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Risk Management Key to Strengthening Global Value Chains Resiliency

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APEC economies have developed a strong foundation to deal with the COVID-19 crisis, but more needs to be done to enhance their resiliency in global value chains, according to a recent policy brief by the APEC Policy Support Unit.

“Building and strengthening resiliency is the top priority for firms involved in global value chains,” said Dr Akhmad Bayhaqi, a senior analyst with the APEC Policy Support Unit, who co-authored the study. “The economy-wide and global implications brought on by disruptions to supply chains resulting from the COVID-19 pandemic suggest that governments need to support firms in managing such risks.”

The policy brief, titled Managing Risks in Global Value Chains, analyzes the ability of the APEC region and its peer international groupings to respond to disruptions and to quickly return to normal operations.  Using a value chain strength index, the policy brief measures the strength of economies and groupings against the following risks: 1) logistics and infrastructure risk; 2) natural disaster risk; 3) market risk; 4) political risk; and 5) regulatory and policy risk.

The policy brief finds that while APEC economies perform moderately well, the region falls slightly behind its peer international groupings in terms of value chain strength.

“We found that there is a significant disparity within the region with almost half of the economies registering a rather weak performance in terms of value chain strength,” Dr Bayhaqi explained. “The uneven level of development across economies in APEC affect the region’s ability to rebound quickly in times of systemic supply chain disruptions.”

More could be done by the APEC region to ensure concerted development in the area of logistics and infrastructure, according to the policy brief. The region could also strengthen their resiliency against natural disasters and health-related calamities by, for example, improving the numbers of physicians and bolstering health expenditure.

“Global value chains have increasingly become more prevalent, more integrated and more connected, increasing businesses’ exposure to certain risks,” said APEC Secretariat’s Executive Director, Dr Rebecca Sta Maria. “This is why incorporating risk management in supply chains is crucial, especially when dealing with disruption the scale of this pandemic.”

Dr Sta Maria said that a risk management framework should take a holistic approach, covering each part and every player in the supply chain network including firms, small businesses, governments and consumers.

“We cannot afford to think of risk management as a ‘what if’ component in supply chains or in our trade deals,” she added. “Looking ahead, we have to put in place measures where we ensure the smooth flow of supply chains in times of crisis, especially for medical goods, essentials products and services.”

The policy brief notes that firms often depend on the market to deal with potential disruptions, in particular for financial markets. As such, ensuring that markets remain resilient during periods of crisis is very important for efficient value chain operations.

Lowering business uncertainties through consistent and predictable regulatory regimes also plays a vital role in building resiliency as it gives assurances to firms and investors that they would have access to an efficient legal framework should disputes arise.

With a combined nominal GDP of USD 53 trillion, the APEC region is home to several key global business hubs and accounted for almost half of the global trade of goods and commercial services in 2019.

Trade has been the driver of growth for the past three decades, however, the COVID-19 pandemic has exposed firms and businesses around the region to unprecedented disruptions.

Dr Bayhaqi highlighted that every international grouping, including APEC, “still has much room for improvement in terms of building and developing their supply chain resiliency.”

“It is important to emphasize that a supply chain is only as strong as its weakest link. Cooperation is an essential strategy to improve the regional resiliency of supply chains,” Dr Sta Maria concluded.

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India’s Opportunity to Become a Global Manufacturing Hub

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Beyond the unprecedented health impact, the COVID‑19 pandemic has been catastrophic for the global economy and businesses and is disrupting manufacturing and Global Value Chains (GVCs), disturbing different stages of the production in different locations around the world. Furthermore, the pandemic has accelerated the already ongoing fundamental shifts in GVCs, driven by the aggregation of three megatrends: emerging technologies; the environmental sustainability imperative; and the reconfiguration of globalization.

In this fast-evolving context, as global companies adapt their manufacturing and supply chain strategies to build resilience, India has a unique opportunity to become a global manufacturing hub. It has three primary assets to capitalize on this unique opportunity: the potential for significant domestic demand, the Indian Government’s drive to encourage manufacturing, and with a distinct demographic edge, including considerable proportion of young workforce.

These factors will position India well for a larger role in GVCs. A thriving manufacturing sector will also generate additional benefits and help India deliver on the imperatives to create economic opportunities for nearly 100 million people likely to enter its workforce in the coming decade, to distribute wealth more equitably and to contain its burgeoning trade deficit.

The World Economic Forum’s new White Paper entitled Shifting Global Value Chains: The India Opportunity, produced in collaboration with Kearney, found India’s role in reshaping GVCs and its potential to contribute more than $500 billion in annual economic impact to the global economy by 2030. The White Paper presents five possible paths forward for India to realize its manufacturing potential.

The insights presented in the White Paper reflect the perspectives of leaders from multiple industries in the region. The five possible solutions include:

· Coordinated action between the government and the private sector to help create globally competitive manufacturing companies

· Shifting focus from cost advantage to building capabilities through workforce skilling, innovation, quality, and sustainability

· Accelerating integration in global value chains by reducing trade barriers and enabling competitive global market access for Indian manufacturers

· Focusing on reducing the cost of compliance and establishing manufacturing capacities faster

· Focusing infrastructure development on cost savings, speed, and flexibility

“For India to become a global manufacturing hub, business and government leaders need to work together to understand ongoing disruptions and opportunities, and develop new strategies and approaches aimed at generating greater economic and social value”, said Francisco Betti, Head of Shaping the Future of Advanced Manufacturing and Production, World Economic Forum.

“A thriving manufacturing sector could potentially be the most critical building block for India’s economic growth and prosperity in the coming decade. The ongoing post-COVID rebalancing of Global Value Chains offers India’s government and business leaders a unique opportunity to transform and accelerate the trajectory of manufacturing sector”, said Viswanathan Rajendran, Partner, Kearney.

This White Paper aims to serve as an initial framework for deliberation and action in the manufacturing ecosystem. The World Economic Forum, in collaboration with Kearney, will continue to develop this agenda by working closely with the manufacturing community in India to generate new insights, help inform discussions and strategy decisions, facilitate new partnerships, and provide a platform for exchanges with the global community.

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New Skills Development Key to Further Improving Students’ Learning Outcomes

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Learning outcomes in Russia would benefit significantly from a focus on teaching new skills that are tailored to the modern labor market, says a new World Bank report, New Skills for a New Century: Informing Regional Policy.

Russia’s education system has traditionally been well-performing and efficient, with Russian students appearing among the top performers globally. However, today’s labor market requires “21st century skills” – a combination of skills, knowledge, and expertise that students need to succeed in the modern world.

“Russia’s education system could achieve better teaching and learning outcomes if it focused more on developing 21st-century skills,” says Tigran Shmis, World Bank Senior Education Specialist. “There is a strong relationship between the quality of the school environment, innovative teaching practices, students’ perception of school, and students’ learning outcomes.”

According to the report, 38 percent of Russian schools today are not equipped with workshops and 46 percent do not have scientific laboratories. And, 77 percent of educational institutions do not have dedicated places for integrated lessons that stimulate the development of new skills and team interaction.

The way teaching is delivered, the physical characteristics of the learning environment, and the school’s psychological climate all affect students’ learning results. The study provides an insight into how these factors impact the development of students’ skills, including 21st century and digital skills. Along with data analytics, the study includes a qualitative perspective of modern teaching and learning in Russia, as well as the impacts of the COVID-19 pandemic on teaching and learning.

“Developing the ability of students to master 21st century skills is critical to ensuring their future employment and career success,” says Renaud Seligmann, World Bank Country Director for Russia. “Studies in Russia have shown that businesses having access to workers with these skills will also be critical for growth and productivity. In turn, high-quality human capital is a cornerstone of the resilience and sustainability of the national economy.”

The report provides recommendations for how schools in Russia can better help students excel. For example, teachers who practice innovative teaching are more likely to drive higher achievement. Modern teaching practices can be supported by expanding the use of technology and enhancing the learning environment in classrooms. Technology should be made available in schools on an equitable basis to improve student learning and enhance teachers’ professional development. Education policymakers should prioritize the prevention of bullying and the development of supporting measures to ensure a positive school climate.

Despite the physical return of students to schools, the COVID-19 pandemic is causing continued learning losses. Therefore, new equipment, ICT, and innovative teaching methods are needed to enable teachers to improve their practices and compensate such learning losses.

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Post-COVID-19, regaining citizen’s trust should be a priority for governments

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The COVID-19 crisis has demonstrated governments’ ability to respond to a major global crisis with extraordinary flexibility, innovation and determination. However, emerging evidence suggests that much more could have been done in advance to bolster resilience and many actions may have undermined trust and transparency between governments and their citizens, according to a new OECD report.

Government at a Glance 2021 says that one of the biggest lessons of the pandemic is that governments will need to respond to future crises at speed and scale while safeguarding trust and transparency. “Looking forward, we must focus simultaneously on promoting the economic recovery and avoiding democratic decline” said OECD Director of Public Governance Elsa Pilichowski. “Reinforcing democracy should be one of our highest priorities.”

 Countries have introduced thousands of emergency regulations, often on a fast track. Some alleviation of standards is inevitable in an emergency, but must be limited in scope and time to avoid damaging citizen perceptions of the competence, openness, transparency, and fairness of government.

 Governments should step up their efforts in three areas to boost trust and transparency and reinforce democracy:

 Tackling misinformation is key. Even with a boost in trust in government sparked by the pandemic in 2020, on average only 51% of people in OECD countries for which data is available trusted their government. There is a risk that some people and groups may be dissociating themselves from traditional democratic processes.

 It is crucial to enhance representation and participation in a fair and transparent manner. Governments must seek to promote inclusion and diversity, support the representation of young people, women and other under-represented groups in public life and policy consultation. Fine-tuning consultation and engagement practices could improve transparency and trust in public institutions, says the report. Governments must also level the playing field in lobbying. Less than half of countries have transparency requirements covering most of the actors that regularly engage in lobbying.

 Strengthening governance must be prioritised to tackle global challenges while harnessing the potential of new technologies. In 2018, only half of OECD countries had a specific government institution tasked with identifying novel, unforeseen or complex crises. To be fit for the future, and secure the foundations of democracy, governments must be ready to act at speed and scale while safeguarding trust and transparency.

 Governments must also learn to spend better, according to Government at a Glance 2021. OECD countries are providing large amounts of support to citizens and businesses during this crisis: measures ongoing or announced as of March 2021 represented, roughly, 16.4% of GDP in additional spending or foregone revenues, and up to 10.5% of GDP via other means. Governments will need to review public spending to increase efficiency, ensure that spending priorities match people’s needs, and improve the quality of public services.

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