Executive Summary

  • Our pulse survey of 150 senior executives across North America, Europe and Asia reveals that supply chain rebalancing is among the top priorities for businesses. As global supply chains evolve, businesses are rebalancing to not only mitigate risks but also capture opportunities.
  • High costs and a lack of capabilities are the biggest obstacles to rebalancing. While rebalancing is costly, inaction is costlier.
  • The markets that are expected to grow in importance for future supply chains have only small weightings in the global and regional equity market indices. Investors may need to take a more focused approach to exploit the alpha potential from the global rebalancing theme.

Supply chains matter for investors. We have seen how semiconductor chip shortages affected the share prices of automakers in 2022. We have also seen how global supply chain shifts have impacted economies and markets in recent years. The rebalancing of global supply chains is a long-term theme. Our whitepaper provides useful information for global investors looking to learn more about the evolving supply chain landscape and the new investment opportunities arising from these shifts.

We developed a survey-based whitepaper to highlight how business leaders in the automotives, electronics manufacturing, and pharmaceuticals and medical equipment sectors across North America, Europe, and Asia are rebalancing their priorities between driving growth and navigating supply chain issues.

Boosting supply chain resilience is among the top priorities for business leaders across the three sectors

Q. Please rank the following business priorities from the highest to the lowest.

Opportunities for investorsSource of chart: Whitepaper report – The rebalancing roadmap (Pg 19). 1. Percentages indicate the share of business leaders who ranked the given priority among the first or second priorities.

Global supply chain shifts are being driven by key structural factors such as geopolitics, trade disruptions, climate events, and costs. The series of disruptive events since 2020 has however accelerated these shifts and forced businesses to reevaluate their strategic priorities to stay resilient and competitive. Businesses are reevaluating their dependencies on single-supplier or single-market sourcing strategies, which, historically, were cost-effective but have become increasingly fragile.

Across the three regions surveyed, rebalancing will be the most expensive for North American businesses

Q. Relative to your company’s average annual revenue over the past 3 years, what percentage must be invested over the medium term (3-5 years) to diversify/rebalance?

Opportunities for investorsSource of chart: Whitepaper report – The rebalancing agenda (Pg 12).

From investing in new plants to nurturing strategic partnerships with new suppliers, businesses globally are putting in significant efforts to rebalance their supply chains and boost resilience. This structural rewiring of global supply chains is, however, an expensive endeavour. According to our survey, business leaders believe that on average 14% of their company’s annual revenues will have to be invested into rebalancing over the medium term.

Failure to rebalance will have a significant impact on profits

Q. If your company’s current supply chain remains unchanged, what percentage of profit could be negatively impacted / at risk over the following time periods?

Opportunities for investorsSource of chart: Whitepaper report – The rebalancing roadmap (Pg 20). Percentages indicate the average profit at risk for the sector indicated.

Although the cost of rebalancing is high, 75% of business leaders believe that inaction will cost more than rebalancing. Depending on the sector, failure to rebalance could put 19 –24% of profits at risk over the next 10 years. The biggest obstacles to rebalancing are high costs and a lack of capabilities. Additionally, bureaucratic hurdles, lack of technology, trade rules and supply scarcities also hinder the process.

Supply chain networks are shifting – European businesses are still bullish on Asia

Q. Which are the supply chain locations with the largest increase in importance for businesses (currently and in 5 to 10 years)?

Opportunities for investorsSource of chart: Whitepaper report – The rebalancing agenda (Pg 9). Percentages indicate the changes between now and the future, in the share of business leaders within their respective geography who ranked these markets as either the first or second most important locations for their supply chains.

Although the markets that currently dominate global supply chains i.e. US and China are expected to remain important in the future, their relative importance to different regions will change, mirroring the shift in geopolitical considerations. Our survey shows that India, Mexico, and markets in South East Asia, Emerging Europe and South America are expected to grow in importance for future supply chains.

Investment implications

The markets that are likely to benefit from the global supply chain shifts only have small weightings in the global and regional equity market indices. Emerging Markets (EMs) have a 10% weight in the MSCI AC World Index, while ASEAN accounts for only 1%. Meanwhile, India and ASEAN make up 13% and 6% respectively of the MSCI EM Index.

As such, these market capitalisation-weighted indices only provide modest exposure to the countries that are expected to benefit most from the global supply chain rebalancing. These indices also tend to be biased towards the widely held, larger capitalisation stocks, which potentially reduces diversification and alpha benefits in a portfolio. Therefore, investors may want to consider a more focused approach to exploit the alpha potential from the global rebalancing theme.

This is an extract from our whitepaper “New anchors reshaping supply chains: Opportunities for investors”. Please click here to download the full report.

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