Mapping the business world: Is it possible to make a map of the global supply chain network?
Thanks to digitalization, we now have the tools to analyze the global economy more accurately than ever before – with a map of global supply chain networks. This is exactly what WU’s Anton Pichler is working on together with other scientists from various disciplines.
The global economy consists of more than 300 million companies that are connected to each other through a supply chain network with a total of 13 billion connections. For a long time, it was unthinkable that these global flows of money and goods might ever be recorded and analyzed in their entirety – until now: “In recent years, we have experienced a veritable data revolution,” says Anton Pichler from the WU Institute for Transport and Logistics Management. “Thanks to digitalization, we now suddenly have vast amounts of data for entire economies. The only question is how to use it.”
Together with an international team of researchers, Anton Pichler has published a thought-provoking article in the renowned journal Science, arguing that a team effort of key institutions and scientists could make it possible for the first time to create a database of the global economy that maps a large part of its supply chain network – opening up previously unimagined possibilities for research.
A new age of data
Such a database would make it possible, for example, to better forecast supply bottlenecks caused by natural disasters. Supply chains for essential goods such as food or medications could be analyzed precisely and made more resilient to crises such as the one we experienced in 2020 with COVID-19.
A transparent supply chain network would also be an important building block for the transition from fossil fuels to renewable energy sources: “My research focuses on the economic impact of the energy transition,” explains Anton Pichler, “many new supply chains will be established, while some existing supply chains will disintegrate. To accurately assess the economic consequences, however, we need a much better picture of supply chain dependencies between companies.”
The long list of benefits also includes the fight against corruption and tax evasion. Another upside would be more transparency when it comes to compliance with human rights along supply chains. With the proposed supply chain map, economists would also have a solid basis for making better forecasts and accurately assessing economic policy measures, for example to combat inflation.
VAT is key
But where will all this data come from? First and foremost, it is VAT data that is being collected at the company level in more and more countries, for example by means of nationwide electronic invoicing. This includes European countries such as Belgium, Hungary, and Spain, but also emerging and developing countries such as Turkey, Chile, and Kenya. Austria, though, is currently still missing from the list.
“In rich countries like Austria, well-established administrative systems are in place, which is why it often takes longer to implement new things,” explains Anton Pichler. “Less wealthy countries usually have a lean administration and can therefore establish new systems more quickly.” For individual countries, there are tangible benefits to collecting this data on a company level: When Peru introduced mandatory e-invoicing in 2013, VAT revenue increased by five percent in the first year, as a study by the International Monetary Fund has shown.
It is therefore fair to assume that going forward more and more countries will levy VAT in a way that makes it possible to reconstruct individual supply chain links. The European Commission is also working on an international digital standard: With the ViDA (“VAT in the Digital Age”) initiative, there has been a push for an EU-wide modernization of VAT since 2022.
Nevertheless, there will always be gaps in the network data, explains Anton Pichler from WU. For example, the situation is a bit more complex in the US, the world’s largest economy, which has no uniform VAT system. And then there is China, the second largest economy, which is usually less than cooperative in such matters. It is therefore necessary to reconstruct the missing data, for example using transaction data from payment service providers and banks and analyzing it with the help of artificial intelligence.
Protecting sensitive data
Data protection is an important aspect of the initiative. After all, this is potentially sensitive data that relates to strategic business interests and could be sold for a lot of money. “A database of this kind needs the highest data protection standards. Microdata centers or the European Health Data Space, which provide controlled access to anonymized data for research purposes, could be used as best-practice examples here,” says Anton Pichler.
According to the WU researcher, it is very likely that further parts of the global supply chain network will be reconstructed in the coming years – based on initiatives by governments, research groups, and private companies. “Against this background, it’s important to discuss how we can ensure that the data benefits society as a whole and not just serves particular interests.”
Detailed results of the study and further information
Pichler, A., Diem, C., Brintrup, A., Lafond, F., Magerman, G., Buiten, G., Choi, T., Carvalho, V. M., Farmer, J. D., & Thurner, S. (2023). Building an alliance to map global supply networks. Science, 382(6668).