Irish businesses told to diversify supply chains as Covid-19 spreads

28 Feb 2020

Killian Cawley. Image: Jess Lowe Photography

OCO Global’s Killian Cawley says that the Covid-19 outbreak highlights Ireland’s ‘over-reliance’ on single-source supply chains.

OCO Global’s trade director for Ireland, Killian Cawley, has said that the coronavirus, or Covid-19, outbreak has highlighted Ireland’s “over-reliance” on single-source supply chains in China.

As some of the biggest companies in the world deal with the impact that the virus is having on global trade and manufacturing, Cawley said that it is becoming increasingly apparent that significant issues could arise for the Irish economy as Covid-19 spreads.

‘Irish companies now need to make a dramatic shift to diversify supply chains and mitigate further damage’

Belfast-based foreign investment advisory firm OCO Global, which advises Enterprise Ireland among others, said that there has been “a global awakening” of the challenges associated with single-source supply chains, as the outbreak highlights how interdependent global trade has become.

A negative impact on business growth

So far, Apple, BMW, Tesla, Amazon and Alibaba are among the companies reporting major disruption to supply and business growth. Over the month of February, China reported a massive 92pc drop in car sales as the country’s lockdowns took a toll on the industry.

This will have a significant impact on the global auto trade, as China is the world’s biggest car market, selling just over 21m cars last year, according to Statista. The second largest market is the US.

On the topic of the potential impact that Covid-19 could have on Irish business, Cawley said that single-source supply chains have, until now, been seen as a cost-effective solution to having facilities in different locations. This approach has exposed Irish businesses with core production in China, “weakening their adaptability to market shocks”.

Cawley noted that China is Ireland’s fifth-largest market for imports, covering €4.7bn worth of goods. The impacts of Covid-19 on China’s “far-reaching” supply chain will “reverberate across all sectors of the Irish economy with stock management and inventories expected to be dramatically affected from Q2”, according to OCO Global.

The Irish pharmaceutical industry, which imports €255m worth of active ingredients used in antibiotics and other common drugs, is also expected to take a hit.

Minimising damage

“Many Irish companies are relying on the single supplier model, however, as the coronavirus outbreak continues to tighten its grasp on world trade, the impact on many local companies could be stark,” Cawley said.

“Irish companies now need to assess their over-reliance on individual regions, wherever they may be, and make a dramatic shift to diversify supply chains and mitigate further damage.”

OCO Global said that it plans to work with Enterprise Ireland and a number of Irish and international exporters to make plans to safeguard against future global disruption and protect the Irish economy in the long term.

“It’s not just about the current outbreak,” Cawley added. “As the world becomes increasingly interconnected and interdependent, these types of market shocks are inevitable.

“Global issues now have the potential to be more widespread and multi-faceted than any other time in history due to the nature of global travel and trade. The Irish economy needs to be adaptable and prepared that if any one region or country is affected by disease, conflict or financial upheaval, it is able to manoeuvre supply chains to other operating hubs and continue trade as before.”

Kelly Earley was a journalist with Silicon Republic