[In-Depth Review] Post-Corona: Actively Responding to the Global Supply Chain Restructuring

Imjin Korea Chamber of Commerce and Industry Sustainable Growth Initiative (SGI) Director

The global supply chain refers to a division of labor system distributed across multiple countries, covering the entire process from product design, raw material procurement, manufacturing, distribution, to sales. The global supply chain began to spread significantly after the 1990s. As free trade expanded, transportation costs decreased, and information and communication technologies developed, companies were able to build global supply chains to reduce production costs. South Korea also actively utilized the global supply chain to increase exports and achieve economic growth.

However, since the global financial crisis, structural changes in the supply chain have emerged due to the expansion of domestic demand in emerging countries such as China and reshoring policies of manufacturing industries in developed countries. Amid these changes, South Korea experienced difficulties in procuring overseas parts due to Japan's export restrictions in 2019 and the COVID-19 pandemic in 2020. This led to the recognition of the importance of securing a stable supply chain for intermediate goods.

The South Korean government has revised the Return-to-Domestic Act to support the return of overseas enterprises and the Special Act to strengthen the competitiveness of the materials, parts, and equipment industry. However, even after COVID-19, structural changes in the global supply chain are expected to continue due to geopolitical international relations, prompting major developed countries to accelerate supply chain restructuring. South Korea also needs to respond more actively to supply chain restructuring in the following aspects.

First, more focus should be placed on risk management for stable supply rather than competitiveness in terms of cost. To reduce risks arising from a single country, it is desirable to diversify production bases to new countries or expand production facilities to new regions within the same country. Additionally, it is necessary to simplify long and complex intermediate stages or establish supply chains closer to consumer markets. From the perspective of securing growth engines and creating jobs, policies to foster manufacturing domestically are most desirable.

Smart global supply chains should be built by actively utilizing Fourth Industrial Revolution technologies. Currently, companies can use information and communication technologies to grasp and analyze numerous pieces of information in real time, which was unimaginable in the past. By effectively utilizing these technologies, companies can optimize production and distribution processes and respond more flexibly to market changes. Since global supply chains have been built over a long period, it will be difficult for the current supply chain structure to change rapidly in the short term. Therefore, rather than hastily restructuring the global supply chain itself, it is preferable to first enhance the responsiveness and flexibility of the existing supply chain by leveraging Fourth Industrial Revolution technologies.

Preparation is also needed for strengthened regulations on sustainability in the global supply chain. In February, the European Parliament adopted a bill mandating corporate due diligence on environmental and social responsibilities within supply chains. Germany is promoting a bill to impose fines on its large corporations that trade with global partners failing to meet human rights and environmental standards. This bill requires large corporations to manage sustainability not only for directly contracted partners but also for subcontractors.

As labor and environmental standards in supply chains are being internationally strengthened, South Korean companies also need to reinforce sustainability management to participate in the global supply chain. Measures should be prepared to inspect potential labor and environmental risks within the supply chain and reduce the likelihood of risk occurrence.

Lim Jin, Director of the Korea Chamber of Commerce and Industry’s Sustainable Growth Initiative (SGI)