Multinational executives have warned that global supply chain disruption and geopolitical tensions are leading to a recalibration of their investment strategies, as the World Economic Forum (WEF) began on May 23 in the mountainous town of Davos, Switzerland.
The wide-ranging consequences of Russia’s war in Ukraine, along with a more gloomy global economic outlook and disruption to global supply chains caused by the Covid-19 pandemic, are leading companies to recalculate their global footprint strategies.
“We are now bringing into the equation the cost and resilience of the supply chain, which is a very new notion … that was not in our mind three years ago,” said Loic Tassel, the president for Europe at consumer goods giant Procter & Gamble, in a panel hosted on May 23 at the WEF annual meeting.
“The simple outcome is we are looking at a more regional supply chain set up than the one we used to have,” he said. Major disruptions to container transportation by sea, notably from China’s largest port Shanghai, which is still in lockdown due to a recent surge in Covid-19 infections, have accelerated companies’ plans to regionalise their supply chains.
P&G aims to produce more than 90% of the goods it sells in Europe within the continent. “The price to pay, or the time to wait, to get some of our products from China in Europe is not compatible anymore with our industry [of fast-moving consumer goods],” Mr Tassel added. “If your container is stuck in Shanghai, it is not fast-moving.”
Other executives echoed concerns about the “severe constraint” on global supply chains, but noted that macro themes such as the changing structure demographics and technology development will continue to drive globalisation forward.
“[Globalisation] will be maybe at a different pace, in a different way, but it is always in flux,” said Tark Sultan, the CEO of Agility, a developer and operator of logistics parks across the Middle East, Africa and South Asia. He continued that a “very troubling” constraint on global logistics has been the rapid increase in the cost of container shipping from China to the US.
“[Small and medium sized companies] have been priced out,” said Mr Sultan. “These container volumes were rationed and most of the rationing goes to the benefit of larger companies.”
Questions around the future of globalisation are played out in global foreign direct investment (FDI) flows. China notably attracted just 55 greenfield FDI projects in the first three months of 2022, representing its lowest first quarter on record, according to fDi Markets.
Nicolas Aguzin, the CEO of the Hong Kong Stock Exchange, said that there has been a slowdown in capital flows in the first quarter of 2022, but stressed the benefits from these interactions being increased.
“There is a lot of value to be created by more interaction between East and West,” he said, noting the potential to bring additional people out of poverty.