The Impact of the COVID-19 Pandemic on Global Sourcing of Medical Supplies

Abstract

We provide evidence that the COVID-19 pandemic has incentivized U.S. firms to rebalance the tradeoff between manufacturing cost efficiency and supply chain resilience in their sourcing decisions. Over the past few decades, companies have been outsourcing production to low-cost countries such as China in pursuit of cost efficiency. However, the risk of supply chain disruptions has been receiving heightened attention recently, as countries strive to prioritize scarce resources for domestic needs during the global pandemic. Our research shows that while China's supply chain has proved resilient, U.S. companies have increased their access to medical supplies through domestic production. As a result, COVID-19 has highlighted the importance of local capacity and changed the traditional perception of outsourcing from a purely economic efficiency focus to one emphasizing the need to balance risks in global exposures.