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[ CORONAVIRUS ]
changing company supply chains.
Businesses that source stock and parts
from across international borders have
found it difficult to keep production
running and goods flowing. Some
companies are now looking to shorten
their supply chains by bringing
production back onshore, as lowering
the risk of business interruption is
prioritised over cheap labour.
“Globalisation has led industries
to site production in many different
countries around the world, using ‘justin-time’
methods which are heavily
reliant on smooth international travel
and transit,” explains Cole.
“In the past couple of months,
international trade has been
significantly hit, international travel
has pretty much ground to a halt and
there are going to be a lot of companies
cursing their long supply chains.”
Companies including Apple, Harley-
Davidson, Boeing, Ford and Adidas
have been reshoring some of their
factories back to the US in recent
years, while ASOS, Gtech and Cadbury
are among the businesses investing
in domestic production facilities in
the UK. Yet this has its own risks:
shoemaker Clarks brought production
back to Somerset from the Far East in
2017, but closed the new factory last
year after it failed to reach production
and cost targets.
Businesses that source
stock and parts from across
international borders have
found it difficult to keep
production running and
goods flowing
Although not every move will be
successful, this trend is likely to
increase. How would this affect
investors? Cole suggests higher labour
costs could push up the price of goods,
increasing inflation and therefore
bond yields.
How to position your portfolio
Chillingworth’s base case is that we
won’t see a return to normality in
the UK for at least a year, so investors
should probably look at whether their
portfolios are prepared for whatever
may come.
As well as taking a defensive stance,
he says you should have exposure to
technology and consumer staples.
While there will be some winners,
investors will need to be careful as it
will take time for companies to adapt.
“It will probably pay to wait to see
how it shakes down as I don’t think
it’s going to be a quick and painless
transition from one sort of business
model to the other,” he finishes.
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