Macroscope | India’s gain could be China’s loss in the great supply chain reallocation

Globalisation is being rewired, from how it operates to what it fundamentally means. Reshoring remains a dominant topic. Discussions at August’s Jackson Hole economic symposium in the US centred around structural shifts in the global economy, with speeches focused on the looming “great reallocation”.

Broadly speaking, data continues to highlight that companies have diversified their supply chains, with plans for much more to come. Supply chain localisation, amid trade tensions, geopolitics, energy security and the risk of supply chain disruptions, is likely to remain a key theme for the next decade.

The supply chain management strategies that prevailed before 2020 were focused on achieving cost efficiency. Firms scoured the globe for the cheapest suppliers, which in turn often resulted in widespread and complex supply chains that spanned national borders. Another goal was to keep inventories as lean as possible to minimise the cost of financing.

This move towards supply chain complexity evolved over decades, motivated in part by the rise of Japanese manufacturers whose exports were considerably more competitive than those of their rivals. One key element of this competitive advantage was the practice of “just in time” inventory management, which subsequently became widespread.

This trend was reinforced by a reduction in underlying transport costs, as well as advances in information and communication technology. Firms were increasingly free to seek out the world’s cheapest suppliers. At the same time, this process tightened global interdependence, especially between East Asian economies and the rest of the world.