COVID-19 and Global Supply Networks

MNE Structure
Today’s multinational enterprises are organized as giant global supply networks.

6 March 2020 – It has come to my attention that too many folks who should know better are confused about exactly why the stock market has shown such volatility recently. Specifically, we’ve seen multi-percentage daily changes both up and down, but especially down. We have also seen reports of reduced earnings guidance from multinational enterprises (MNEs). Finally, we’ve seen a drastic (50 basis points) cut by the Federal Reserve Bank with essentially no reaction from the stock-market. Pundits have charged most of this volatility to economic ramifications of the developing pandemic of COVID-19 coronavirus. That is sorta true, but it doesn’t tell the whole story.

First of all, none of this behavior is either unexpected or irrational. Well, the Fed rate cut was pretty irrational, but they were just doin’ what they can. It didn’t work because it was pointless. The Fed funds rate has no connection to supply-network operations, and the pandemic’s (yes, we’re in a pandemic) economic effects are mostly supply-network disruptions. Nobody paid attention to the rate cut because anybody with enough business background to be involved in the stock market knew enough not to be fooled. I expect the Fed governors were just trying to make Donald Trump feel good because he seems to think everyone is even stupider than he is. With that mindset, he’d expect investors to be fooled and react accordingly. It didn’t happen because folks aren’t as dumb as he thinks they are. Well, maybe his base, but that’s a rant for a different day.

Clearly, the rise of COVID-19 has trashed China’s economy for 2020, and the economic contagion is spreading through global supply chains to other economies faster than this fast-moving virus is spreading through the world’s no-longer-isolated populations. This highlights two important characteristics of global business in the 21st century:

  1. All national economies that are big enough to be called “economies” are inextricably interconnected;

  2. The supply networks we’ve built up are entirely too brittle.

The reason supply networks are so important is because MNEs are essentially global supply networks as shown in the figure above. There is a central node that represents the MNE brand, such as Apple, General Motors, or Texaco, which organizes the whole mess, but it all starts with a bunch of raw material providers, which feed a bunch of intermediate-product (subassemblies or assemblies in a manufacturing environment) processors which feed the finished, customer-ready end products to the central MNE node for downstream distribution. From that central node, products get shipped through a distribution (wholesale) network to final retail customers (consumers). Folks persist in calling these things “supply chains,” but they’re really networks. A supply chain is just a supply network set up as a linear chain where there is only one node at each step from subassembly to consumer.

Unlike chains, which are famously only as strong as their weakest link, networks, such as the Internet, can be, and generally are, self healing. Instead of breaking whenever the weakest node fails, self-healing networks quickly adjust to keep the flow of whatever’s flowing through the network going. Think of it as the difference between a pipe and a river. Water flowing through the pipe stops moving whenever the pipe gets clogged. A river, however, adjusts by diverting water through an alternate channel. Try it next time you run across water flowing in a ditch or gutter by the side of a road. No matter how you try to block it, the flow finds some way to circumvent any obstacle.

This self-healing characteristic comes from network-organizational rules that provide alternative pathways to circumvent nodes (e.g., subassembly suppliers) that temporarily or permanently fail ( Hee-won & Ho-Shin, 2017; Huang & Wang, 2013) . This is the difference between a robust supply network and a brittle supply chain. While little can be done about reorganizing MNE supply networks in the middle of a crisis, it is important that we recognize the looming economic catastrophe accompanying the looming COVID-19 pandemic as an unnecessary vulnerability that we can correct in the future. We need to think about self-healing networks when designing global MNEs.


Hee-won, K., & Ho-Shin, C. (2017). SOUNET: Self-organized underwater wireless sensor network. Sensors, 17(2), 283.

Huang, M. J., & Wang, T. (2013). Self-healing research of ZigBee network based on coordinator node isolated. Applied Mechanics and Materials, 347-350, 2089.

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