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Resiliency of Supply Chains & Post-Pandemic Opportunities for FDI

The current pandemic crisis has brought supply chain risks to the forefront; consequently, foreign companies may want to localize production to the U.S. if they wish to serve the American market.

Q2 2020
Disruption of supply chains and the prospects of reshoring to the U.S. are not unique to the spread of the coronavirus and related pandemic. As is well-documented, the development of global supply chains over time has provided cost-competitiveness to many companies. However, as we have witnessed rising offshore wages and operating costs, increased lead times, a lack of consistency in product quality, and a move toward more protectionist trade policies, many of our clients have for some time been assessing these mounting global supply chain risks vis-à-vis any cost-competitiveness that they once produced. The COVID-19 disruption will accelerate these analyses for many companies, and we suspect that our clients may use this opportunity to evaluate the benefit of assessing multiple suppliers and introducing additional automation into their processes.

As the pandemic wears on, and related transportation and operating restrictions are put in place, our clients are developing a better understanding of the inherent risks associated with their current supply chain structures. As a result, many are now considering the restructuring of their supply chains, and even potential re-shoring to afford greater control and hedge against these risks.

While cost-containment and risk minimization continue to be of great importance to our clients, the “resiliency” of their supply chains is the new watchword. As a result, supply chain risk management and its related continuity and sustainability have jumped to the top of the list for many of our clients as a result of the current crisis.

- Mark Simmons, Principal, Parker Poe Consulting



FDI will likely see a large decline in 2020 due to COVID-19 as companies work to return to “normal” operations and make up for lost time at existing facilities following widespread closures. However, in the longer term, countries like the USA with large consumer markets will likely see new international projects from companies that have been exporting goods to North America and want to localize some production in those areas — in case supply chains and logistical operations delay or fail in the future.

It may be a good time for foreign companies to begin the site selection process now. There is also already increasing pressure to have certain products and raw materials produced domestically following foreign government restrictions on exports of critical products. One key example is APIs (Active Pharmaceutical Ingredients), which are primarily produced in countries like China and India. This will open the door for companies making critical goods to increase capacities in more localized markets, and it wouldn’t be surprising to see additional government mandates in this regard.

It’s a good time for foreign investors to begin the site selection process. With the right assistance, investors can still get a good understanding of ongoing operating costs and pre-COVID labor markets, with the potential for competitive up-front costs. Communities are searching for ways to revive their economies and create jobs, and many in the business community are eager to do deals.

- Morgan Crapps, Consultant, Parker Poe Consulting

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