Supply chains under tension

The survey’s main findings reveal a complex picture and offer insights on global and regional trends:

• While the overall geoeconomic disruptions are severe, the changes in supply chains are multifaceted. Short-term direct relocations of production seem less likely in most industries. At the same time, sector-specific shifts, especially in supplier networks to and within the Asia-Pacific region can be observed. A sizable share of respondents expect to witness relocation activities in the long-term future.
• Trend expectations vary between subregions: while companies in East Asia expect increased globalization, respondents from ASEAN countries expect increased regionalization. This is underpinned by regional economic integration initiatives, such as the ASEAN Economic Community (AEC) and the importance that respondents assign to free trade agreements such as the Regional Comprehensive Economic Partnership (RCEP). The majority of companies does not anticipate to see sustained decoupling, not least because of the complexity of global value chains.
• Manufacturers of essential goods expect value chains to become increasingly regional, while manufacturers of non-essential goods expect further globalization to unfold. The pandemic has underscored the importance of robust supply chains for critical goods and the need to reduce time-to-market leads. Regionalization allows for the latter and explains why manufacturers of essential products expect an increasing regionalization of value chains.
• The survey results illustrate how the pandemic has undermined companies’ ability to manufacture and operate. This is most notable in labour-intensive sectors, like manufacturing of textiles and clothing, where half of all companies had to reduce their production.
• To address supply-chain vulnerabilities, most manufacturers are currently in the process of or are planning to diversify their supplier network.
• Fewer manufacturers, mostly multinational companies (MNCs), seek to solidify supply-chain resilience by diversifying their production capabilities. This is particularly observed in the textile and clothing sector, the chemical industries, and pharmaceutical and medical devices.
• Across different regions, the need to diversify the production base is most prevalent in China compared to other parts of the Asia-Pacific region and is coherent with the goal of shifting manufacturing capabilities in these sectors to strengthen supply-chain resilience.
• Regarding nearshoring and reshoring, COVID-19 has not caused or augmented large-scale relocation activities from and within the Asia-Pacific region in the year 2020. As the surveyed companies require, on average, a two-year lead time to move their operations out of their host market, short-term shifts are less likely.
• Beyond COVID-19, the study identifies two main relocation trends. The first trend is continued offshoring from Germany and the EU to the APAC region. In particular, financial services and the chemical industries are increasingly expected to gain an even bigger foothold in the region.
• The second trend captures relocation activities within Asia. Much of this is expected to centre around the ASEAN economies, suggesting that Southeast Asia will become increasingly important in global value chains.