Manufacturers would change supply chains due to economic nationalism

29 November 2018

Two thirds of manufacturers would change their supply chains in response to economic nationalism if the situation were to become sufficiently threatening to their business models, a survey has found.

The survey of 725 senior supply chain decision makers in UK, France, Germany, US, China, Japan and Mexico manufacturing organisations, by software provider Llamasoft, found 66% of respondents would potentially change supply chains because of restrictive trade deals.

Economic nationalism was not closely defined in the report The End Of Globalization? Global Manufacturing Supply Chains Succumbing To Economic Nationalism but it cited the vote for Brexit and US trade policies as examples of the phenomenon.

However, only half of decision makers (50%) are likely to change their supply chain in anticipation of economic nationalism, while 47% said this change would take place in its wake.

When asked to choose their biggest global concerns, taxes and duties was named by 50% of respondents, followed by economic nationalism (43%). Environmental policies and initiatives and natural disasters were the next biggest concerns.

Economic nationalism was seen as a stronger threat in the UK, where 64% of manufacturers cited it as a major challenge, compared to 35% in France and 43% in Germany. This was probably due to the instability UK businesses face as a result of Brexit, Llamasoft said.

In China 65% of respondents listed taxes and duties as having most impact on supply chains, while environmental policies and initiatives have a stronger impact on supply chains in Europe (46%) and Asia (44%).

The economic impact of natural disasters is more important to Asian supply chain decision makers (53%) compared to the rest of the world. This was especially true of Japan where it was considered the most important factor by 62% of those surveyed.

Half of respondents (50%) believed economic nationalist policies would increase operational costs, and 45% are considering alternative suppliers. This would represent almost $3.1tn worth of business globally.

Organisations in the US expressed the most concern over operational cost, with 61% of US respondents reporting they would increase.

In Europe, an increase in operational costs was considered most threatening for the UK, where it was named by 59% of respondents, and Germany (53%), compared to 37% in France. In Latin America, almost half (47%) of respondents predicted increased operational costs to have the biggest impact on supply chains.

Among all respondents, 45% said they were likely to change their supply chain design as a result of Brexit, while 54% in the European region are likely to do so.

“With economic nationalism posing the greatest threat in the UK, it shouldn’t come as a surprise that the UK is also more likely to have measures in place (66%) to deal with economic disruption compared to France (47%) and Germany (41%),” added the report.

The survey asked decision-makers what they considered to be the biggest barriers to protecting the supply chain against disruption, but there was little to choose between replies.

Lack of globalised data emerged as the narrow favourite worldwide, with 35% of votes, followed by “lack of ability to risk test changes before enacting them” and lack of supply chain data analytics, which received 34% each.

“Today’s global economy – and the supply chains that keep it moving – are truly interconnected; shifting regional economic policies are having major impacts on manufacturers’ supply chains globally, causing them to re-evaluate their current designs more frequently than ever before,” said Razat Gaurav, CEO of LLamasoft.

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