A World Of Global Procurement Opportunities (2024 Feburary Update)

China, several high-income economies, and new challengers from developing countries are the winners in global exports; there are also several losers

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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

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

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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

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.