Geopolitical volatility is a key challenge for global economies and for businesses pursuing international growth. From Russia’s invasion of Ukraine to the lasting impact of the COVID-19 pandemic, supply chain disruption has caused significant challenges. This is particularly true for manufacturing businesses, who often rely on sourcing raw materials and component parts from international markets, some of which have been heavily impacted by geopolitical issues.
“Companies are increasingly more wary of geopolitical dynamics than they have been in the past,” says Rohit Moudgil, Head of Manufacturing and Industrials, HSBC UK. “Historically, it was assumed we were in a world of unhindered globalisation. Businesses would go to the most cost efficient source of materials. But that has started to shift.”
However, this disruption has also created an opportunity for manufacturing firms to rethink their supply chain management. Where once cost was king, manufacturers today are increasingly considering a range of additional factors when choosing an international supplier or partner, including proximity to end customers, shared outlooks, shipping routes, environmental footprint and political stability. Ultimately, companies should be focusing as much on long term resilience and flexibility as they do on cost and efficiency.
Most crucially, businesses are beginning to diversify their international partnerships. Companies whose current suppliers are mainly concentrated in China or Taiwan, for example, are looking at adding ASEAN countries such as Vietnam as an additional source of supply at competitive prices. Bangladesh in South Asia is another beneficiary of this diversification strategy. European firms are also looking at nearshoring, with Turkey, for example, benefiting from its position at the edge of Europe and its competitive costs. Through diversification, manufacturers are seeking to derisk their operations and increase their overall resilience.
One manufacturer we surveyed reported: “We de-risked our exposure to buying from China following COVID. We have undertaken a process to re-formulate, using raw materials sourced in Europe.”
Another added, “We have been more selective when setting up exports and when choosing business partners. We had a major rethink, including an audit 12 months ago.”