Beyond COVID: China out of favour as firms de-risk supply chains

Global supply chains are facing a major shake up as firms look at alternative host markets and make plans to re-shore production processes in the wake of the coronavirus crisis.

In the search for new opportunities and greater resilience, companies in the healthcare, technology, consumer staples, textiles and electronic sectors will be likely at forefront of changes that analysts say will be net positive for the global economy and could generate around £48bn in additional global insurance premiums over a five-year transition period.

A study from the Swiss Re Institute reflects fundamental and accelerated restructuring amid lockdowns, as the disruption to the flow of goods and services highlighted the intricate risks of supply and distribution networks.

“Global supply chain restructuring has become a key macroeconomic trend and the COVID-19 experience has accelerated changes,“ Jerome Jean Haegeli, Swiss Re Group chief economist, said.

“During the pandemic, lockdowns brought international exchange to a near halt, making businesses, and governments increasingly aware of the impacts that disruptions in today’s very complex and specialised global supply chains can have.“

Whilst China still maintains its position as the world’s largest production hub, Swiss Re expects to see the formation of parallel supply chains in the preferred destinations of Vietnam, Mexico and Brazil as firms look to diversify their manufacturing presence and strengthen operational resilience. Other countries with free trade agreements with the US and Japan also stand to gain from this major shift.

Manufacturers, specifically, are speeding up their development of parallel supply chain operations in Southeast Asia; and there are also plans to re-shore activities back to the US, Europe and advanced markets in Asia.

See the next issue of CIR Magazine for more on global supply chain developments, particularly in relation to COVID-19 and to the recent uptick in claims of modern slavery.

Image courtesy of the BSI

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