Horizons Newsletter – week 16 // 2020
Horizons is a bi-monthly Dasym Research initiative to show you how the Dasym themes have been in the news. We publish the Horizons on our website and as an email newsletter. If you wish to receive the email, please contact Investor Relations.
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A formative moment for global supply chains
The corona crisis has made painfully clear how intertwined and fragile global supply chains are. Companies generally opt for offshoring, outsourcing and just-in-time inventory to developing countries because these offer comparative labor cost advantages. Today’s pandemic and ensuing recession will cause many companies to reassess these costs. In the U.S., 75% of businesses are dealing with disruptions in their supply chains and 44% of them do not have a plan of action for this pandemic. Even the provisioning of critical goods such as food, medicine and medical equipment is based on global supply chains without backup facilities. In the short term, local factories are now being redeployed to build necessary supplies. For example, U.S. President Trump invoked the Defense Production Act to compel U.S. carmakers GM and Ford to pivot to building ventilators for the nation. Additionally, companies are monitoring their chains more frequently in order to take stock of the risks involved with global supply chains. More fundamentally, however, companies will have to explore ways to modularize, diversify and localize or re-shore, especially for critical goods such as food or medicines.
The complexity premium
The U.S. has long enjoyed an equity premium in the belief that the government would not (and often cannot) get in the way of economic growth and private enterprises. This stems from the liberal American culture, with its high esteem of private enterprise, importance of individual liberty and general wariness of government intervention. Nevertheless, this laissez-faire approach has now put the U.S. in a severe corona “health recession”. The U.S. government has delayed imposing social restrictions (e.g. social distancing, closing stores and shops), resulting in higher infection rates and more victims per capita. This contrasts sharply with countries where governments intervened rapidly and strongly in the economy and society. As such, countries with strong governments that operate from long-term industrial policies and have the scope and capacity to formulate coherent policy responses in times of complex systemic risk (e.g. pandemics, war, climate change) could come to enjoy a new “complexity premium”. In turn, their capital and debt markets become a new safe haven for international finance in an increasingly complex world.
Rooms for change
As COVID-19 forces us to spend more time in and around the house, it has been a catalyst for the adoption of digital consumer practices and turned our home into a place where – besides living and cooking – we work, learn, exercise and socialize. While we are already familiar with ecommerce, it is the increased reliance on technology to enable remote activities that will change our homes. For one thing, it will make us more dependent on reliable and qualitative telecom infrastructure, as an increasing part of our interaction with the outside world, such as our morning yoga class, lectures and Friday afternoon drinks, is coming to us through bits and bytes. All of these practices taking place under one roof demands more flexibility and adaptability in our homes. Homes will need to facilitate more than just cooking, living, and bathing. This forces us to rethink the design of our homes – creating the ability to provide a yoga studio by day which is transformed into a wine bar by night.