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Global markets remain increasingly challenging to navigate. Factors such as weaker global demand for goods and ongoing geopolitical tensions continue to strain supply chains. However, global markets still offer many opportunities for proactive procurement managers.

Currently, markets are risky, but opportunities persist across regions.

Procurement & Supply Country Risk
procurement & supply current risky markets

Summary

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?

changing patterns in globalisation

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.

How to navigate Supply Market & Category Choices in a ‘New’ Global Market?

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.

Key Highlights
  • Slowing demand, rising inflation, fluctuating energy prices, and continued geopolitical tensions have all sent signs of reduced global trade growth last year
  • Conflicts in Europe and the Middle East have and can become logistical bottlenecks due to their proximity to important global trade routes like the Bosphorus Straight and the Suez Canal
  • In fact, attacks on commercial vessels in the Red Sea by the Houthi’s of Yemen led to freight container volumes through the region decline by 65% from expected values as of Jan 11, 2024
  • China’s economic recovery has also been slow with the manufacturing purchasing managers’ index having entered contracting territory for 8 out of 12 months in 2023
  • China’s exports and imports declined by about 5% to 6% for the first 11 months of 2023 as global and domestic demand was muted
  • China still remains the world’s top global exporter and continues to export a wide spectrum of both high and low-value products competitively – a very prominent global player, dominant in many categories
  • The US, Germany, Netherlands and Japan remain high on the global export rankings; with other developed countries like Italy, Belgium, France, Canada and the UK remaining high as well. Their exports mostly remain concentrated in high-value, high-cost, and technologically advanced products
  • Challengers from Asia include India, Vietnam, Malaysia, Indonesia and Thailand; while contenders from the rest of the world include Mexico, Poland, Brazil and Türkiye
  • Dynamic new challengers from Asia, Eastern Europe, and Latam have increased their exports of high-value products, while still competing in low-end, low-cost categories – several offer real, viable, high-end options
  • The upshot: a world of opportunities is unfolding for perceptive, analytical, and proactive global procurement managers – now is a time to look beyond the comfortable historical choices
  • Imperative: balancing risk & cost is possible even if it requires a new approach to ‘local’ vs ‘global’ – and procurement and supply executives have more value to add during these times of uncertainty
top global procurement priorities

Where to look in a World of Global Procurement Opportunities?

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

Global Top 30 Exporters

Figure 2

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.

  • USA, Germany, Netherlands, Japan, Italy and France remained in the top 10 throughout the period of 1990-2022
  • China, South Korea, and Hong Kong SAR appear in the top 10 from 2015 onwards, while Mexico has risen to #13 in 2022 (from #20 in 1990)
  • Since 2005, Poland, Vietnam and Türkiye entered as new top 30 challengers
  • Between 1990 and 2010, South Africa and various EU countries (Portugal, Denmark, Finland and Sweden) fell out of the top 30 to make room for the new challengers
  • China became a WTO member in 2001, resulting in a rapid rise in their global exports. Its gradual shift from producing and exporting low-end goods to high-quality, high-end manufacturing enabled it to remain at the top of the rankings since 2010
  • But China’s share of global exports slightly decreased from its peak of 15.2% in 2021 to 14.4% in 2022
  • Mexico’s rise from #20 to #13 makes it a key market – and one to watch going forward, even if currently its main export destination is the USA
  • Vietnam entered the top 30 only after 2010 but already reached #23 by 2022 – a stellar rise compared to other countries. Sustained efforts aimed at increasing its manufacturing capacity and reducing its trade deficit has led it to not only benefit from a trade surplus in recent years but also improve its global ranking in exports by a compound annual growth rate (CAGR) of 15% from 2010 to 2022. In 2022, Vietnam’s year-on-year export growth was 11%
  • India, Australia, Poland and Türkiye will likely be key markets to watch with countries such as Spain, Switzerland, Malaysia, and Thailand needing to defend their rankings
new challengers in top 30 global exporters

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:

  • Expect variability and volatility in different countries’ growth as labour shortages, supplier health, high interest rates, export demand and overall industrial production output impacts key export clusters – this has significant implications for managing risk and cost in the supply chain
  • Raw materials’ availability, capacity issues, logistics challenges, supply shortages, and price shocks will still be some of the challenges to manage
  • East Asian economies are relatively stable, have a younger workforce and have room to further grow and hence may pull ahead sooner than most in times of challenges, continuing to act as an engine of global economic growth

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

Share of imports into USA

Figure 3

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.

  • The USA, as one of the world’s largest import markets, has shown evidence of shifting their trading partners towards either ‘friend shoring’ opportunities or from other strategically important markets (‘right shoring’)
  • While back in 2018 China accounted for 22% of USA’s imports share, this had dropped to 17% in 2022, with the lower trade figures in 2023 indicating a further decline
  • In the first 9 months of 2023, USA’s year-on-year imports from China had decreased, with each month registering a drop of over 20%, contrasting scenario to the gains seen in 2022
  • Imports on the other hand from Mexico saw a negative growth only in the month of April, with rest of the months showing improvement over the previous year
  • Imports from USA’s other neighbor Canada also saw an increase in the first two months of the year, but have however similar to China, registered negative growth in remaining 7 months of this period
  • Other Asian countries like Vietnam, India and Thailand have also emerged as alternatives to China as they have continued to increase their share in US’ imports while China’s share has declined
  • The above trends follow the data from a survey done at the end of 2021 which had around 69% of supply chain executives in USA expecting diversification of import sources to occur by 2024
procurement comfort zones

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:

  • Fully appreciate the tectonic shifts that are occurring in global export competitiveness over the short, medium, and long term; and monitor the new unfolding spectrum of diverse countries and ‘best fit’ supply markets – and their ability to produce across different tiers of value-add, product complexity, and cost
  • Continuously map incumbent suppliers in this evolving overall picture to understand the array of supply options in their current supply markets, countries that are slipping and new markets that matter
  • Ensure good spend analytics and insight (internal orientation) and strategic supply market intelligence (outward orientation) to support decision-making
  • Revisit operating models and step through strategic decisions such as ‘buy vs make’, vertical integration options, and insourcing vs outsourcing choices
  • Assess and position appropriately across the different strategic options such as sourcing locally vs globally across critical spend categories – and calibrate the potential mix of offshoring, reshoring, nearshoring, and onshoring activities
  • Avoid single-source thinking, over-dependence on too few supply markets (risk), and under-exposure to viable supply markets (opportunity)
  • Get the mix right – China continues to be a dominant or at least prominent player in global supply chains; but, across many categories, several challengers are emerging as alternatives that can be pursued
  • Entrench and develop high performance teams with the skills and capacity to manage a complex portfolio of suppliers across a potentially diverse selection of ‘best-fit’ supply markets in the new global context
  • Procurement managers should continue to monitor current geopolitical and international affairs as numerous opportunities (e.g., new Free Trade Agreements) and challenges (e.g., conflict in Europe and the Middle East) impact the ability to achieve goals like supply chain diversification and on-time delivery

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

Selected emerging markets for 2024

Figure 4

Export Profiles of Selected Dynamic Markets

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.

Final Word

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

procurement leaders

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