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Longitudinal discussion of well-known Chinese and American economists: Where does the economic development after the epidemic come from?

Longitudinal discussion of well-known Chinese and American economists: Where does the economic development after the epidemic come from?

Daniel Sheridan Ferrie, Mairead McGuinness, Paolo Gentiloni

The management of “isolated” companies separated from the information of the industrial chain is extremely unreliable.

Lu Lijian: After the outbreak of COVID-19, under the circumstances that the epidemic has hit the global economy fiercely, leaders and industry experts from all over the world have gradually realized the importance of industrial chain management and have studied measures to improve the stability and competitiveness of the industrial chain. As leading scholars in the field of industrial chain management and digital economy, Professor Fedgren and Professor Magras, can you introduce the development history of industrial chain management from a professional perspective, and how to see the impact of the epidemic on the world economy?

Lu Lijian: Professor of Business School of Hong Kong University of Science and Technology, winner of the Nixon Award of the Society for International Operations Research and Management, and former Global Vice President of Quantitative Investment of Goldman Sachs Group.

Fedgren:

Industrial chain management is very popular nowadays. High-quality enterprises with core competitiveness have very professional and perfect industrial chain management systems. But 20 years ago, this major was almost a minority discipline. Only the analysts and middle managers of a team of experts were concerned about the difficult problems in the design and management of efficient industrial chains, which rarely even appeared in the company’s board of directors or government cabinet meetings. Even similar business administration majors in business schools rarely offer relevant courses or only a few students are interested in such courses.

Awi Federgruen: Charles Chair Professor, Head of the Department of Operations Management of Risk Decision-making, and Fellow of the American Academy of Engineering, Columbia University Business School.

Now this phenomenon has changed dramatically. On the one hand, the crisis caused by the COVID-19 epidemic has made many countries realize that the key elements of products have been seriously deficient overnight, and the news media has continuously reported the serious shortage of medical supplies. In addition, the foot ban and factory closures around the world have caused serious deficiencies in other key elements of the product line that are not related to the epidemic. For example, Procter & Gamble, a manufacturer of laundry detergent, toilet paper and other household goods, is a manufacturer. It relies heavily on more than 400 different Chinese suppliers to produce more than 9,000 raw materials for 17,600 finished products. Its front-line suppliers in other countries also face shortage of raw materials. . The serious deficiencies of core key production factors like this make enterprise managers and economic policymakers realize that the traditional “isolated” corporate management mechanism that separates from the upstream and downstream of the company’s industrial chain is located is extremely unreliable. In order to achieve the sustainable, healthy and stable development of the economy, we must reshape the stability and competitiveness of the industrial chain from the perspective of the industrial chain.

According to a survey conducted by the American Association of Supply Chain Management in late February and early March 2020, about 75% of companies reported that the COVID-19 epidemic has disrupted their industrial chains, and 44% of companies have no plans to deal with the risk of such interruption. Among Google’s 2.5 trillion global search keywords throughout the year, the frequency of the word “supply chain” has increased fivefold from early January to mid-April 2020.

In fact, as the core part of the company’s strategy and the core driving force of the company’s profitability, industrial chain management existed long before the emergence of the COVID-19 epidemic, and will certainly continue to exist in the future. Some industries have been completely changed due to innovation in industrial chain strategies. For example, Amazon can lead and monopolize the global electronic retail industry, not because it provides better or different products, nor because its price is more competitive than its competitors. Its unprecedented success is only because of its innovation in industrial chain management strategies. For the same reason, Wal-Mart has a global revenue of nearly $517 billion. Wal-Mart is by far the world’s largest brick-and-mortar store and e-commerce comprehensive retailer.

Magras:

The COVID-19 epidemic has caused heavy loss of life, economic disruption and uncertainty. The global health care system, the political system, the response ability of relevant institutions to respond to the crisis, and the economic relevance and dependence presented through the connection of the global industrial chain are facing the severe challenges of the epidemic. In addition, the epidemic has raised great concern about social injustice in particular, especially among some people who have caused health and economic income crises caused by the epidemic.

Costis Maglaras: Dean of Columbia University Business School and David and Lynn Hilfin Chair Professor.

Many of us have been involved in a natural experiment for nearly a year. After the outbreak of the epidemic, many countries have implemented lockdown and home quarantine policies. To this day, some countries are still tele-schooling and working remotely. Although some industries, such as food and agriculture, have not stopped operating during this period and have largely returned to normal operation, a large proportion of the economies related to services will continue to work remotely. Such a situation has accelerated the previous trend, with a butterfly effect on urban transportation, working methods, workplaces, shopping methods, service methods, reading methods, supply and demand.

Lu Lijian: It’s true. The Chinese government has done an excellent job in controlling the epidemic, and the epidemic has been effectively controlled at home. I found that the term “industrial chain” or “supply chain” also appears nearly 100 million times in China. The impact of the epidemic on the world economy is extremely huge. Take the United States as an example. The epidemic has caused a large number of enterprises to go bankrupt, covering a wide range of industries. The most affected are traditional services such as transportation, catering, hotels, tourism, etc., followed by industrial enterprises, especially manufacturing.

The globalization of the industrial chain is related to safe and secure production capacity.

Lu Lijian: The industrial chain in the 21st century is closely related to economic globalization. After the outbreak of the epidemic, the media in some countries hyped the topic of “counter-globalization” and proposed to end globalization and let production and manufacturing flow back to their own countries. Even some politicians in some countries regarded globalization as a political game and chip. How does Professor Fedgren view the phenomenon of “counter-globalization”?

Fedgren:

A key strategic question is whether a company needs to localize suppliers, or outsource to other countries, or internationalize both from the perspective of the efficiency and resilience of the industrial chain? In the past few decades, it has been obvious that the United States or most countries in Europe have gradually outsourced production and manufacturing to countries and regions with cheaper labor and raw materials. Recently, we have also seen the momentum contrary to this. For example, between 2000 and 2003, 240,000 production and manufacturing activities were outsourced to outside the United States every year. However, this figure fell to 50,000 in 2016. In the same year, 70,000 similar production and manufacturing activities were brought back to the United States, with the direct impact of increasing and promoting job opportunities in the production and manufacturing industry in the United States. Before the spread of the COVID-19 epidemic, new information provided by Bank of America confirmed this phenomenon. In a survey of 3,000 companies, the researchers found that in 12 global industries with a market capitalization of more than $22 trillion, more than 80% of companies in North America, Europe and Asia except China are implementing or announcing plans to move back to the United States from their current regions. This The proportion shows that the trend of localization does exist.

This is a container shot in the Port of Banjan, Brazil, Singapore, on August 17, 2020. Xinhua News Agency

So how to explain this trend that is contrary to globalization? First of all, the company realizes in its operation that the choice of suppliers should not only depend on the production cost of direct buyers, but also take into account the total landing cost of all costs associated with suppliers, including transportation, storage, tariff costs, and the cost of safe inventory to meet local needs. The costs associated with these inventories can be very large, especially when the distance from the supplier to the local area is very far away and full of uncertainty and the need to maintain high quality of service. In addition, suppliers usually have production capacity constraints, and their production capacity varies greatly. Secondly, the increasing risks of the globalized economy have prompted companies to constantly change their supplier selection decisions and corresponding procurement strategies. Over the past 40 years, the cost of productive labor has also increased in some countries. In the current trade friction, the United States, China and Europe are rapidly changing their trade tariffs, which also makes logistics costs and commodity prices fluctuate. In addition, foreign exchange and interest rates are constantly changing rapidly. All these volatility has an important impact on demand, cost and production capacity. Generally speaking, due to sudden supplier closures, quality problems, rational rationing plans and other factors, the theoretical production capacity level is very different from that in the actual production process. Thirdly, due to supplier capacity constraints, a global procurement strategy for procurement from two or more suppliers is necessary and even desired by enterprises in a volatile environment. Of course, the difficulty of the global procurement strategy of multiple suppliers is how to determine the allocation of each supplier and how to dynamically use inventory information to dynamically adjust the allocation decisions between suppliers. In most cases, enterprises can use contractual contracts similar to the concept of financial options to solve supplier allocation problems, that is, enterprises can book or invest in supplier capacity in advance to ensure that they have corresponding capacity when needed in the future. Similarly, it faces the same dilemma for a multinational enterprise with two or more assembly plants distributed in different regions of the world, and these factories serve customers at different costs and supply cycles.

This is the Payala 2×660 megawatt supercritical coal-fired power station, which was photographed on November 11, 2020 in Boduakali County, southern Bangladesh. It is invested and constructed by China Machinery Import and Export (Group) Co., Ltd. Xinhua News Agency

Lu Lijian: From the dimensions of total economic landing cost, economic risk and production capacity, you return to the objective law of economic development, and expound the “counter-globalization” that has emerged in recent years. Your analysis makes people understand that whether an enterprise implements a globalization strategy is determined by the efficiency and flexibility of the industrial chain produced by its products. Indeed, the globalization of the industrial chain is the objective requirement of the development of social productivity and the inevitable result of scientific and technological progress. It does not plague economic development as some politicians and the media say. Their purpose is to “politicize” the problem of globalization. In your opinion, in the post-epidemic era, how to improve the flexibility and competitiveness of the industrial chain?

Fedgren:

In the vast majority of industrial chain configurations, volatility level, or risk level, is the primary driving force for high operating costs. Under the global production and procurement system with multiple suppliers, due to the full and effective sharing of orders and production capacity resources among suppliers, the industrial chain system enhances the ability to resist risks, thus having higher flexibility and operational efficiency. Therefore, the globalization of the industrial chain is an important measure to improve the production capacity of security.

In addition, it is also necessary to consider that the channels of suppliers are partially or completely interrupted in the epidemic. The COVID-19 epidemic has produced a large number of actual cases described above. However, the problem is not limited to the once-in-a-century COVID-19 epidemic. Other factors, such as the flood disaster in Thailand, the earthquake in Japan, hurricanes similar to Katrina in the United States, local fires and plant pollution, can also cause production and supply disruptions worldwide. In the vaccine production and manufacturing industry, due to the small number of international suppliers and the frequent long-term closure of production equipment, the problem of insufficient production capacity has also persisted. Therefore, the consideration of industrial chain elasticity also provides additional incentives for multi-supplier global supply strategy.

In fact, my team’s latest research shows that compared with the procurement strategy of a single supplier, the benefits of multiple, even if only two suppliers, are very obvious. Even in an environment of stable cost, stable demand and risk-free production capacity, the efficiency improvement effect of decentralized procurement in globalization is not It is often significant. Of course, in a volatile market environment, the effect of decentralized global multi-supplier allocation will be more obvious. However, recognizing and realizing the benefits of these globalizations requires the most advanced industrial chain configuration models and algorithms, which are also the research focuses of my research team at Columbia University Business School.

Lu Lijian: From the perspective of reducing the volatility level of the industrial chain, you discussed how to reasonably use the procurement decentralization and incentive mechanism in the process of globalization to effectively improve the efficiency of the industrial chain and reduce volatility. From the perspective of historical development, economic globalization has promoted the flow of goods and capital, the progress of science and technology and civilization, as well as the interaction of people of all countries, providing a strong impetus for world economic growth. Of course, economic globalization will not be smooth sailing. It is a double-edged sword, and there will also be various problems, such as geopolitical risks, the high dependence on production links in a region caused by the high concentration of suppliers, and insufficient response capacity to abnormal outbreaks of demand. However, simply blaming economic globalization for the problems that plague the world is neither true nor conducive to solving the problem. In the face of opportunities and challenges, it is more important to ease trade frictions, remove barriers to enterprise development, work closely to meet all difficulties and challenges, work together to achieve comprehensive economic recovery and healthy development, and advocate formulating strategies to improve the resilience and core competitiveness of the industrial chain according to the local conditions of the industry.

Technological innovation is an important driving force for economic recovery and development.

Lu Lijian: In recent years, technological innovation, including big data technology, has developed rapidly and been widely used, playing an increasingly important role. Professor Margrass, please talk about the application of such technologies in the service and digital economy and their significance for economic development in the post-epidemic era.

Staff showcasing an assisted delivery robot that can follow the courier’s movement in Sejong, South Korea, on October 28, 2020. Xinhua News Agency

Magras:

Although the COVID-19 epidemic has caused huge losses to the world economy, it has also accelerated technological innovation in many fields, which are an important driver of economic recovery and development.

First of all, in the field of transportation, various enterprises are striving to overcome the problems encountered in the resumption of production and work caused by the COVID-19 epidemic, set up safe social distancing, and formulate detailed rules to be followed in the halls of commercial buildings, elevators and open office environments. In urban business centers, the problem of safe commuting by employees is particularly worrying, because it is a process that relies heavily on public transportation systems. Current public health policies mandate a reduction in congestion in the transportation system and increase the use of bicycles. However, this model is not enough to meet the transportation needs of millions of commuters on a scale, especially long-distance commuting. For example, the urban subway transportation system, assuming that the safety distance between people is doubled, such as from 2 feet to 4 feet, the traffic capacity will be reduced to 75%. This requirement has a particularly severe impact on peak hours, where safe social distancing is usually close to one foot, and the requirement to increase social distancing to four feet will reduce transportation capacity to only 5%.

So how to deal with the extremely shrinking traffic capacity caused by the epidemic? Here I will focus on analyzing and expounding the principle of demand smoothing in management, that is, the concept of reasonably dispersing requirements into the whole time range. Managing an economy and society in a special period of gradual resumption of work and production forces us to rethink one of the most basic assumptions in daily life that most people have the same working hours and need to take the public transportation system at the same time of time every day. This basic assumption can and should be removed, for example, by staggering the working hours in some way. Such a smoothing of demand and the process of reducing the use of loads during rush hours will greatly reduce the congestion of public transportation systems, road networks and office buildings. For example, assuming that the current system has a peak period of 60 minutes and a 90-minute peak period every four hours, a simple calculation shows that through a smooth demand, a subway will increase its transportation capacity by more than 30% and maintain a usage rate of less than 85%. Considering the different transportation networks, the mere way to smooth demand will compensate for the loss of traffic capacity caused by the increase of social distancing during the epidemic by 50% and increase traffic capacity in the post-epidemic era by 30%. In addition, it will reduce congestion delays and total traffic time caused by full subway cars and platform congestion.

Demand smoothing is also being implemented by road systems, aviation and power network systems in the United States. Generally speaking, such smoothing can be achieved through price incentives, such as giving a certain discount on night power consumption, and charging higher fees for driving in special areas during peak periods. However, before moving to price incentives, we should try to reduce the structural impact of daytime convergence on peak infrastructure loads. Car sharing is another feasible solution to traffic congestion. In order to promote the use of shared cars, we need to invest in the optimization of technical solutions such as scheduling and pricing mechanisms. At present, many difficult problems in the field of shared cars will trigger more in-depth thinking and guide a large number of sustainable technological innovations.

The second area is teleworking. After the outbreak, almost all employees switched to remote work overnight, which greatly affected the service industry and the higher education I worked in. Many people are studying the topic of how much remote work will be a long-term trend, and what kind of science and technology and management tools can be used to create an inclusive, innovative and dynamic organic culture. Although remote work has been a great success during the epidemic, it is not certain whether this method can be sustained in the long run. In the current environment, remote work faces great difficulties and challenges. For example, hiring and training new employees are very complicated, and the innovation process requires strong and purposeful joint research and development, which are difficult to achieve by remote work; corporate culture is also difficult to maintain and evolve through remote work. Individual networks usually rely on spontaneous and informal communication – remote The “cold water-like communication” in the way is almost impossible to replace it. Most people may rely on scientific and technological tools for projects, documents, etc., or work together through online meetings, but these tools do not solve the problems and challenges in interpersonal communication mentioned above.

To fill this shortcoming in remote work and respond to the current pandemic crisis, there are many very meaningful innovations underway. For example, some of the innovation work combines virtual network and virtual reality technology currently being created. A large part of these efforts draw on the knowledge and technology of the online game industry. This enhancement of our ability to maintain close relationships and virtual communication is a very necessary measure to solve the above problems. In addition, how to fully combine offline communication to achieve the best results also requires in-depth thinking and guidance from the team and project management.

Finally, innovation also plays an important role in the recovery of other service industries. Education has been transformed during the epidemic, and the lessons we have quickly explored and learned will continue to play a role. The technology tools for distance learning will allow scientific research institutions to provide a hybrid teaching method project that combines online and offline organically, focusing on interpersonal interaction activities that can best benefit students’ learning, and enhance the value of the educational projects we provide. In addition, we can quickly familiarize with and use distance education tools, thus improving the education level in remote and poor areas that lack teachers or professional educators.

In a word, the epidemic has brought about a lot of changes in many aspects of our economy, forcing us to rethink and rethink many aspects and habits of life. This process is disruptive, but it will continue to lead long-term innovation and changes to our global economy.

Lu Lijian: You discussed the important role of technological innovation in the economy. Search, social networking, payment and entertainment constitute the infrastructure of the network world, and the digital intelligent upgrading of the industrial chain is also the infrastructure of building the future era of data productivity. After adopting digital technology, the industrial chain enterprise is not only an individual in the economic sense, but also a source of data production, and these industrial chain data are of extraordinary significance for industry 4.0, intelligent manufacturing and the possible future AI+ manufacturing revolution. In the post-epidemic era, big data, artificial intelligence, blockchain and other technologies will play a more important role in the industrial chain. First of all, through the characteristics of blockchain decentralization, openness and autonomy, anonymity and non-falsification, the problems of data leakage, theft of sensitive information, and geopolitical interference have been effectively solved. Secondly, because data can objectively reflect the truth and development rules, rich and comprehensive data greatly improve the geographical limitations in the traditional globalization process, and increase the efficiency of information communication and the accurate traceability of problems. Such big data technology helps to reduce the cost and obstacles of information communication in the industrial chain, and greatly improve the efficiency and competitiveness of the industrial chain. In the future digital era, whoever has the most comprehensive amount of data and masters the intelligent technology related to big data processing and commercial analysis can have the core competitiveness of the market.

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