An inter-connected global economy facing disruption

There are few things that throw the global label industry significantly off track. Despite occasional wobbles, it has continued to grow over many years at above GDP in most markets and economies, spurred on in recent years by the powerhouses of China, India and parts of Southeast Asia.
An inter-connected global economy facing disruption

However, that may all be about to change as the impact of the coronavirus as it spreads across the world, increasingly comes into play on both global manufacturing and financial markets. Indeed, the virus has undoubtedly drawn much wider attention to the connected nature of today’s global economy.

Perhaps the first thing to be noted is that this is a major disruptive event which has global implications for many different supply chains. China today is a key link in imports and exports for all major economies, with many global companies relying on suppliers from China. More than 300 of the Global Top 500 companies have a presence in the Wuhan region, including Microsoft and Siemens.

Many other global companies also rely on suppliers in the region. For example, Apple has 290 of its 800 suppliers based in China and the region is also responsible for nine percent of global TV production.

Something like 50 percent of all manufacturing in Wuhan is related to the global automotive industry. Wuhan has 10 car factories, including those of Honda, Renault, PSA and General Motors. Most automotive OEMs single source components for new vehicles and China is a large supplier of those. Even if just one component manufacture is halted, it can bring automotive production around the world to a halt.

China is also responsible for producing 40 percent of the active ingredients for the pharmaceutical world. Both the automotive and pharmaceutical industries globally are therefore already dealing with delays and shortages for required components or ingredients to make a final product. 

This leads to component shortages, higher prices and lower production. For automotive parts it is a matter of factories – which may be in Mexico, eastern Europe, or Morocco – not being able to produce vehicles as needed. For pharmaceuticals, it can even be a matter of life or death for some drug users.

Even if just a small part of a product is manufactured in China, overall production elsewhere in the world can be slowed significantly or brought to a halt without those parts. This is already directly affecting the manufacturing of all kinds of other goods, including electronics, household appliances, metal products and some food and beverages, because many factories have had to slow down production or even shut down, and global logistics for some sectors too have also become crippled. 

So, how might the coronavirus impact the world of labels? Label converters in Europe, the Americas and elsewhere whose label products end up in automotive vehicles, electronic goods, household appliances, on drugs, and a whole host of other sectors that rely on some part of their production being sourced in China, may well find that orders or run lengths slow down or even stop for some time.

But it’s not just China that is worrying manufacturers, and may effect label production anywhere in the world. The surge in coronavirus cases in countries like Italy also presents a risk to the European economic outlook, with the potential lockdown of parts of this highly industrialized region highlighting potential downside risks for Italy’s neighbors. Germany, Switzerland and Austria all have close links to northern Italy’s manufacturing hubs.

Many of the world’s major airlines are also facing travel disruption and cancelled flights, which in turn can be a challenge for any label converter that supplies the airline industry. 

And it’s not just engineering, electronics and airlines that are having problems. Primark’s owner, Associated British Foods, has said that several of its food factories in Europe are operating at reduced capacity due to labor constraints. It has also said it could run out of some clothing lines if factory delays are prolonged.

Is there anything that the label industry or label converters can, or should, be doing all the time that the coronavirus spreads? Should they be in a region that is placed under lockdown then extreme measures will undoubtedly come into play. No movement of people of goods outside an exclusion zone. How long can that be sustained?

For all other converters or suppliers it might be worthwhile drawing up contingency plans. What happens if supplies of materials are halted? Are key customers likely to be impacted and orders slowed or halted? What about employee travel to countries or regions where the virus has taken hold? Should we monitor employees returning from affected regions?

The after-effects of the coronavirus may also have other longer-term implications for the manufacturing and label industry worldwide, bringing an even greater drive towards automation, as clearly with less people working side-by-side in factories, the lower the risk of any future occurrence such as this one.

Hopefully, most of the label industry does not have to face such challenging issues in the coming months, but it may well be better to be safe than sorry.

Michael Fairley

  • Strategic consultant