China Supply Chain and Covid-19

1 Pages Posted: 21 Jan 2021 Last revised: 10 Nov 2021

See all articles by Dennis Yang

Dennis Yang

University of Virginia - Darden School of Business

Jiming Ha

International Monetary Fund (IMF)

Gerry Yemen

University of Virginia - Darden School of Business

Aldo Sesia

University of Virginia - Darden School of Business

Abstract

On March 11, 2020, The World Health Organization declared the outbreak of the novel coronavirus (COVID-19) a global pandemic. The pandemic brought production, trade, and businesses to a grinding halt, as governments closed borders and implemented lockdowns and restrictions; it also caused scrutiny of global supply chain strategies. While some US companies had already begun shifting outsourcing away from China during the US-China trade war amid the recent trend of deglobalization, the pandemic deepened concerns about overreliance on importing strategic goods, including pharmaceutical products and personal protective equipment (PPE), from China. This case starts with the pandemic development, explores public health and economic responses to the pandemic in China and the United States, and examines changes in policy and public opinion toward outsourcing in China. It provides a basis for understanding China's social and economic institutions through the lens of pandemic controls and the changing landscape of China's supply chains.The case has been successfully taught in a second-year MBA elective on growth and business in emerging markets in a module examining country-level endowments, trade, and risks, as well as in a course on China in the global economy. It can also be used for EMBA or executive education classes on China in the context of global business, trade, and supply chains. Issues discussed include questions about Chinese institutions and social norms, the effects of the pandemic, fiscal and monetary policies on employment, inflation and GDP growth. The materials provide a framework for making decisions on global outsourcing and the changing relationship between China and the United States.

Excerpt

UVA-GEM-0184

Rev. Mar. 18, 2021

China Supply Chain and COVID-19

On March 11, 2020, the World Health Organization (WHO) declared that the outbreak of the novel coronavirus (COVID-19) was a global pandemic, indicating the worldwide spread of a new disease. The virus, whose origins were traced to Wuhan, China, had spread at alarming rates. During the announcement, WHO's director-general pointed out that in the previous two weeks, the number of cases outside China had increased threefold, and the number of countries with cases had also tripled. Countries took various steps to contain the spread of the virus, which in some places inhibited the abilities of some suppliers to operate. The outbreak brought production, trade, and businesses to a grinding halt; governments closed borders and implemented lockdown restrictions that varied by country. It also brought about scrutiny of supply chain risks that relying on China presented. After years of reform, China had become the largest supplier to the rest of the world. (See Appendix for a history of China's development.)

Angst around global supply chain disruption had existed long before the coronavirus pandemic. Supply chain reliance was simply part of good business, and major corporations spent millions sorting through potential shocks that could disrupt it. Despite planning, there was evidence to suggest that most businesses could expect a disruption to their supply chain every 3.7 years, on average sometimes for a month and other times much longer. And there were other considerations, both financial (i.e., labor costs, costs to shift supply chain, and natural resources) and structural (i.e., few suppliers to choose from, economy of scale, knowledge reliance, and proximity to market), that impacted decisions to outsource and near shore. COVID-19 hit hard at labor-intensive industries such as apparel, aerospace, automotive, and transportation.

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Keywords: COVID, coronavirus, pandemic, supply chain, World Health Organization, China, United States, global supply chain, outsourcing, near shoring, protectionism, Trump, import, export, global trade, Nike, Ghebreyesus, PPE, externality, public health, economic crisis, pandemic shock, globalization, trade w

Suggested Citation

Yang, Dennis and Ha, Jiming and Yemen, Gerry and Sesia, Aldo, China Supply Chain and Covid-19. Available at SSRN: https://ssrn.com/abstract=3763095 or http://dx.doi.org/10.2139/ssrn.3763095

Dennis Yang (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Jiming Ha

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Gerry Yemen

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Aldo Sesia

University of Virginia - Darden School of Business

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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