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How covid-19 is transforming global manufacturing
Context: Impact of COVID-19 on global manufacturing.
As the COVID-19 pandemic escalates, the risks inherent in global supply chains are more apparent than ever. The manufacturing is concentrated in developing countries that have cheap labour. However, with the uncertainties of returning to business as usual, advanced economies are now looking for lowest wage workers, i.e, robots.
This brings us to the questions of impact of COVID-19 on global manufacturing. In this article, we will explain the below:
- What changes COVID-19 has brought in global manufacturing?
- What is industrial automation?
- How uncertainties have risen in the world?
- Conclusion
What changes COVID-19 has brought in global manufacturing?
- The coronavirus continues to spread. As more countries impose quarantines and social distancing, the fear of contagion and income losses is increasing uncertainty around the world.
- The firms that began relocating production to low-wage countries in the early 1990s are now moving out of these countries amid lockdown in almost entire world amid COVID-19.
- The period between 1990 and the 2008 global financial crisis has been called an era of hyper-globalization in which global value chains accounted for about 60% of global trade.
- The 2008 global financial and economic crisis marked the beginning of the end of this era of hyper-globalization. In 2011, global value chains stopped expanding.
- When the 2008 crisis struck, some countries, such as Germany, already had enough robots to minimize the importance of labour costs in production. Many others, aided by the sharp post-2008 decline in interest rates relative to wages, boosted robot adoption and reshored a larger share of production.
- COVID-19 pandemic will further push advanced countries to adopt automation and overcome these uncertain times.
What is industrial automation?
- Industrial automation is the use of control systems, such as computers or robots, and information technologies for handling different processes and machineries in an industry to replace a human being. It is the second step beyond mechanization in the scope of industrialization.
- Industrial automation in manufacturing is the use of “intelligent” machines in factories so that manufacturing processes can be carried out with minimal human intervention.
- It involves the application of various control systems to enable operating equipment to carry out on their own, with little human intervention, tasks that require speed, endurance and precision.
- Industrial automation can be achieved by several different means, including mechanical, electrical, electronic, hydraulic, pneumatic, and computers. Usually, two or more of these means are used in combination.
- The main benefits of manufacturing automation include leaner operation processes that require less energy, less material, and reduced labor waste.
- These can lead to improvements in quality, accuracy, and precision. The downsides include high costs of R&D and installation of equipment.
How uncertainties have risen in the world?
- Uncertainty surrounding the duration of these conditions clouds any insights into how a recovery could unfold for the industry post COVID-19.
- The World Uncertainty Index measures the uncertainty since 1996.
- The World Uncertainty Index is a new measure that tracks uncertainty across the globe by text mining the country reports of the Economist Intelligence Unit. The index is available for 143 countries.
- During the 2002-03 outbreak of the Severe acute respiratory syndrome (SARS), the World Uncertainty Index rose by 70%.
- From 2008 to 2011, the World Uncertainty Index increased by 200%.
- After the United Kingdom voted in 2016 to leave the European Union, the World Uncertainty Index surged by 250%.
- To quantify uncertainty related to the coronavirus crisis and compare it with previous pandemics and epidemics, Hites Ahir, Nicholas Bloom and Davide Furceri developed the World Pandemic Uncertainty Index (WPUI)—a sub-index of the World Uncertainty Index.
- As of March 31, it is three times the size of the uncertainty during the 2002–03 severe acute respiratory syndrome (SARS) epidemic and about 20 times the size during the Ebola outbreak. The level of uncertainty around the coronavirus is expected to remain high as cases continue to rise and it is still not clear when the crisis will end.
Conclusion:
As the COVID-19 crisis continues to expand, manufacturers will likely face challenges on numerous fronts. At the outset of any major commercial disruption, companies will be looking for immediate measures to keep their workforces safe and their businesses solvent. Most companies in the sector will need to take concrete steps to succeed in this challenging climate. The best approach is likely to include making surgical cuts, while balancing short- and long-term needs.
The burnt of advanced countries opting for automation would be felt hard by the Asian manufacturing hubs. The respective governments will need to implement policies suited to this new economic order.
