects of their business to make them more resilient, including how they access finance and key trading markets, as well as how they export products and services.

 

According to the survey, the move to a more digitalised way of working during lockdown periods also uncovered weaknesses in emergency planning, with fewer than three in five businesses saying they prioritised investment in technology to improve operational resilience over the last two years. However, despite weak planning on the technology front, more than 80% of leaders feel their relationships with customers, employees and supply chain partners have tightened because of the pandemic.

 

In the short term, the report shows that the biggest barriers to business resilience over the next six months include employee morale, cash flow worries, training the workforce on new processes and the cost of working capital (figure 1).

 

Figure 1: Biggest barriers to business resilience over next six months

 

Employee morale
33%
Sufficient cash flow
31%
Employee training on new processes
27%
Cost of working capital
24%
External factors
24%
Focus on immediate recovery
 

 

Source: HSBC Get the data Created with Datawrapper

 

 

Regardless of the fact that employees are set to play an important role post-pandemic, just over a quarter of businesses believe that building a culture to support retention and recruitment will be key to preparing for future uncertainty.

 

When it comes to global supply chains, which have been hugely disrupted by national lockdowns and travel restrictions, the report identifies a series of changes businesses expect to make to their supply chains in the next few years in a bid to improve security and transparency (figure 2).

 

Figure 2: Changes businesses will make to supply chains over next two years (%)

 

Diversify supply chains to work with more suppliers
29%
Digitalise supply chains
28%
Make supply chains more environmentally friendly
27%
Increase intra-regional trade
20%
 
 

Source: HSBC Get the data Created with Datawrapper

 

 

With two thirds of businesses aiming to have more control of their supply chain and placing a greater emphasis on supplier resilience, supply chains are likely to be reshaped and diversified rather than reshored, the report shows.

 

This could be because the reshoring of manufacturing processes can be costly and domestic production may be unfeasible as it is expensive. A more suitable alternative may be to strategically move some parts of operations to different markets as well as expanding the supplier base to diversify risk. A recent report by Verisk Maplecroft points to a global overreliance on China for production, highlighted by the pandemic, and the need to move some manufacturing to other countries.

 

“More businesses are diversifying rather than restricting suppliers,” reads the HSBC report. “And fewer than one in five are narrowing geographically across markets. Far from a narrow focus on reshoring, one in five are looking to expand suppliers within their region as a strategy to grow.”

 

Elsewhere, businesses will move to digitalise more supply chain processes and create structured, long-term solutions for temporary measures put in place during the pandemic, removing paper where possible and improving efficiency. They will also look to incorporate environmentally friendly practices and, as global shipments were held up in many places during the pandemic because logistics infrastructure was slowed or shut down, increase intra-regional trade.

 

As noted in last year’s Navigator report, environmental strategy has become a must for businesses around the world. This emphasis on sustainability is consistent or strengthening for 65% of businesses surveyed this year. It is a higher priority for international companies rather than domestic ones and for firms based in mainland China and Hong Kong. Pressure to have a more sustainable business model is largely driven by consumers, government regulations and employees (figure 3). 

 

Leaders surveyed say they are taking action through their supply chains. “Promoting sustainability is a key reason for change within supply chains. Half of those businesses doing so cite environmentally conscious or ethically motivated consumers as a key factor,” reads the report.