Supply Chain Resilience and Multinational Enterprises in the Global South. The case of an international first-tier automotive supplier.

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Abstract:

A year of social isolation, closure of businesses, and border mobility restrictions under COVID-19 has exposed global supply chains' vulnerability to shocks with uncertain duration. The impact of COVID-19 in the automotive industry has affected the industry worldwide in a way not seen since the Great Recession (PWC, 2021). The first weeks of COVID-19 exposed how the supply-induced shock has caused production interruptions at all supplying levels (Guan et al., 2020; Hofstatter et al., 2020). Although large automotive multinationals have instant online visibility into their first-tier suppliers, this vision blurs as the supply chain moves to lower levels. Second and third-tier suppliers are the most affected by the COVID-19 related supply chain disruptions, affecting the rest of the chain. Hofstatter et al. (2020) highlight the sense of urgency over supply chain resilience by industry leaders. Studies on supply chain resilience and risk management have addressed situations such as the 2008 financial crisis (Juttner and Maklan, 2011), volcano eruptions (Chopra and Sodhi, 2014), and even terrorism (Sheffi, 2001). Nevertheless, the worldwide scope and unknown length of the lockdowns under COVID-19 have brought combined challenges for which current firms' mitigation strategies seem insufficient. This study aims to identify the main challenges and strategies that multinational firms adopt to face supply chain disruptions due to COVID-19. This study uses the case study of the automobile industry and presents an overview of its upcoming supply shortage, relating it to supply chain resilience and digitalization literature. The research illustrates this situation by presenting the case study of an automotive international first-tier supplier hosted in the Global South. The constant shutdowns in many locations, the massive cancelations of flights, transportation, mobility restrictions, and other COVID-19 measures implemented worldwide have created massive difficulties in supply delivery worldwide. As in many other industries, automotive factories worldwide were closed for several weeks in the first quarter of 2020, causing enormous difficulties in the supply chain's diverse processes (Pato and Herczeg, 2020). The closing down of automotive plants in China had a huge impact on the industry, as about 80% of the world's automotive supply chain is connected to China (Nemeckay, 2020). COVID-19 related restrictions' unexpected duration has increased the value of logistic and transportation services and their transportation capacity. Air and rail freight are the preferred transportation means of the automotive industry's parts and components (Pato and Herczeg, 2020). However, under COVID-19, air cargo capacity preference has been given to Personal Protection Equipment and ventilators, creating bottlenecks for the transportation of parts and components, such as semiconductors (Amsrud, 2020). Examples of the effects of these worldwide supply chain dislocations are the recent forced plant closures of GM plants in North America and Brazil and Ford plants across Europe due to the worldwide shortage of semiconductors (Williams, 2021), implying a delay in the production of about one million vehicles (Fulthorpe and Amsrud, 2021). The study identifies important factors that have accelerated the upcoming shortage of automotive components and raw materials with consequent closedowns of factories and production facilities around the world. First, the concentration of automotive suppliers in China. Second, the limited capacity of the international logistic system to operate under the COVID-19 ongoing restrictions. Third, the unexpectedly long duration of the pandemic. Fourth, the growing worldwide macroeconomic uncertainty (i.e., inflation, etc.). Since logistic routes remain unreliable and expensive, the industry expects more upcoming global shortage of materials, mainly electronics, plastic, and metal components. By presenting the case study of a first-tier multinational, the research explores the strategies adopted to overcome this type of situation and the implications in the ongoing efforts for digitalization of the supply chain.