Written by Rami Cassis
The economic havoc wreaked by COVID-19 promises to end globalisation as we have known it. The dangers to governments, health providers and companies of overly long supply chains are clear – and, most of all, the risks of too great a reliance on China.
At one level this is about diversification and trust. All countries are chasing supplies of personal protective equipment (PPE), exposing an over-dependence on China. More significantly, as the live markets re-open, which allegedly spawned this virus, China has again shown the depths of its cultural divide with the West, stoking fears that it can’t be trusted.
The direction of travel in Western economies is clear. Painful lessons have been learned and taxpayers are paying the price. In early April, the UK government announced plans for local production of PPE amid reports that it had been forced to charter flights to bring emergency PPE from China. Meantime Germany’s “Bild” newspaper demanded China be held to account for unleashing chaos on world economies and forced to pay reparations. This seems unlikely, but a co-ordinated response, at least on a European basis, is possible although likely to be too weak.
Meantime companies and organisations will seek to secure their supply chains. In the new, post-COVID, world, this means securing production and bringing outsourced goods and services closer to home, at least regionally. Money will pour out of China and into “near-sourcing”, benefitting producers and suppliers across the West.
Specifically, we anticipate this will most benefit economies on the doorsteps of the United States and Western Europe, where many of the world’s biggest and most successful corporations are still based and also, India, which stands to gain as China falls from favour. Our own firm is looking at new acquisitions in countries like India, Argentina and Bulgaria, which now look attractive destinations to “near-source” services previously located further afield. This isn’t just about proximity, but also cultural alignment. In the new world, companies want to feel closer to their suppliers in every sense.
A consumer backlash is underway too. As the costs of this crisis mount – in jobs, lost income and to the public purse – calls to boycott Chinese products are growing in social media around the world and may continue #notmadeinchina, #china, #BoycottChinese Products, #BoycottChina.
Companies and brands may, as a result, look to authenticate and reassure customers about their sources of supply. We believe this could give a massive boost to software which traces the serial numbers on individual products, so they can be tracked from the point of purchase right back to their origins – identifying the factories and even components used in the production process.
Until now, the market for product serialisation tracking software has focused heavily on medicines and pharmaceutical products, where the risks to consumers can be life-threatening. This literally puts the lives of millions at risk, notably in developing countries. The current rush to develop a vaccine and drugs to treat COVID-19 has already spawned a flood of counterfeit medicines, and consumers as well as health services will rightly want greater safeguards as protection.
Looking beyond this, we also see much wider demand in the post-COVID world to authenticate the source and contents of many other products sold in the West. Trust, or lack of it, will clearly help to drive consumer demand for this as will investors’ demand for higher ethical and environmental standards to be met. Companies are likely to respond by investing further in software solutions which can deliver greater confidence and protection at individual product level.
Parabellum Investments has just acquired Advanco, a leader in product serialization with a software solution called Arc. This is exciting pharmatech but also we anticipate will translate into rising global demand for authentication and product tracing solutions. Advanco was one of the first companies to enter this market and is now working with industry bodies to introduce common standards, which should further boost the popularity of these products whilst providing consumers peace of mind.
Based in Brussels, Advanco is a European company which, with our backing, is now seeking to expand across international markets both organically and with further acquisitions. We believe the crisis has changed the game irreversibly for China and global supply chains and are therefore investing accordingly. We will not be alone.