Tag Archives: global supply chains

Made in China, Always? COVID-19, the Survival of Resilience

As they walk through the valley of the shadow of death brought by COVID-19 chief executives and corporate strategists are beginning to look to the post-covid world to come. What they think they see, for good or ill, is an acceleration. Three existing trends—the deglobalisation unpicking the business world that grew up in the 2000s; the infusion of data-enabled services into ever more aspects of life; a consolidation of economic power into the hands of giant corporations—look likely to proceed at a faster rate than before, and perhaps to go further, too…

China’s government may encourage its state-owned firms to go global by buying distressed car companies in Europe. The share price of Daimler is less than half what it was when Geely, a Chinese carmaker, bought a 10% stake in 2018. Car companies may also see offers from technology giants keen to improve co-operation between metal bashers and the engineers of autonomy—currently wary at best. The healthier airlines, such as Qantas and IAG, owner of British Airways, will snap up airport slots from their bankrupt rivals and may try to acquire others only just staying aloft. Private-equity firms, which have mountains of committed investor cash, may start buying up fundamentally sound but impecunious suppliers in various industries, aware that when demand returns such companies will see its first fruits…

In 2019 many global firms sought to reduce their dependency on China. One of their favoured strategies was to put more business into factories elsewhere in Asia.  But the acute stage of China’s covid-19 crisis made it clear how essential China remains as a provider of inputs to such factories elsewhere in Asia and around the world. “What people thought was a global supply chain was a Chinese supply chain,”…

Joerg Wuttke, president of the EU Chamber of Commerce in China, says that if there is one lesson people are drawing from the pandemic in this regard it is that “single source is out and diversification is in.” In other words, companies do not just need suppliers outside China. They need to build out their choice of suppliers, even if doing so raises costs and reduces efficiency

Excerpts from Sinking, Swimming and Surfing, Economist,  Apr. 11, 2020, at 13

Human and Environmental Costs of Low-Carbon Technologies

Substantial amounts of raw materials will be required to build new low-carbon energy devices and infrastructure.  Such materials include cobalt, copper, lithium, cadmium, and rare earth elements (REEs)—needed for technologies such as solar photovoltaics, batteries, electric vehicle (EV) motors, wind turbines, fuel cells, and nuclear reactors…  A majority of the world’s cobalt is mined in the Democratic Republic of Congo (DRC), a country struggling to recover from years of armed conflict…Owing to a lack of preventative strategies and measures such as drilling with water and proper exhaust ventilation, many cobalt miners have extremely high levels of toxic metals in their body and are at risk of developing respiratory illness, heart disease, or cancer.

In addition, mining frequently results in severe environmental impacts and community dislocation. Moreover, metal production itself is energy intensive and difficult to decarbonize. Mining for copper,and mining for lithium has been criticized in Chile for depleting local groundwater resources across the Atacama Desert, destroying fragile ecosystems, and converting meadows and lagoons into salt flats. The extraction, crushing, refining, and processing of cadmium can pose risks such as groundwater or food contamination or worker exposure to hazardous chemicals. REE extraction in China has resulted  threatens rural groundwater aquifers as well as rivers and streams.

Although large-scale mining is often economically efficient, it has limited employment potential, only set to worsen with the recent arrival of fully automated mines. Even where there is relative political stability and stricter regulatory regimes in place, there can still be serious environmental failures, as exemplified by the recent global rise in dam failures at settling ponds for mine tailings. The level of distrust of extractive industries has even led to countrywide moratoria on all new mining projects, such as in El Salvador and the Philippines.

Traditional labor-intensive mechanisms of mining that involve less mechanization are called artisanal and small-scale mining (ASM). Although ASM is not immune from poor governance or environmental harm, it provides livelihood potential for at least 40 million people worldwide…. It is also usually more strongly embedded in local and national economies than foreign-owned, large-scale mining, with a greater level of value retained and distributed within the country. Diversifying mineral supply chains to allow for greater coexistence of small- and large-scale operations is needed. Yet, efforts to incorporate artisanal miners into the formal economy have often resulted in a scarcity of permits awarded, exorbitant costs for miners to legalize their operations, and extremely lengthy and bureaucratic processes for registration….There needs to be a focus on policies that recognize ASM’s livelihood potential in areas of extreme poverty. The recent decision of the London Metals Exchange to have a policy of “nondiscrimination” toward ASM is a positive sign in this regard.

A great deal of attention has focused on fostering transparency and accountability of mineral mining by means of voluntary traceability or even “ethical minerals” schemes. International groups, including Amnesty International, the United Nations, and the Organisation for Economic Co-operation and Development, have all called on mining companies to ensure that supply chains are not sourced from mines that involve illegal labor and/or child labor.

Traceability schemes, however, may be impossible to fully enforce in practice and could, in the extreme, merely become an exercise in public relations rather than improved governance and outcomes for miners…. Paramount among these is an acknowledgment that traceability schemes offer a largely technical solution to profoundly political problems and that these political issues cannot be circumvented or ignored if meaningful solutions for workers are to be found. Traceability schemes ultimately will have value if the market and consumers trust their authenticity and there are few potential opportunities for leakage in the system…

Extended producer responsibility (EPR) is a framework that stipulates that producers are responsible for the entire lifespan of a product, including at the end of its usefulness. EPR would, in particular, shift responsibility for collecting the valuable resource streams and materials inside used electronics from users or waste managers to the companies that produce the devices. EPR holds producers responsible for their products at the end of their useful life and encourages durability, extended product lifetimes, and designs that are easy to reuse, repair, or recover materials from. A successful EPR program known as PV Cycle has been in place in Europe for photovoltaics for about a decade and has helped drive a new market in used photovoltaics that has seen 30,000 metric tons of material recycled.

Benjamin K. Sovacool et al., Sustainable minerals and metals for a low-carbon future, Science, Jan. 3, 2020

Deforestation and Supply Chains

366 companies, worth $2.9 trillion, have committed to eliminating deforestation from their supply chains, according to the organization Supply Change. Groups such as the Tropical Forest Alliance 2020, the Consumer Goods Forum and Banking Environment Initiative aim to help them achieve these goals.  Around 70 percent of the world’s deforestation still occurs as a result of production of palm oil, soy, beef, cocoa and other agricultural commodities. These are complex supply chains.  A global company like Cargill, for example, sources tropical palm, soy and cocoa from almost 2,000 mills and silos, relying on hundreds of thousands of farmers. Also, many products are traded on spot markets, so supply chains can change on a daily basis. Such scale and complexity make it difficult for global corporations to trace individual suppliers and root out bad actors from supply chains.

Global Forest Watch (GFW), a WRI-convened partnership that uses satellites and algorithms to track tree cover loss in near-real time, is one example. Any individual with a cell phone and internet connection can now check if an area of forest as small as a soccer penalty box was cleared anywhere in the world since 2001. GFW is already working with companies like Mars, Unilever, Cargill and Mondelēz in order to assess deforestation risks in an area of land the size of Mexico.

Other companies are also employing technological advances to track and reduce deforestation. Walmart, Carrefour and McDonalds have been working together with their main beef suppliers to map forests around farms in the Amazon in order to identify risks and implement and monitor changes. Banco do Brasil and Rabobank are mapping the locations of their clients with a mobile-based application in order to comply with local legal requirements and corporate commitments. And Trase, a web tool, publicizes companies’ soy-sourcing areas by analyzing enormous amounts of available datasets, exposing the deforestation risks in those supply chains…

[C]ompanies need to incorporate the issue into their core business strategies by monitoring deforestation consistently – the same way they would track stock markets.

With those challenges in mind, WRI and a partnership of major traders, retailers, food processors, financial institutions and NGOs are building the go-to global decision-support system for monitoring and managing land-related sustainability performance, with a focus on deforestation commitments. Early partners include Bunge, Cargill, Walmart, Carrefour, Mars, Mondelēz, the Inter-American Investment Corporation, the Nature Conservancy, Rainforest Alliance and more.  Using the platform, a company will be able to plot the location of thousands of mills, farms or municipalities; access alerts and dashboards to track issues such as tree cover loss and fires occurring in those areas; and then take action. Similarly, a bank will be able to map the evolution of deforestation risk across its whole portfolio. This is information that investors are increasingly demanding.

Excerpt from Save the Forests? There’s Now an App for That, World Resources Institute, Jan. 18, 2017