As countries continue to extend lockdowns to curb the spread of the virus, the manufacturing sector also continues to increasingly suffer from disrupted supply chains, collapsed global demands, closure of international trade routes, and corridors leading to a slowdown in production. Is the definition of globalization witnessing a paradigm shift? Complete Coverage: Coronavirus
Crux of the Matter
What Should We Be Prepared For? According to a recent study, the overall impact of COVID-19 on India’s economy is an estimated GVA loss of over 9%. The estimated impact on the Manufacturing sector is more than -6%. As seen in the chart below other sectors like Real estate, Construction, Tourism, Mining, Agriculture, etc also are estimated to have a major negative pushback due to the pandemic.
Source: Statista
As per the estimation by the United Nations Conference on Trade and Development, the COVID-19 outbreak could cause global FDI to shrink by 30% – 40% due to the downfall in the manufacturing sector. COVID-19 has brought us at a point where the world now needs to strike the right balance between national self-interest and global collective survival to face the never seen problems and challenges.
Reducing Dependency on China While China is considered ‘the world’s factory’ and remains the leader in manufacturing, a slow shift in this after the coronavirus pandemic began in Wuhan in China. Evolving business practices, consumer demands, and other factors have many companies moving to other Asian countries for manufacturing. Political tensions with China are leading to uncertainty in trade policies as a lot of countries are heavily dependent on China for a number of commodities like medicines, clothing, the raw material for electronics, smartphones, industrial equipment, etc. Many of the companies like Apple, Microsoft, Google are even planning to move out of China and shift to countries like India, Japan, Thailand, and Vietnam.
Migrant Workers and Unemployment Rates The problems for the manufacturing companies would not come to an end as soon as the lockdown restrictions are lifted. This is because the sector heavily depends on millions of migrant workers and daily wage laborers who are either stuck or have returned to their home states and bringing them back is going to take a lot of time. So there will be a major shortage of workers once the lockdown is lifted up.
Following the nationwide lockdown from March 25, India recorded a historic unemployment rate of over 26% in the month of April 2020. Even before the pandemic, the Indian economy was going through a severe slowdown with a growth rate of a mere 4.7% in the last quarter of 2019. Now with the shock of the coronavirus pandemic India’s manufacturing activity reached a 4-month low in March 2020 disrupting all demand and supply chains.
The MSME Sector COVID-19 is an unprecedented challenge for the Indian MSME sector which is regarded as the backbone of the economy, employing over 40% of the country’s workforce. With no production and drop in demand, the revenue generation for MSMEs remains on hold with a number of expenses that the companies can’t get their hands off such as salaries of employees, rent, bank interest, etc. Even just before the pandemic, this sector was facing harsh challenges and now as the COVID-19 crisis unfolds, the exodus of migrant workers, restrictions on import/export, restrictions in the availability of raw materials, travel bans, and numerous such factors are only going to massively hamper the MSME businesses. Coronavirus will not end globalization, but it is going to surely change it. Manufacturers will have to adapt to succeed. In these highly uncertain times where we still do not know how and when the virus would be contained, the manufacturing sector should get ready for tough times and a long recovery path ahead.
Curiopedia
Theodore Levitt was an American economist and a professor at the Harvard Business School. He was editor of the Harvard Business Review, noted for popularizing the term globalization.
The Timeline of Globalization is divided into 3 phases i.e. Archaic Globalization (From the period of earliest civilization to 1600s), Proto Globalization or early modern globalization (1600-1800), and Modern Globalization (1800-present).
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