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Global supply chains are being forced to change rapidly amid geopolitical uncertainty, new research revealed
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The fifth annual Trade in Transition report noted businesses worldwide are overhauling their supply chains by working with more rather than fewer suppliers to mitigate risks in an increasingly fragmented global environment marked by rising protectionism and shifting geopolitical alliances
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About 75% of those surveyed are diversifying supplier bases to work with more partners and spread risks
Global supply chains are being forced to change rapidly amid geopolitical uncertainty likely to grow with the new US administration’s “America first” policy, new research revealed.
The fifth annual Trade in Transition report by the Economist Impact and supported by DP World noted businesses worldwide are overhauling their supply chains by working with more rather than fewer suppliers to mitigate risks in an increasingly fragmented global environment marked by rising protectionism and shifting geopolitical alliances.
The research drew on a global survey of 3,500 senior executives, capturing their latest trade and supply-chain practices as well as their expectations for the year ahead.
About 75% of those surveyed are diversifying supplier bases to work with more partners and spread risks.
Emerging as vital trade hubs are countries perceived to be non-aligned, such as Vietnam, Mexico, India, the UAE or Brazil with 71% of surveyed executives believing these countries mitigate trade risks, while 69% view them as critical for addressing gaps created by global conflicts.
The survey found around 40% of companies will increase their US-based sourcing adapting to a Republican-led administration, and 32% will adopt dual supply chains to mitigate region-specific risks.
Complementing these strategies is friendshoring (relocating supply chains to politically aligned countries), with about 34% of businesses pursuing this approach to navigate tensions between global powers.
Economic challenges remain a priority among surveyed executives, with 33% identifying prolonged inflation and high interest rates as key concerns. Businesses would be better positioned to navigate this era of economic and geopolitical complexity by leveraging neutral hubs, diversifying suppliers and adopting advanced technologies like AI, according to the research.
Asia Pacific trade
Among companies based in the Asia Pacific, 33% are creating parallel supply chains to avoid disruptions spurred by geopolitical risks while 29% are creating dual supply chains to cater to the US and Chinese markets in order to navigate the complex and fragmented trade environments.
The biggest concerns were business continuity and cost management.
Strategic diversification to manage risks and regional pressures was among the three main trends outlined by the research.
For APAC businesses, adopting a “China Plus One” strategy and erecting parallel supply chains have become prevalent. This has pushed the growth of alternative production hubs in such Asian nations as Vietnam and Thailand, the research found.
APAC-based firms are also hiking regional integration and establishing dual supply chains to better mitigate geopolitical risks, cut costs, and strengthen oversight.
Another trend is growing leveraging government intervention and reconfiguration.
Supply chain regionalization has been incentivized by the negotiation and implementation of regional preferential trade pacts, resulting in cost control, operational efficiency, and support for local economies.
No less than 38% of APAC business leaders noted greater opportunities in the region, with the likes of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership in effect.
Cost savings were enjoyed by 30% due to reduced tariffs on exports in member states, while 23% reported enhanced sourcing in the region. This not only strengthened local supply chains, but also cut dependence on outside markets.
Finally, technology adoption was able to counter labor shortages and enhanced efficiency, according to the survey.
Investments were made in emerging technologies like automation and artificial intelligence to sustain productivity and address manpower shortages.
Such investments paid off, with 36% reporting noticeable cuts in trade operation costs.
“The Asia Pacific region is in an era of significant transformation,” said Glen Hilton, CEO and managing director, Asia Pacific, DP World.
As businesses in the region implement bold strategies to drive expansion, “they must balance ambition with caution to sustain momentum in the face of global geopolitical instability,” he added.
For his part, John Ferguson, Economist Impact Global Lead, New Globalization, said this year and in the foreseeable future, “global trade will be shaped by three forces: shifting geopolitics, climate change, and a new wave of AI and automation.”
Businesses are stepping up to the challenge, he added.
“Firms that stay agile and cost-efficient will have the edge. Firms that also combine risk management with AI experimentation and openness will be best placed to win this new chapter of globalization,” said Ferguson.
READ: Navigating Supply Chain Disruptions Amid Geopolitical Tensions in Asia
