Supply chains move closer to home amid global uncertainty, according to new survey

New research has revealed a major shift in globalization, as companies rush to move manufacturing closer to home to protect against supply chain disruptions, while increasingly protectionist policies are breaking the world into trade blocs.

The latest Trade in Transition study, commissioned by DP World and led by Economist Impact, captured the perspectives of 3,000 company leaders as they navigate the latest disruptions to global trade – from the conflict in Ukraine to inflation. The global survey included the views of 1,000 executives in the Asia-Pacific and Australasia (APAC) markets of Australia, China, India, Indonesia, Japan, the Philippines, and South Korea.

Geopolitical uncertainty is also guiding the decisions of business leaders, with 97% of the companies surveyed in APAC – and a similar 96% globally – planning to make changes to their supply chains due to global events.

In the space of just a year, the number of companies in APAC, and globally, shifting their manufacturing and suppliers – either to their home markets or nearby – has more than doubled compared to 2021. This is driven mainly by efforts to reduce both costs and the risk of disruption.

However, businesses are using a variety of strategies. In reconfiguring their supply chains, 51% of APAC executives said they were diversifying their supplier base, against the overall average of 47% among their peers globally. 

In line with trends seen across the world, one in three (29%) APAC respondents also said they were decreasing the length of their supply chains due to geopolitical events, while 33% of businesses in the region plan to expand into more stable and transparent markets to hedge against uncertainty.

Inflation threat

Globally, 30% of the executives cited the persistent threat of inflation as having the most significant negative impact on trade over the next two years. In APAC, a quarter of companies cite rising inflation as a top concern. Inflationary pressures are seen in input costs – from supply shortages to transport, through high energy costs and shipping capacity constraints.

In a scenario of monetary tightening, companies across Europe, North America and Asia-Pacific anticipate exports to be 1% lower than under a business-as-usual situation due to decreasing production and demand.

A fragmenting world

The fragmentation of the world into trade blocs was also cited by 8% of executives in APAC, and 10% of global respondents, as limiting the growth of international trade. Beyond the war in Ukraine, respondents also believe US-China tensions and cyber warfare are preventing the efficient functioning of economies worldwide. This is leading to increasingly protectionist policies by governments around the world, leading to further fragmentation of the global trade system.

Against this backdrop, there is consensus among firms globally that technology holds the key to building more resilient supply chains. Some 85% of APAC respondents said they were already using or started using digital platforms in 2022 to enable direct business with customers or suppliers. 

Another 82% were using Internet of Things (IoT) solutions to facilitate the tracking and monitoring of cargo. Businesses in the region are also driving the adoption of advanced technologies, with 69% using artificial intelligence, big-data and predictive analytics to gain real-time insights and forecast disruptions, and 67% using blockchain to improve traceability, security and data protection. This is ahead of the global average of 62% for both technologies.

As businesses find ways to respond and grow, they are altering supply chains to build resilience – either through diversification, regionalization, or reshoring. Companies in North America and Europe are most likely to outsource more than half of their services within their region. This is followed by 40% of companies in South America, 36% in the Middle East, 32% in Asia-Pacific and 18% in Africa, outsourcing within their regions.

Glen Hilton, CEO & Managing Director, DP World Asia Pacific & Australasia, said: “Apart from rising concerns over inflation, global geopolitical trends will continue to pose a key challenge to Asia-Pacific’s trade landscape. However, companies are not shying away from risk, and are instead responding in two key ways. 

“The first is undertaking more due diligence of their supply chains, and the second is expanding into new and stable markets. Asia-Pacific is also ahead of the global average when it comes to implementing new technologies such as artificial intelligence and advanced automation, and these drivers will continue to catalyze innovation and boost supply chain resilience for our region. The latest Trade in Transition data bodes well for companies in our region and their ability to cope with the challenges to come.”

Photo credit: Shutterstock/ VladyslaV Travel photo

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