New manufacturing hubs are driving supply chain diversification efforts. However, these countries still depend on imports of Chinese components, making supply chains longer and more complex. Challenges like insufficient production capacity and lack of supporting industries continue to impede supply chain diversification. Despite this, the situation could improve over the next decade due to large FDI inflows and investments in trade infrastructure.
This report comes in PPT.
Global production diversification efforts continue as manufacturing and supply of the critical industrial goods remain heavily concentrated in China. Diversification efforts are the most evident in the US, where rising geopolitical tensions and trade tariffs encourage manufacturing companies to set up alternative production networks.
New manufacturing hubs in Asia, Latin America and Eastern Europe are expected to benefit from the globalisation reset trend and attract new investments into the manufacturing sector. Countries such as Mexico, India, Vietnam and Poland benefit from large labour pools, growing productivity and attractive operating costs, which helps to lure foreign companies.
Supply chain diversification efforts will not deliver desired effects to the full extent, at least in the short term, as new manufacturing hubs remain heavily reliant on component imports from China. This situation is increasing the length and complexity of the supply chains, yet the desired diversification effects are not fully achieved.
Insufficient production capacity, lack of supporting industries and underdeveloped trade infrastructure remain among the key challenges hindering the potential of new manufacturing hubs. Companies will need more time and patience to create robust production networks and achieve the desired supply chain diversification effects.
Government efforts and reforms can help to accelerate supply chain diversification efforts. Improvements in business environment, labour market and education system as well as targeted investments into transport infrastructure can help to attract more foreign investment, accelerate development of supporting industries and diversify the global production network.
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