How Does the Chinese Supply Chain Face the Challenge and Change Due to the Pandemic?

How Does the Chinese Supply Chain face the challenge and change due to the Pandemic?
Table of Contents Abstract 4 CHAPTER ONE: INTRODUCTION.. 5 1.1 Context/Background. 5 1.2 Purpose of Study. 6 1.3 Research Question(s) 7 1.4 Significance/Importance of Study. 7 1.5 Implications of Research. 9 CHAPTER TWO: LITERATURE REVIEW... 11 2.1 Challenges in the Global Supply Chain as a result of the Pandemic. 12 2.2 Changes to the Global Supply Chain as a result of the Pandemic. 16 2.3 Challenges the Chinese Supply Chain Faced.. 19 2.4 Theoretical Framework. 24 2.4.1 Game Theory. 24 2.4.2 Resource Orchestration Theory. 25 2.4.3 Real Options Theory. 26 CHAPTER THREE: METHODOLOGY. 28 3.1 Research Philosophy. 28 3.2 Methodological approach. 29 3.3 Data Collection. 30 3.4 Data Analysis. 31 3.5 Limitations to Methodology. 31 3.6 Problems and Solutions. 32 CHAPTER FOUR: ANALYSIS. 33 4.1 Key Themes. 33 4.1.1 Challenges encountered because of the pandemic. 33 4.1.2 How COVID-19 disrupted the Chinese Supply chain. 34 4.1.3 Effect of the pandemic on production. 34 4.1.4 How the challenges to the Chinese supply chain impacted global trade and economics  35 4.1.5 Short-term, medium-term, and long-term implications of the challenges to the Chinese supply chain  36 4.1.6 The resilience and agility in adapting to the challenges posed by the pandemic. 36 4.2 Key Findings. 37 CHAPTER FIVE: DISCUSSION AND CONCLUSION.. 38 5.1 Discussion. 38 5.2 Conclusion. 40 References. 43  
Abstract
Background:
The breakout of the COVID-19 pandemic in China sent shockwaves around the world. The Chinese government was forced to take drastic measures to minimize the spread of the pandemic. Such measures often disrupted business activities and, subsequently, the supply chain. The agility of the world's and China's supply chain systems were tested in ways not seen in the recent past
Method:
The study utilizes an interpretive philosophy combined with a deductive reasoning process. Data is collected from credible secondary sources.
Key Implications:
The study establishes the vulnerabilities of the Chinese and global supply chains. Understanding the types of vulnerabilities will help the world, and China change their economies to avert shocks associated with future pandemics and similar events. Additionally, the study pinpoints the critical position of China in the global supply chain and how disruptions in the Chinese supply chain can affect the global chain.
The Purpose:
The research aims to highlight the challenges the Chinese supply chain has faced or is facing since the pandemic. The study also speaks to the Chinese supply chain's agility and how this could help shape the country's supply chain in the coming years.
Keywords:
Supply chain, COVID-19, pandemic, agility, sustainability, transportation, manufacturing, trade, and trade barriers.
CHAPTER ONE: INTRODUCTION
This chapter and study begin by providing a brief background of the study. Next, the purpose of the research is outlined to enable the reader to appreciate the importance of the research. Next, the research questions that served to guide this study are highlighted. Lastly, the significance and implications of the study are provided.
1.1 Context/Background
According to Pak et al. (2020), pandemics have been known to shut down economies and derail growth over the world's history. In 2019, reports of a pandemic outbreak in China sent shockwaves to the world’s economic system (Habibi, Habibi, and Mohammadi, 2022). According to Ancillo, Núñez, and Gavrila (2021), most organizations and businesses were forced to adapt faster than they were prepared to do. In China, the same was happening, and businesses were forced to adapt, most importantly, the supply chain systems (Reuters, 2020). However, the worsening pandemic conditions meant stricter measures had to be adopted to protect the masses. In China, measures such as lockdowns were announced with immense pressure and impact on businesses, especially the country’s supply chain. As Ainslie et al. (2020) indicated, China quickly extended the lockdown to other cities and provinces, further strained its supply chain system. Production was heavily impacted by companies closing their plants in China (Bloomberg, 2020). With production stopped, the country’s supply chain was dealt a major blow, especially because internal and external demand remained high due to China's global supply chain position. Jiao et al. (2022) note that within 12 months of the onset of COVID-19, measures to curb the pandemic were noted to be working, allowing the government to open certain sectors of the economy slowly. Towards the end of 2022, As China started to open its economy, there were positive signs that the world could beat COVID-19 and resume normalcy (Financial Times, 2022). However, economies had already been strained, the global supply chain had been shaken, and it was evident that it would take years before normalcy resumed. The Chinese supply chain was just as shaken, and numerous challenges were evident during the pandemic (Maison et al., 2021). The agility of the world's and China's supply chain systems were tested in ways not seen in the recent past.
In summary, this section provided the background of the study. It outlines the challenges supply chains have faced, especially China’s supply chain, because of the pandemic. Having established the background of the study, the next section describes the purpose of the study
1.2 Purpose of Study
According to Hedwall (2020), China is at the center of the global supply chain and by far one of the most important countries. Hence, it is important to know if, and if so, how problematic the pandemic was to its supply chain. Further, it is crucial to understand how the country's supply chain adapted and bounced back to mark record growths achieved in November 2020 or pre-pandemic. Therefore, this study aims to determine the challenges the Chinese supply chain has faced or has faced since the pandemic. The study also speaks to the Chinese supply chain's agility and how this could help shape the country's supply chain in the coming years. It is an understanding of what has occurred in the world over the past three years, which has transformed and fast-tracked transitional innovations in the Chinese supply chain, through the researcher's lens, that will be of value and fill a gap in the current literature and practice. Therefore, such innovations and modes of adaptation must be investigated, documented, and disseminated/publicized.
In essence, the study aims to identify the challenges the Chinese supply chain has faced due to the pandemic and its agility to help shape the country's supply chain in the future. The next section outlines the research questions around which the study is shaped.
1.3 Research Question(s)
This research seeks to answer several questions about ‘Does, and if so, how did the Chinese supply chain confront and respond to the challenges stemming from the Pandemic.’ The Chinese supply chain is crucial enough to impact the world's panic and slow global economic growth. Therefore, these questions are fashioned with the above statement in mind. The research questions include the following:
* What if any challenges did the Chinese supply chain encounter, and/or may still be confronting today, because of the pandemic?
* Did, and is so, to what extent did COVID-19 disrupt the Chinese supply chain?
* Did, and if so, how did the pandemic affect production, especially manufacturing and the logistics of transporting the products in China?
* Did, and if so, how did the challenges to the Chinese supply chain impact global trade and economics? Also, what does this infer about the importance of China's position in the global supply chain?
* What are the short-term, medium-term, and long-term implications of the challenges to the Chinese supply chain?
* Has, and if so, how has the Chinese supply chain demonstrated resilience and agility in adapting to the challenges posed by the COVID-19 pandemic?
In summary, this section presented the questions that will guide this study. Each question forms a theme that will later be addressed to help provide answers. The next section outlines the significance and importance of the research.
1.4 Significance/Importance of Study
A study's relevance or significance lies in its ability to inform either the literature or practice. The study is significant in that it helps inform the current and future landscape of the global and China's supply chains. One significant benefit of this study is that it helps to reveal the vulnerabilities of the Chinese and global supply chains and possible ways to mitigate such. The challenges experienced during the pandemic and even today will leave a lasting mark. Understanding these vulnerabilities will make it easier for the world and China to adjust in the coming years to avert the extreme shocks experienced during the pandemic. When the pandemic struck, production shut down in many parts of the world, impacting the global supply chain. One cannot be faulted in thinking or wondering had China been more prepared for such an eventuality, could the slow economic growth and a crumbling supply chain and related production issues have been avoided.
Aside from the above, this study will also reveal the position of China in the global supply chain. Further, it will address whether China's position is threatened by being usurped, considering how the events in the country spilt over to the rest of the world. China has been referred to as the world's factory, and its position in the global supply chain is indeed crucial (Textor, 2022). However, during the pandemic, China had to halt manufacturing, its logistics were greatly disrupted, and many countries and people suffered. The impact was felt at all levels, from nations importing finished products from China to those importing intermediate products and consumer goods. Numerous reports of countries (e.g., the US and Japan) encouraged their companies based in China to shift their production closer to home. Tajitsu, Yamazaki, and Shimizu (2020) note that the Japanese government started offering up to 220 billion yen to motivate companies to shift manufacturing back home. Such calls aimed to help ensure that their supply chain is not entirely tied to China but diversified to avoid a complete shutdown like witnessed when the pandemic started. Such reports paint a dull picture of China and its position in the world's supply chain. Therefore, this study will discuss and reveal whether China's position is under threat and/or whether these calls will eventually die down as normalcy resumes.
Finally, this study is significant because it reveals the trends within the supply chain that will help to shape China's and the global supply chain. Even though COVID-19 exposed the vulnerabilities of the global supply chain, it also paved the way for innovative ideas that will hopefully lead to lasting changes and opportunities in the supply chain. Amid the pandemic, the Chinese supply chain remained resilient and agile, swiftly adapting to the earlier impacts of the pandemic (Pató, Herczeg, and Csiszárik-Kocsir, 2022). However, it was evident that the traditional methods of running the country's supply chain needed a complete overhaul. Therefore, the expectation is that the measures adopted to help resume exports and open up distribution channels will be enhanced and made even more panic-proof. Innovative ideas seen as the future of the Chinese and global supply chain will become part of the present changes. Therefore, in understanding how the Chinese supply chain bounced back from the impact of the pandemic, the stage will be set for the world to transition to the next phase of supply chain management.
In summary, the study seeks to reveal the vulnerabilities of the Chinese and global supply chains. Developing our understanding of these types of vulnerabilities will assist the world and China in making changes to their economies to avert shocks associated with future pandemics and similar events. Further, the study highlights the important position of China in the global supply chain. It indicates that China’s supply chain is instrumental to the world. Also, the study addresses whether China's position is threatened by being usurped. The established trends will help shape China’s supply chain and the global supply chain. The next section outlines the implications of the study.
1.5 Implications of Research
First, this research will set the stage for further research into how different policy instruments can be used by various countries, given their impact on China's position in the global supply chain. Numerous countries were reported to have adopted protectionist policies during the pandemic to protect their citizens from the global economic meltdown. Though seemingly short-term, these policies will likely imprint on how the global supply chain will function in the coming years. So, this study will shed light on the implications of some countries' policies and their weight or application to China's position in the global supply chain.
Further, this research will also paint a clearer picture of the future of the global supply chain. What ways/avenues/channels were used to avert the pandemic's impacts on the Chinese supply chain? Where is supply chain management headed? In the coming years, supply chain management will make numerous changes as it transitions to a new era. This research will showcase the areas or factions within the global supply chain that will likely transform it forever. So, this research is crucial for policy adoption within businesses operating at the global supply chain level and practice and follow-up research.
This chapter highlighted several implications of the current study, including setting the stage for further study on how policy adoptions by other nations will impact China’s supply chain. Additionally, the study shows the future of the global supply chain. The next section is the literature review. The chapter will present information on what other researchers have found about how the pandemic has affected China’s supply chain, which will be used to identify a gap in the literature and practice.
CHAPTER TWO: LITERATURE REVIEW
The literature review chapter will collect relevant and timely research on the Chinese supply's challenges during the pandemic. The chapter will synthesize other studies into a cohesive summary of existing knowledge. The chapter is divided into five sections: challenges in the global supply chain due to the pandemic changes to the global supply chain due to the pandemic, challenges the Chinese supply chain faced, and theoretical framework.
On 11th March 2020, the world reached a standstill after the World Health Organization’s (WHO’s) Director-General, Dr. Tedros Adhanom Ghebreyesus, declared COVID-19 a global pandemic 2020 (Cucinotta & Vanelli, 2020). In his announcement, Dr. Tedros noted that the number of cases in and outside China had been on the rise, and the expectation was that this trajectory would not change in the coming days and months. Therefore, Dr. Tedros and the WHO called for the world to take action and consider taking aggressive measures to help curb the virus's spread. According to Reuters (2020), China was the first to announce lockdowns in Wuhan and Hubei provinces. After the virus was reported in Europe, other countries started taking similar measures to curb the spread of the virus (Allain-Dupré, 2020). However, all the inactivity and inaction earlier criticized by the WHO caught up with some countries like Italy, which had implemented very few safety measures that were then severely impacted by the virus from March 2020 (Indolfi and Spaccarotella, 2020). By March 19th, the death toll in Italy had surpassed that of China, and the country was in shambles as the virus was showcased to have spread to many parts (Reuters, 2020). As this was happening and more countries were imposing tighter restrictions, the global supply chain started to experience stress levels that had never been felt before. Shih (2020) writes about the supply shock that hit China and the demand shock that followed as countries sought to impose measures to ensure the safety of their citizens. Major vulnerabilities in the world's global supply chain were exposed with major economies shutting down.
The literature review section will focus on what other researchers have found concerning the topic, ‘How did and does the Chinese supply chain face the challenge and change due to the Pandemic’, The major focus will be on the global supply chain's challenges because of the pandemic. Further, the changes as a result of the pandemic to the global supply chain will be examined. Moreover, a focus on the challenges the Chinese supply chain has faced because of the COVID-19 pandemic will be done. Lastly, theoretical frameworks that can be used to guide the research will be outlined.
2.1 Challenges in the Global Supply Chain as a result of the Pandemic
One of the challenges and exposition of the pandemic was the world’s over-reliance on China concerning the supply of certain finished and semi-finished products. According to Ma (2022), China is known as the world's factory because of its position as the world's largest supplier of manufactured goods. After overtaking Germany in 2009 to become the largest exporting nation in the world, China soared up the ladder to become the world's leading trade and export nation. As shown in Graph 1, the value of merchandise exports was incredibly high in China compared to, often twice, other countries like the U.S., Germany, Japan, France, the U.K., and India (Ma, 2022). It is crucial to reiterate that manufactured goods make up the largest percentage of China's exports, and in 2021, China exported $3.2 trillion worth of manufactured goods (Ma, 2022). The implication of the above is that whenever there are economic problems and upheavals in China, the world stands to suffer, and this was made evident after the COVID-19 pandemic struck. With China producing more than 15% of the world's manufactured goods, it became increasingly difficult for many countries to function properly during the pandemic since China had to halt production in many provinces. For example, in 2022, the manufacturing hub Shenzhen in Guangdong province had to halt production, and this impacted companies like Apple because Foxconn, one of its major suppliers, had to halt production (Bursztynsky, 2022). Therefore, it became increasingly clear that countries needed to develop their manufacturing sectors and position themselves better to deal with such eventualities.
Graph 1 – Value of Merchandise Exported by Country
Graph SEQ Image \* ARABIC 1:Value of Merchandize: /topics/1456/export-in-china/#editorsPicks
In addition, the supply of intermediate products was greatly impacted due to the pandemic (Meyer, Walter, and Seuring, 2021). A significant number of companies in the world depend on intermediate products from other countries (Stehrer et al., 2011). However, during the pandemic, these companies had to halt production or face delays in their production schedules because of the challenges in the supply, production, and distribution of intermediate products. A 2020 report from PricewaterhouseCoopers (PwCs) noted India as one of the countries with an over-reliance on China concerning the importation of pharmaceutical ingredients (PWC, 2020). The report indicated that India suffered greatly because China halted these ingredients' production and distribution. A report by the IMF (2022) echoes similar sentiments noting that spillover effects were greatly experienced during the pandemic because the production and supply of intermediate goods were hampered by the measures adopted by countries at the time (IMF, 2022).
The global supply of medical products and equipment, including personal protective equipment (PPE) such as surgical masks, goggles, gloves, and gowns, was also greatly affected. Once the pandemic hit, every country sought ways to protect themselves and their citizens. The above result was the misuse of PPEs, hoarding by different parties, and panic buying, which greatly hampered the healthcare sector's efforts to fight the pandemic (Asian Development Bank (ADB), 2020). China's experiences also hampered the supply chain of these products during the pandemic. With China as the world's leading producer of PPEs, it was only a matter of time before the impacts of COVID-19 in the country caught up with its production of products and equipment (ADB, 2020). The spillover impacts were felt worldwide, and demand soared as more countries were depleting their PPEs due to the surge in COVID-19 cases. Further, as demand increased, so was the price of this equipment and products. The ADB (2020) indicated that every month, the world needed 89 million medical masks and 76 million examination gloves to deal with the surge in cases. Additionally, many countries were enacting laws and/or policies that would help them build their domestic PPE supply chains to avoid over-reliance on China's supply chain. In the end, many countries found themselves negatively impacted, but on the other hand, several countries started to build their domestic supply chains that would eventually help them deal with such a pandemic.
Distribution, a key element of the global supply chain, was adversely affected because of the COVID-19 pandemic. Transportation by air, sea, railway, and road, which make up a key element of the global supply chain, experienced setbacks that further led to the contraction of the global economy. The pandemic negatively affected the shipping industry, which accounts for nearly 90% of the global trade (PWC, 2020). PWC’s report indicated that the World Trade Organization (WTO) estimated that due to the pandemic's impact on the shipping industry, global trade was expected to fall by more than 13% (PWC, 2020). However, even though these projections presented a dull picture and future, the United Nations Conference on Trade and Development (UNCTAD) reported that though the pandemic-related disruptions did impact global trade, maritime transport did not experience the same expected dramatic fall (2021). The UNCTAD reported that early shocks affected maritime transport and only caused a contraction of 3.8% in maritime trade. They also reported that maritime trade was expected to recover fully in 2021. Although the case may appear somewhat positive, different sectors of maritime trade fared differently, with some experiencing the bulk of the contraction. For example, UNCTAD (2021) reported that the shipment of crude oil, refined petroleum products, and gas dropped by a whopping 7.7%, which was felt worldwide. However, demand remained high for dry bulk commodities, such as grain, and the reported drops hovered at 1 and 2% (UNCTAD, 2021). In the long term, the expectation is that maritime trade will return to normal, and the world will be able to grow beyond the pre-pandemic levels.
According to Smith and Wesselbaum (2020), the producers of perishable goods also suffered greatly because of the pandemic. When the pandemic struck, governments moved first to announce the restriction of workers, production facilities, and food trade policies were also revamped. These changes were introduced hurriedly to help curb the spread of the pandemic (Atalan, 2020). However, in hindsight, these changes led to major effects on the global food supply chain. One way that producers were impacted was due to the timebound attribute of perishable products. Further, most producers had to increase their storage expenditure as they sought to prevent the eventual losses that were to come as a result of their products going bad. However, some of these producers suffered millions in damages as ports and export channels were full of uncleared exports and imports (PWC, 2020). In some countries, protectionist food policies were adopted to help ensure that priority was given to parent countries, and this meant that producers had to contend with losses that were sure to come from not meeting their client's needs (Allain-Dupré et al., 2020).
The global supply chain has faced numerous challenges because of the pandemic. The over-reliance on China for the supply of finished and semi-finished products proved challenging when lockdowns made it problematic to export goods from China. Additionally, given the world’s heavy dependence on China’s supply chain, the impact of the COVID-19 pandemic was felt globally. In most industrialized countries, companies had to halt production or face delays in production because of the challenges in the global supply chain. Moreover, the production of medical products and equipment, including personal protective equipment (PPE), was adversely affected, with some companies hoarding the products and equipment. In the same way, the production of perishable goods suffered a lot because of the pandemic. The transportation system, including air, sea, railway, and road, experienced setbacks, further contracting the global economy.
In summary, this section has focused on the challenges in the global supply chain because of the pandemic. The COVID-19 pandemic has adversely affected the global supply chain. The next section will focus on the changes to the global supply chain because of the pandemic.
2.2 Changes to the Global Supply Chain as a result of the Pandemic
With challenges and pandemics comes the versatility aspect of humanity. Though the pandemic impacted almost every sector in the world, it also led to the adoption of more resilient and versatile supply chains worldwide. With major impacts and losses because of the measures that countries adopted, many companies invested heavily in their pursuit of supply chain systems that were believed to be impervious to external factors. Harapko (2023) from Ernst & Young notes that though the pandemic brought about some unseen challenges, it also gave companies an opportunity to enhance their preparedness. In a survey conducted by Ernst & Young, it was revealed that most companies were adopting strategies to help them revamp their supply chains. According to Harapko (2023), the goal for these companies is to build supply chains that are sustainable, resilient, and collaborative. Further, he indicates that a majority of these companies are also looking to technology to help them circumvent some of the challenges they faced during the pandemic. As shown in Graphy 2, only a few companies benefitted from the pandemic, which has brought a need for change.
Graph 2: From: /en_gl/supply-chain/how-covid-19-impacted-supply-chains-and-what-comes-next
Currently, the global supply chain is embracing the idea of increased visibility. As more companies are investing in technology to help them build more robust and versatile supply chains, increased visibility has been a key focus factor. Harapko (2023) notes that companies are leveraging the Internet of Things (IoT) to monitor and collect real-time data on their products regarding their supply chain. With the enablement of IoT, stakeholders will be able to acquire real-time data on goods and track progress along the supply chain. These sentiments are echoed by Alicke, Barriball, and Trautwein (2021), whose survey revealed that supply chain companies seek to incorporate real-time performance tracking of goods. Alicke, Barriball, and Trautwein (2021) further add that their respondents considered this a major or key factor that can help all stakeholders join the supply chain system.
Another change that supplies chain companies are currently employing is a shift in focus concerning their workers' skills. In the survey by Ernst & Young, 61% of the respondents affirmed their desire to retrain and reskill their workers in their pursuit of transitioning or shifting to digital technologies (Harapko, 2023). Harapko (2023) adds that these companies are also trying to achieve enhanced virtual collaboration among their workers. The goal is efficiency, and this can only be attained if all workers are well trained and their skills complementary. Therefore, many companies are empowering their workers, especially regarding technology use. With Alicke, Barriball, and Trautwein (2021) showcasing that the skills gap hinders accelerated digiti...