The Coronavirus’ Effect on the Outsourcing & Offshoring Industry

Due to the Coronavirus, disruption occurred in many of the world’s major supply chains, from automotive components to building supplies to medical supplies. This was particularly acute in automobile manufacturing and health care supplies.

A very significant drop-off in demand for offshored apparel manufacturing occurred. The apparel industry has been one of the hardest hit of all industries, and apparel firms ranging from apparel manufacturing through distribution and retailing were deeply effected. This was caused by the closing of retail stores as well as a massive drop in consumer interest in shopping.

A reduction in international trade and exports occurred, with a related reduction in outsourced and offshored manufacturing. A reduction in foreign direct investment (FDI) in offshore facilities was another result.

An acceleration of reshoring occurred. That is, after seeing significant breakdowns in their supply chains and vendor capabilities in foreign nations, many firms developed an increased interest in manufacturing domestically, or at least closer to home. For example, some American firms developed a new interest in moving at least some manufacturing back to the U.S. or to nearby Mexico. This trend can be found in North America, the EU/UK, Japan and Australia, as many companies in those regions suffered supply chain breakdowns that will lead them to moving many activities closer to home.

This reshoring effect will be particularly strong in goods and technologies that are considered to be critical in nature, ranging from items that are vital to providing health care during future pandemics (such as masks and other protective gear), to chemicals vital to the pharmaceuticals industry, to highly specialized electronics and components, to goods that are critical to national defense.

If they want to continue to manufacture mostly in Asia, then many firms that previously relied heavily on China for outsourced manufacturing are spreading their supply chain out into other nations such as Vietnam. India is also being considered by some manufacturers as a way to diversify their supply chains.

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