Canadian businesses look to source more inputs domestically: Research

THE COVID-19 pandemic has led Canadian businesses to source more inputs from domestic suppliers, a shift that could permanently change how supply chains are managed in this country, new research from The Conference Board of Canada has found.

Responding to the Global Commerce Centre’s latest trade survey, many Canadian organizations said they shifted their supply chains more toward domestic suppliers during the global pandemic. An even greater share of survey respondents said they plan to continue sourcing more inputs from local suppliers after the pandemic is over.

“Business leaders may be planning to bring their supply chains closer to home as part of a strategy to mitigate the effect of future global supply chain shocks” says Julie Ades, Senior Economist in The Conference Board of Canada’ s Global Commerce Centre.

More than 40 per cent of the businesses that responded to the Global Commerce Centre’s survey said that they are planning to source more inputs from local suppliers after the pandemic concludes. For large and medium-sized organizations, the share of respondents planning to source more inputs from local suppliers after the pandemic is over was even larger at 50 per cent.

However, sourcing locally may not be as effective at mitigating supply chain risk as some business leaders believe. More than two‑thirds of organizations sourcing Canadian inputs said they still experienced domestic supply chain disruptions due to the pandemic. Among survey respondents sourcing Canadian inputs, 38 per cent said that COVID-19 disruptions were having a high or medium impact on their ability to source inputs within Canada.

“The reality is that having a local or regional supply chain would not entirely have protected Canadian organizations or the Canadian economy from supply chain disruptions caused by the global pandemic,” says Pedro Antunes, Chief Economist at The Conference Board of Canada. “The best approach would be for Canadian businesses to have a plan in place to manage future shocks and disruptions.”

Canadian firms can improve the robustness or resiliency of their supply chains by introducing strategies such as developing a network of trusted suppliers, using digital technologies for a more agile management of supply chains, and conducting regular stress tests to help make more informed decisions moving forward. Looking inward to domestic suppliers and cutting out foreign suppliers entirely could be the wrong approach long-term, research suggests.

A recent study by the Organization for Economic Cooperation and Development (OECD) found that increased localization (i.e., a regime that relies less on foreign suppliers) would have exacerbated the economic slowdown caused by the pandemic in most countries.

The Global Commerce Centre’s trade survey found that, in terms of disruptions, COVID-19 containment measures caused the most problems when sourcing inputs from China, followed by inputs from other parts of Asia and the Americas (excluding Canada and the United States). Not all Canadian industries were affected equally either. Health care service was one of the most affected industries, while high-value services, such as professional, financial, and information technology were among the least impacted by the pandemic.