The Knowledge Hub of IMD
Share
FacebookFacebook icon TwitterTwitter icon LinkedInLinkedIn icon Email
Wheat

Supply chain

Disease and war triggers onshoring of supply chains

Published 21 April 2022 in Supply chain • 6 min read

After three decades of global expansion, multinational companies are bringing production closer to home to boost supply as geopolitical tensions flair. 

 

Companies all over the world have faced disruption in their supply chains because of the war in Ukraine and the shipping bottlenecks that followed in the wake of the COVID-19 pandemic. Car production lines have stalled because of the shortage of wire harnesses, farmers cannot find enough fertilizer and animal feed, chip makers are short of neon, a critical gas.

These problems have accelerated a rethink in global sourcing. The past three decades have marked an era of hyper globalization as companies have prioritized cheap offshore production in low-wage locations such as China, keeping the cost of consumer durables low and turning global trade into a deflationary force.

But the conflict in Ukraine has reinforced the importance of building more resilience into supply chains. The pandemic has already exposed the risks of offshoring, as supply has not been able to keep pace with heightened demand as economies have recovered, with the shortage of semiconductors among the major problems.

Many companies are now looking at bringing production closer to home to improve the availability and security of supply, in what could be a substantial reshaping of global value chains. “The Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades,” BlackRock chief executive Larry Fink wrote in his recent annual letter to shareholders. He may be right. 

Governments are trying to boost their domestic industries and reduce the risks of being dependent on foreign nations by onshoring manufacturing. The war in Ukraine has only served to underscore the importance of supply chain sovereignty and domestic production.

No more free articles.