Global Supply Chains May Be Headed in New Directions

As noted in today's news section, a new study done by Hong Kong's Standard Chartered Bank suggests that China's status as the world’s leading manufacturer may be in decline.

Researchers also see three trends in global supply chains which will help create growth but also take Global Supply Chains in new directions:

1. A shift from China to lower-cost countries. This shift will likely be gradual as China still has lower-wage areas inland which, together with fast-growing productivity, including the rapid adoption of automation and robotics, can keep China competitive. Nevertheless, the center of gravity will likely trend westward, towards ASEAN and India in particular. Meanwhile, researchers expect China to cement its role as a “mega-trader” by leading the expansion of supply chains through international programs such as the new Silk Road initiative.

2. Increasing services in supply chains. Measured in value-added terms, services likely already constitute more than half of the value of trade even though direct services trade is only about 20 percent. New technologies as well as new trade agreements are likely to boost the role of services in goods supply chains as well as direct services trade.

3. Expanding horizontal trade. Horizontal trade, based on firm-level excellence rather than differing wage costs, is prevalent in developed countries and should get a boost from the TTIP and TPP. Firms in developed countries routinely source parts from suppliers in other countries, based on quality rather than low-cost production, while consumers choose products based on a range of factors, often blind to country of origin. Such trade is still much less common among emerging countries due to tariffs and other barriers. Researchers believe it has enormous potential for expansion, with the help of new trade pacts and growing incomes.

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