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A perspective on impact of covid-19 on European business: The risks of de-globalization and the promises of regionalization

 

By Professor Régis Coeurderoy & PhD candidate Xuejing Yang

The Covid-19 pandemic has caused worldwide disruption and we are now facing potentially tremendous changes, including de-globalization. The largest European companies could be seriously damaged by this, and Europe will need to help new industries emerge with a solid regional basis if they want to survive.

In our impact paper written as part of the ESCP Business School’s “Managing a Post-Covid19 Era” series, we compare the development over the past two decades of the largest multinationals in Europe Middle East and Africa, Americas, and Asia Pacific regions, and assess Covid-19’s short term and long-term effects on European companies, and the potential consequences of de-globalization. What we see is that European companies have the highest dependence upon host regions, while Asian and American companies remain strongly dependent upon their home regions. Therefore, the dependence of European business on the global economy under certain circumstances, will create a vulnerability among European companies if de-globalization does occur. Therefore, in the short run, Europe could be the main victim of a strong post-COVID-19 de-globalization wave; and therefore, it will need to help new industries emerge with a solid regional basis for its future competitiveness.

This is reflected when we look at emerging industries across the globe.  Industries are constantly evolving, and in the past two decades, many industries have disappeared and others have emerged. The largest European companies currently rely heavily on traditional industries such as oil and gas, yet across the globe we can already see a large number of new innovations in the medical, biotechnology and Information Technology industries, which are concentrated in the United States. This is due to the rapid rise in the demand for personal protective equipment (PPE), testing and tracing, and the surge for healthcare capacity. Therefore, Europe should be prepared to increase investment in these industries and plan in advance if they are to ensure stability for their economies in the future.

As well as healthcare, during this pandemic we have also seen the developments that car makers like Ford, Tesla and GM have been helping to solve the shortage of ventilators and masks through the flexible production lines of their Industry 4.0 factories – this opens up a new perspective on the future of manufacturing development. The production mode of Industry 4.0 will allow the production of various commodities to function through one single manufacturing facility. This may redefine the supply chain, and countries may accelerate the adoption of the flexible production model of Industry 4.0, thereby reducing the dependence of key products on the international supply chain. This should be an opportunity for Europe to increase the investment of innovation through Industry 4.0 and increase exposure to the future of manufacturing industry.

EU countries should be more united to form an integrated economy and larger internal market, in order to enhance the competitiveness of European companies. As well as this, European companies should definitively increase the efforts for investments that Industry 4.0 provides, specifically in the healthcare and manufacturing industries. Ultimately, the increased adoption of Industry 4.0 amongst European companies could be a great opportunity for them to prepare for the potential threats of de-globalization.