Keep the International Supply Chain or keep it Closer to Home?

  • The importance of geographical diversification as a multinational firm 

  • Ineffective supply chain diversification in uncertain times of covid-19

Supply chains have recently been a mainstay in international commerce all around the world. Multinational corporations (MNEs) in particular cannot rely entirely on one of their own or nearby nations. MNEs face cultural, economic, and political challenges when expanding their operations to more remote places. Your firm, on the other hand, will not be able to grow as much if you solely focus on one region.

When expanding the business, MNEs must be aware of a number of challenges. Geographical diversification is said to be able to assist MNEs in expanding their business to a more distant realm, as well as greatly reducing risk by not only focusing on one country, which is the company's headquarters but also diversifying their business. MNEs might diversify their investment portfolio equities across various nations to lessen the risk of a business loss due to political turmoil or a downturn in the economy. Also, MNEs can deploy some of their production systems in several countries, so that not all production is done in one country, which can increase the efficiency of the MNEs themselves.

During this pandemic, however, relying on regional diversification in the supply chain is not a good idea. In truth, diversification is not something that all MNEs can do at any one time. According to John Neill, chairman, and chief executive of Unipart, a UK-based logistics and supply chain company, geographical diversification will not work in uncertain circumstances such as the covid-19 epidemic. If a company tries to establish a single complete diversification strategy in order to be resilient against the next pandemic, it will take much too long and the company will most likely fail before it lands. Diversification may be used in this uncertain environment, but it will result in less efficient production, which will result in higher production costs and selling prices. The increased price will irritate and pique no one's attention.

In conclusion, several MNEs are now considering building and becoming self-sufficient in their own country's production. Another prospective implication of this ruling is that businesses can concentrate on forming regional trade agreements with proxy countries rather than international ones. Geographical diversity is, in fact, employed to deal with regional issues. However, MNEs can learn that, rather than traveling further and avoiding local challenges that may harm their operations, they must occasionally focus on the nearby countries rather than avoiding them in their commercial expansion.

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