The World Economic Forum, in collaboration with the global consultancy Kearney, has recently published a report titled Beyond Cost: Country Readiness for Manufacturing and Supply Chains, which reveals significant insights into the evolving landscape of international manufacturing and supply chains. The report indicates a notable shift in priorities among manufacturing executives, with over 90% now focusing on regional supply chain strategies as a means to mitigate the risks associated with recent global disruptions.

Firms have been compelled to adapt to a series of challenges, such as the COVID-19 pandemic and the blockage of the Suez Canal. These events exposed vulnerabilities in established global supply chains, prompting businesses to re-evaluate their procurement strategies amid an unstable industrial climate that is influenced by geopolitical tensions and environmental concerns. The current landscape, marked by a year filled with elections worldwide and potential protectionist tariffs, has led to a growing trend towards regionalisation.

The survey, which included input from over 300 global operations executives, highlighted that nearly two-thirds of manufacturers are implementing a ‘power-of-two’ strategy. This approach entails sourcing a majority of expenditures from two separate regions, moving beyond the traditional emphasis on cost minimisation. Executives are now considering additional factors such as infrastructure development, technological advancements, skilled labour availability, and sustainability in their decision-making processes.

A noteworthy trend highlighted in the report is the decline in foreign direct investment (FDI) in regions traditionally viewed as low-cost manufacturing hubs. Areas like Brazil and India, classified as ‘adapter’ countries, have seen a 15% decrease in their attractiveness for FDI as the emphasis has shifted from cost-effectiveness to value-driven investment strategies. As companies now seek more than just cheap labour, these countries are finding it challenging to maintain long-term investment.

Conversely, 'connector' countries such as Bangladesh and Mexico have seen a 14% increase in FDI appeal due to their higher contribution of manufacturing to GDP. Countries classified as 'scalers', including Singapore and Ireland, have enjoyed a modest 2% growth in FDI, attributable to robust infrastructure and favourable regulatory conditions. Similarly, 'converger' countries like the United States and Denmark have registered an average growth of 2% by prioritising sustainability and efficient infrastructure.

Per Kristian Hong, a Partner and the Americas Strategic Operations and Performance Lead at Kearney, commented, “With over 2 billion voters across 50 countries having cast ballots in 2024, 2025 will be a critical year for every company reliant on cross-border operations. Plans to accelerate a sweeping range of policies, intended to reset global trade through tariffs and export controls, will require businesses to re-assess their network manufacturing footprint beyond merely low-cost alone.” He emphasised that the decision-making processes need to become more complex, taking into account flexibility and the environmental performance of countries.

Kiva Allgood, Head of the Centre for Advanced Manufacturing and Supply Chains at the World Economic Forum, added that the transformation of global value chains offers both countries and companies an opportunity to redefine their competitive advantages. She noted, “This report highlights how countries that deploy innovative policies and invest across these seven factors can position themselves as leaders in the evolving manufacturing landscape, driving economic growth and societal progress.”

The report identifies seven critical factors that influence private sector decision-making and a country's attractiveness in the context of global supply chain rewiring. These include:

  • Infrastructure
  • Resources and Energy
  • Technology
  • Labour and Skills
  • Fiscal and Regulatory
  • Geopolitical Landscape
  • Environmental, Social, and Governance (ESG)

As firms adjust their strategies in response to the emerging trends in AI and automation, the ongoing reshaping of manufacturing and supply chain dynamics will likely continue to impact business operations on a global scale. The findings underline the necessity for countries to adapt their policies and infrastructure to remain competitive in an increasingly complex market landscape.

Source: Noah Wire Services