Investing in an Emerging World Order. Part 2

In the second part of our series on global supply chains, portfolio managers Inbok Song and Peeyush Mittal examine the regions and countries that may benefit from industries and companies shifting operations.

Key Takeaways

  • One of the key determinants of supply-chain shifts is whether an industry produces high value-added or low value-added products. In both cases, we believe there are countries and companies well-positioned to benefit.
  • Rather than shift entire supply chains, companies in high value-added industries, like semi-conductors, are choosing to locate new production facilities outside of their territories, minimizing the disruption to their core operations.
  • At the lower value end, industries like garment manufacturing are seeking to relocate production facilities to cheaper economies which have industrial capacity combined with relatively skilled labor forces.

Over the course of the last couple of years, we have seen high-profile changes to supply chains, such as in Mexico and Vietnam, where offshoring and nearshoring trends have occurred. But there are simultaneously deeper, longer-term shifts underway.

First, it’s worth laying a bit of groundwork. In our view, there’s an important distinction between high value-added and lower value-added industries in terms of how, why and where supply chains shift. For example, in higher-end, sophisticated industries like electric vehicles (EVs), artificial intelligence (AI), semiconductors and solar panels, the required level of technical ability and in-depth knowledge is substantial. That makes it harder to effect wholesale supply-chain shifts to new economies where available workforces may be less skilled and therefore ill-equipped to step quickly and efficiently into production roles.