"Doing Business in India"
Avneet Jolly and Anupam Prakash
Click to watch Avneet Jolly and Anupam Prakash -
Click to watch Avneet Jolly and Anupam Prakash -
asia resources

Need an office in Asia? Office suites, meeting rooms, virtual offices, network access

free downloads
ASIA: "Beyond Asia: Strategies to support the quest for growth" report

ASIA: "Beyond Asia: Strategies to support the quest for growth" report. 32-page report by Ernst & Young.

proceed to download

back to index backASIAtalk April,  2017

APAC Was Highest Contributor to Supply Chain Risk in 2016

Global supply chain risk grew to a record high at the end of 2016 as the CIPS Risk Index, released by Dun & Bradstreet, rose to 82.64, from 79.14 at the end of 2015. The figures put global supply chain risk at the highest level in 24 years following a year in which the pace of globalization appeared to slow.

Asia Pacific remained the highest contributor to supply chain risk in 2016 due to the region's importance to global supply chains.

Asia Pacific's contribution to global risk fluctuated between 33.566 in Q1 to 33.168 in Q4.

The emergence of a larger middle class in China has gradually reduced the competitiveness of Chinese exports in 2016 with wages increasing by 10%.

As a result, suppliers have begun moving their supply chains into nearby Indonesia or even beginning the process of reshoring back into their domestic markets.

Going forward, the rising tide of global protectionism poses a considerable threat to supply chains relying on Chinese exports with the yuan falling to an eight-year low against the US dollar in the week of Donald Trump's election.

The Index, produced for the Chartered Institute of Procurement & Supply (CIPS) by Dun & Bradstreet economists, tracks the impact of economic and political developments on the stability of global supply chains.

A combination of economic nationalism, rebounding commodity prices and the growth of a burgeoning Chinese middle class is making long international supply chains a more risky prospect while there has been an average of 22 new trade restrictive measures a month in the World Trade Organisation's latest report.

Brexit heightens global supply chain risk

The upward trend in supply chain risk is clearest in Western Europe, where contribution to global risk rose to 30.681 in Q4 from 30.048 in Q1.

Amid sluggish growth across developed and emerging market economies in Q2, the UK's vote to leave the EU at the end of June heightened global supply chain risk for the rest of the year.

Supply chains in the UK were severely hit by a depressed pound which followed the Brexit vote in June. This pushed up the cost of imports, leading to some early conflicts in Q3 between retailers and their suppliers over who should shoulder these costs.

The increasing likelihood of a 'hard' Brexit, and the UK's departure from the single market, will add further disruption to supply chains throughout Europe.

In addition to the UK's vote to leave the EU, there has been a wider revival of interest in trade restrictive measures across Europe.

Elections across Europe in 2017 are expected to see gains for populist parties with France's National Front, Italy's Five Star Movement, the Freedom Party in the Netherlands and the German Alternative for Germany all placing Euroscepticism and restrictive trade measures at the centre of their policies.

Impact of Trump's election success

At a global level, Donald Trump's election success in November confirmed a wider shift towards protectionism in global trade policy.

The adoption of protectionist trade policies, closing of borders and pursuit of bilateral trade deals over multilateral ones, all signal that the gap is widening between an interdependent global economy and the sole pursuit of national interests.

As multilateral trade agreements such as the Trans-Pacific Partnership are dismantled, global supply chains face unparalleled uncertainty and stress.

North America's contribution to global risk remained static over 2016 as the North American economy continued on a trajectory of growth and US consumer spending remained strong.

This risk score is likely to increase in 2017 if the USA builds trade barriers with Mexico and China who are significant players in the global manufacturing supply chain network.

Impact of rising oil costs

Elsewhere, the impact of rising oil costs in Q4 has driven up the costs of other commodities. 2016 saw a trend of persistently low commodity prices disrupted when OPEC restricted supply, pushing oil prices up by $10 per barrel in Q4.

This worsened the cash flow crisis for oil exporters in Eastern Europe and Central Asia, the Middle East, North Africa and Sub-Saharan Africa. This increase in transport costs is encouraging businesses to have shorter supply chains although it remains to be seen how long the new agreement will hold.

Contribution to global risk in the Middle East and North Africa increased from 9.08 at the beginning of the year to 9.09 in Q3.

Listen to suppliers

"Amidst exchange and commodity volatility, currency hedging will remain vital, while contingency plans must be put in place to protect supply chains from foreseeable trade barriers," says John Glen, CIPS Economist and Director of the Centre for Customised Executive Development at The Cranfield School of Management.

"Re-shoring supply chains will be an increasingly attractive prospect in the months to come. But, these are uncertain times for supply chain managers and there is no quick fix for the months ahead.

"It is more important than ever for supply chain managers to listen to their suppliers, develop closer relationships with them and to monitor any changes, so they can react quickly and ensure their supply chains remain resilient."

New U.S. policies main drivers of supply chain risk

Bodhi Ganguli, Lead Economist, Dun & Bradstreet: "Dun & Bradstreet's Global Risk Score measuring supply chain risk rose to an all-time high in Q4 2016, reflecting a rise in political and economic risk.

"Uncertainty stemming from significant trade and foreign policy changes implemented by the new US government will be one of the main drivers of supply chain risk over the next few quarters.

"The process of Brexit is also set to start in Q1, and will roil the current supply chain environment in Europe. Emerging markets dependent on trade will also be affected by both these factors and commodity price fluctuations remain an ever-present threat to global supply chains."

Source: CFO Innovation

previous page

go top

search our site



Other articles from the same issue (April,  2017).

Automakers struggle to keep Vietnam production amid ASEAN tariff cuts
play read on

Auto Makers Long for Easier China
play read on

The Indian auto finance market - at a crossroads
play read on

Report: US Automakers Seek End To Chinese Tariff
play read on

WardsAuto: Koreans Snap Up First Imported Bolt EVs in 2 Hours
play read on

Indian Auto Stocks Hurt by Court Ruling
play read on

Chinese manufacturing, auto sales show rebound
play read on

Asia corporate sentiment on the rebound
play read on

One in four forced to pay bribe in Asia - report
play read on

India To Provide China Serious Competition In Low Cost Manufacturing By 2020 - Analysis
play read on

Low-cost Manufacturing In Asia: The Mighty Five
play read on

Shift of global economic power to emerging economies set to continue in long run, with India, Indonesia and Vietnam among star performers
play read on

Employee Pensions in India
play read on

China issues compliance requirements on related-party transactions
play read on

How Technology Can Help China With The New Customs Self-Tax Methodology
play read on

India to block Japan's request for WTO dispute panel on steel penal duties
play read on

How Asian companies are making use of supply chain technology
play read on

Vietnam: New update on CIT, PIT, FCT, SCT, Import duty and Export duty, and other taxes and fees on March 2017
play read on

2017 Tax Reform - Passage of the Bills
play read on

APAC Was Highest Contributor to Supply Chain Risk in 2016
play read on

Vietnam releases new transfer pricing decree
play read on

Why India needs to take China's One Belt One Road initiative seriously
play read on

Talent Acquisition is Top-of-Mind for Southeast Asian Orgs
play read on

India: Illustrative Ind AS consolidated financial statements - First time adoption
play read on

Singapore is on the Move!
play read on

Korean Tax Update 2017 March (Update in Korean language)
play read on

Japan looks beyond Industry 4.0 towards Society 5.0
play read on

Singapore signs slew of deals with Vietnam
play read on

Two-thirds of Singapore employers struggle to attract talent
play read on

Our Free eJournals

To visit GlobalAutoExperts Directory, click here.

©2008 | HCI Group, Ltd.
101 West Big Beaver Road, Suite 1400 | Troy, MI 48084 USA
USA Tel: +1.248.687.1060 | USA Fax: +1.248.927.0347
Fax UK: +44.(0)845.127.4765 | Fax Europe: +31.20.524.1659 | Fax Asia: +852.3015.8120