Singapore pitches benefits of diversified supply chain to manufacturers

[DAVOS] Manufacturers looking to strengthen their supply chains should keep in mind the benefits of making things in more countries, said Jacqueline Poh, managing director of the Singapore Economic Development Board, at a World Economic Forum panel on Tuesday (Jan 17).

Poh was making a pitch for Singapore in the global manufacturing supply chain at a panel discussing the future of advanced manufacturing and value chains.

“As much as we want to think about nearshoring for resilience, and I think many companies are doing that, no country, no region, is entirely self-sufficient,” said Poh. “It would be a mistake to forget the entirety of the dependencies – in terms of raw materials, in terms of skills, in terms of comparative advantage – that exist by having a manufacturing supply chain that does take into account the benefits of making things in more than one country.”

Her exhortation comes as companies adjust their supply chains to account for geopolitical risks as well as the potential of another pandemic.

Fellow panellist Roland Busch, president and chief executive of German manufacturing conglomerate Siemens, said the pandemic has changed how manufacturers think about supply chains.

Pre-Covid, Busch said, manufacturers aimed to optimise on low labour costs. “We didn’t talk about scarcity of resources. We didn’t care too much about CO2 footprint. And geopolitical tension was not also a topic,” he added.

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Manufacturing was also a one-way street: “You take resources out of the globe, and you produce something, and you sell it. Circularity, running the whole thing in reverse, was never meant to be part of the design.”

Covid-19, however, showed that an optimised supply chain “doesn’t do the trick any more”. And environmental, social and corporate governance concerns have made carbon footprints and circularity far more important.

The industry is just “crying out for a new way to manufacture”, Busch said.

Some governments have taken this opportunity to persuade companies to set up complete supply chains in one country – or even one location.

Gretchen Whitmer, governor of the state of Michigan in the United States, said Michigan is investing to create the skilled labour necessary for companies to build their manufacturing operations.

With the passing last year of the US Chips (Creating Helpful Incentives to Produce Semiconductors) Act and Inflation Reduction Act, she also sees more onshoring of whole supply chains in the US. Both acts offer grants, tax credits and other incentives to investors.

Meanwhile, Bandar Alkhorayef, Saudi Arabia’s minister of industry and mineral resources, used some of his time on the panel to make a pitch for the Kingdom’s attractiveness, in terms of mineral base, central location, access to different markets and talent pool.

Manufacturers, too, see benefits to consolidated supply chains.

Siemens’ Busch said there is “a natural hedging if you manufacture local for local”, and a reduced dependency on logistics.

Michel Doukeris, chief executive of beverage group Anheuser-Busch InBev, said manufacturers with localised supply chains should also benefit in the long run, from lower costs, increased productivity and greater environmental sustainability. They should also be more resilient, as they can avoid disruptions in their supply chains.

In the near term, however, the process of nearshoring will lead to some inflation. “It’s a new footprint. You need to find ways to create the scale that sometimes you don’t have,” he said.

If trade barriers are erected, production will also be sub-optimal and more expensive.

To counter protectionism, Busch of Siemens suggested manufacturers looking at relocating should also consider export conditions.

“If you relocate, obviously you want to serve the local market,” he said. But manufacturers should aim to leverage exports too. “For me, Asean is a good example. Asean has a free trade agreement with China, and within Asean countries. It is a growth market.”