Global supply chains must be rebuilt following the Covid-19 pandemic with more resilience, sustainability and digitalisation while removing the constraints of protectionism, government officials and corporate bosses said.
The pandemic, trade tensions, the Russia-Ukraine war and some countries’ industrial policies are among the factors leading to a “re-jig” of global supply chains, Saudi Investment Minister Khalid Al Falih said on Thursday during a panel discussion in Davos.
“All of these are converging together and putting this puzzle in front of us: How do we build resilience in our supply chains but without losing the benefits of globalisation?,” he said.
“If we’re going to re-engineer globalisation to ‘Globalisation 2.0’, then what are the design parameters to retain the wins and add to it the resilience, sustainability and agility that we need.”
The head of one of the world’s largest enablers of global trade highlighted the impact of US-China tensions on global markets, calling for more “open trade” and less government intervention in business.
“As businessmen we can cope with anything and we can find a solution, the only thing that we cannot cope with, which I’m concerned about, is the emergence of another cold war between China and the US,” Sultan Bin Sulayem, DP World’s chairman and chief executive, said on the panel.
“That disrupts the market in a big way … today we need to see supply chain resilience continue, we need to see the ability to supply cargo.”
He acknowledged the advantages of “near-shoring” or producing goods and services closer to companies’ home bases, including faster delivery times and lower costs, but warned of the downside of protectionist policies.
An increasing number of companies are bringing their supply chains and manufacturing bases closer to home to reduce risks, avoid disruption, cut transport costs and benefit from government incentives, DP World said in a report released on Tuesday.
A total of 96 per cent of company executives surveyed are reconfiguring supply chains because of geopolitical events such as the Russia-Ukraine war and US-China tensions, said the Trade in Transition study commissioned by DP World and led by Economist Impact.
The number of companies shifting their manufacturing and suppliers last year — either to their home markets or nearby — doubled from 2021, said the survey, which was released at the World Economic Forum annual meeting.
Some 10 per cent of respondents cited the fragmentation of the world into trade blocs as limiting the growth of international trade.
Beyond the war in Ukraine, US-China tensions and cyber warfare are preventing the efficient functioning of economies worldwide, the survey said.
This is leading to increasingly protectionist policies by some countries and further fragmentation of the global trade system.
Businesses are finding ways to grow in this climate. Altering supply chains either through diversification or bringing manufacturing bases closer to home is one response.
The widespread and increasing adoption of technology is another way to build resilience into the supply chain, the survey found.
DP World invested heavily in digitalisation to boost its customer reach during the pandemic, as the global crisis exposed the fragility of supply chains, Mr Bin Sulayem said at the panel.
In the reconfiguration of global supply chains, they will move from a “hub-and-spoke” system to a multi-hub global system where each country “plays to its strengths in an interdependent way”, Mr Al Falih said.
In October, Saudi Arabia rolled out a new initiative that aims to attract global industrial companies to the kingdom and seeks to shore up 40 billion Saudi riyals ($10.6 billion) worth of investments in the first two years of the launch.
Under the Global Supply Chain Resilience Initiative (GSCRI), launched by the kingdom’s Crown Prince Mohammed bin Salman, Saudi Arabia will earmark 10 billion riyals in financial and non-financial incentives for investors.
Rebuilding supply chains can be viewed through the “triangle of cost, resilience and sustainability … with innovation at the heart of it”, along with “complementarity between government and private sector across borders”, Mr Al Falih said.
“Let’s watch out for protectionism,” Mr Al Falih said when asked about ways to remove roadblocks from supply chains. “Protectionism is not the solution … we should not reverse history.”