With supply chains and overseas operations facing unforeseen disruptions and regulatory changes arising from geopolitical uncertainties, businesses are increasingly taking the approach of diversifying their supply chains. For instance, four out of five Japanese manufacturing companies had diversified their operations since 2020 with new facilities across Southeast Asia.1
However, when expanding their procurement networks and set up facilities in new geographies, it is imperative for businesses to first establish an in-depth understanding of local risk dynamics, including regulatory compliance and people risk, to identify emerging threats. Subsequently, businesses should adapt their operating and talent strategies to mitigate these risks and optimise supply chain diversification outcomes.
As part of a comprehensive supply chain diversification strategy and prior to setting up operations in a new geography, businesses should conduct supply-value chain mapping to uncover and understand the potential weak points that may be vulnerable to disruption.
A robust mapping exercise should account for potential infrastructure challenges (e.g. reliability of electricity, clean water supply and transportation networks) and the complex regulatory requirements in these new locations (e.g. minimum wage, labour policies), which can evolve and pose significant risks if left unaddressed.
Importantly, supply-value chain mapping can help businesses anticipate and address upstream delays, which can result in reduced quantities and higher prices for inputs — especially commodity inputs such as energy and raw materials. Downstream, businesses can experience fulfilment and delivery delays, increased logistics expenses, and fluctuations or reduction in demand.
In formulating risk management actions, businesses should avoid over-prioritising higher value inputs (e.g. microprocessors) versus lower value inputs (e.g. rubber gaskets), as any disruption to the latter can also result in significant financial and operational impacts.
Beyond supply-value chain mapping, businesses should also assess their political risk exposures to identify geopolitical scenarios that might result in business interruption.
When investing in new locations, it is also vital to calibrate the right talent strategy across the three areas of pay equity, skills availability, and talent mobility.
Today, climate, economic and geopolitical risks combine can cause ripple effects that result in prolonged and severe supply chain disruptions, compelling Asia’s businesses to address latent risk exposures such as single-supplier dependencies and geographic concentration. Marsh Asia is committed to helping businesses overcome the complex challenges of supply chain diversification with best-in-class risk assessment, quantification and monitoring solutions with industry-led risk management and risk transfer expertise.
1 CSIS. (2022). Diversifying Supply Chains: The Role of Development Assistance and Other Official Finance. https://www.csis.org/analysis/diversifying-supply-chains-role-development-assistance-and-other-official-finance