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5 lessons about global supply chains in the age of resilience

Supply chain resilience has become a priority since COVID-19. These five graphs show what's at stake.

Global supply chains (GSCs) are undergoing fundamental restructuring. The COVID-19 pandemic has further accelerated this trend, as governments and companies have become more aware of the risks inherent in global production processes.

According to the Swiss Re Institute's latest sigma report De-risking global supply chains: rebalancing to strengthen resilience, manufacturers with global operations are likely to further relocate and reshore their production sites. As they do so, the demand for risk protection and insurance is set to grow.

These five graphs highlight the stakes involved and the opportunities ahead.

1. The world's 20 biggest economies derive 40-80% of export value added from global supply chains.

The share of a country's exports in value-added terms is an important measure of its participation in – and exposure to – global supply chains. Based on this, between 40-80% of exports' value added from the world's largest 20 economies are derived from GSCs, highlighting their vulnerability to supply chain interruptions.

2. COVID-19 has made the need to restructure global supply chains and strengthen operational resilience more urgent.

The COVID-19 pandemic has exposed the risks that globalised production processes face from disruption. Besides the pandemic, other underlying drivers of change include diminishing cost arbitrage benefits, disruptions from natural disasters and new technologies that can simplify and shorten supply chains.

3. Relocation and reshoring of production will mostly benefit countries in southeast Asia but also in Europe and North America.

Markets in southeast Asia are set to benefit most as new host locations for parallel production activities. Advanced markets will benefit from reshoring.

4. Industries most likely to restructure their supply chains are pharmaceuticals, apparel, communications and medical equipment.

Industrial sectors face different constraints when it comes to relocation or reshoring, in part due to the difficulty for highly capital-intensive industries to move production. But COVID-19 and rising political risks have made non-economic factors increasingly relevant in decision-making. This is particularly the case in the pharma, medical and semiconductor sectors.

5. Supply chain restructuring will generate close to USD 1 trillion additional export and investment value.

Relocation and reshoring economies will benefit from close to USD 1 trillion in additional exports and investment in the next five years, boosting GDP growth by 0.7% in relocation countries and by 0.2% in reshoring countries. However, these gains may well come at the expense of lower long-term global growth.

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Reshaping global supply chains: the shift towards greater resilience

Global supply chains are going through fundamental change, and this has been cast into sharp relief by COVID-19.

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Publication sigma 6 / 2020

De-risking global supply chains​