Ongoing challenges in global supply chains:High inflation and fuel price fluctuations have contributed towards overall global demand to slow down. Additionally, considering the ongoing conflicts and geopolitical uncertainties that have affected global trade relations and policies of many regions, all these factors combined continue to present supply chain challenges for procurement managers.
Alternative supply markets emerging despite complexity in global landscape:Many regions, from Asia, to Africa and Latin America, continue to offer attractive opportunities for global sourcing, with low labour costs, favorable trade agreements with key markets, and increasing capabilities offering attractive options for procurement professionals. Some of the countries that are gaining prominence as global sourcing options include Vietnam, India, Türkiye, Poland, and Mexico.
Global sourcing for competitive advantage:Nowadays nearshoring, friendshoring, and other such trends are influencing global sourcing strategies. But by procuring goods from different countries and regions, procurement managers can access the best resources and opportunities available in the global market. It is not a one-size-fits-all approach, rather a dynamic and flexible strategy that can be adapted to different situations and objectives.
Global markets are constantly changing and evolving, as new opportunities and challenges emerge in the world economy. Some of these factors influence the current global sourcing markets. While there are risks, there are high rewards too. It becomes extremely crucial for sourcing managers to have a global sourcing strategy in place to win in the present environment.
Global markets offer attractive sourcing options but where to start? Four key questions help us navigate – Why, Where, What and How to Source Globally?
Figure 1
Sourcing managers that are proactive in how they address key global procurement fundamentals have many opportunities in the current dynamic environment, but getting this right remains a challenge. Below, Axis Group offers insights on where to look and what categories to consider for effective global procurement & supply.
Global sourcing and procurement strategies need to be redefined to be able to seize unique opportunities in the current scenario and identify partnerships which can result not only in more savings but also increase resilience to risks in the supply chain. Many emerging markets such as India, Vietnam, Thailand, Mexico, Poland are starting to compete with China as they grow their value-added manufacturing capabilities along with improving their logistics infrastructure. Moreover, adopting digitalisation, choosing the right talent, having a well-defined SRM strategy, developing agility and building a concrete risk management strategy play an important role in today’s procurement world. A simple ‘vendor management’ approach does not work anymore even after choosing the right suppliers.
The WTO halved its forecast of annual merchandise trade volume growth in 2023 to 0.8% in October 2023 compared to its projection of 1.7% in April. Global trade had grown by 9.6% and 3% in 2021 and 2022 respectively but has been severely impacted recently due to the current global economic and geopolitical scenario. However, dynamic markets in Asia and other developing parts of the world experienced faster than global average growth in their year-on-year exports in 2022. This trend is expected to continue, as some markets grow their exports further despite the many challenges in the current global sourcing environment. It is imperative that global sourcing managers observe the opportunity that these dynamic markets present, as they continue to increase their production capacity and exports of increasingly high-value products. However, over the short to medium term, diversification planning (‘local’ and ‘global’), rightshoring (‘friendshoring’?), recession risks (supplier health impact), and sustainability (ESG goals) present important additional considerations that must be incorporated in sourcing strategy.
Shift in Global Export Rankings – New Winners, Losers, and some Holding Ground:Since 1990, the global top 30 exporter rankings have changed significantly. Economic growth within emerging markets, with special impetus given to exports growth, has resulted in their rise in manufacturing and export rankings. In addition, there has been a strong link between deepening global interconnectivity, the rise of free trade agreements, and an increase in trade by new countries on the world stage. Pent up global demand as well as strong export growth led to an overall rebound in trade and commerce immediately post the pandemic. But, what will the new landscape look like?
China, several high-income economies, and new challengers from developing countries are the winners in global exports; there are also several losers
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Trends:China, USA and Germany have consistently been among the top 3 global exporters since 2005. However, there have been dynamic and constant readjustments below the top 3 rankings.
Upshot:Since 1990, the top 30 exporters have faced varying levels of disruption due to a 30-year process of dynamic adjustment. For each interval – by 2000, 2010, and 2022 – the landscape had shifted significantly due to global competition with 3 broad categories emerging – new winners, losers, and those that are holding their ground. The pandemic saw these shifts exacerbated with both developed and developing economies suffering a reduction in demand, production, and exports. With global recovery efforts in the last two years bringing forth a new normal, we anticipate:
The USA's share of imports coming from China has decreased in recent years, while at the same time seeing increases from markets such as Vietnam & India
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What has changed in 2023?:Particularly in recent years, the question of how to effectively reduce over reliance on a single source of supply has become more important for procurement managers. Many developed nations (as well as their developing counterparts) struggled to secure shipments of necessary goods during times of uncertainty due to this factor. The words ‘rightshoring’ & ‘friendshoring’ are being used more frequently as managers seek to strengthen and diversify their global value chains against potential future challenges.
Imperatives: The past 3 decades have seen many new global procurement opportunities (but also setbacks) arising from globalization and more integrated supply chains. Variability in economic acceleration and slowdowns, political instability, natural disasters, as well as health crises impacted the flow of trade for many countries. However, the impact of challenges such as geopolitical conflicts, labour shortages, rising inflation, etc. on global exports and competitiveness led to an unprecedented entry into a new world of change and needs for international procurement and supply. The risk & cost equation now looks different. As such, a few priorities stand out for global procurement & supply professionals:
What Global Supply Clusters & Category Choices to consider?
While traditional leaders such as the US, Japan, and Germany remain high on export rankings, markets such as India, Vietnam, Poland, and Mexico have increased their potential to become challengers for global recognition. But what are they exporting? Which categories and product choices can be targeted in these new markets? A quick fly-over suggests that there are a few surprises in store in terms of choices around ‘where and what’ to source. Many countries have, in fact, rapidly climbed the ladder and have more mature capabilities; they often simply no longer live up to (unfair) stereotypes. Herein lies the opportunity for perceptive, proactive, and analytical procurement and supply teams. Astute teams are already working on the new options that exist in balancing risk and cost – and will be rewarded for it. But many organisations and procurement teams are clearly trapped in ‘comfort-zones’ and are clearly far behind in recognizing and tapping the new global procurement potential. They will be penalized in the marketplace.
Dynamic emerging markets are among the top 30 global exporters, with high–technology exports entrenched in their portfolios
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China is the largest global exporter, with products on both the high and low end of the value chain. Other developing markets in Asia and the rest of the world have increased their capacity to supply higher value-added products; and with increased importance placed on supplier diversification, these markets should be watched. Below, we take a snapshot of selected dynamic markets, their top 100 export products, and the composition and concentration for these products across industries and sectors.
The world has been a competitive marketplace for hundreds of years and this has intensified over the past 50 years in a globalized world. Events of the past 4 years have only exacerbated the dynamic adjustments that are constantly taking place – and it is clear that there are winners, losers, and those that are holding ground.
Astute procurement leaders and their teams are already tapping the new world of global procurement opportunities to drive value for their organisations.
For more on Axis Group International’s solutions get in touch: solve@axisgroup-international.com