Concurrently, policymakers’ commitment to pursue a more globalised economy, including efforts to bring down tariffs and remove barriers to capital flows, contributed to vertical specialisation. This allowed firms and countries to concentrate on certain links in the supply chain.
Supply chain shifts have also resulted in investments outside the US. Notably, the technology supply chain has witnessed rising investment in areas outside China for several years now.
Mobile manufacturing is one of India’s success stories. It fell to insignificant levels after Nokia’s India manufacturing operations shut down in the mid-2010s, but the government took measures to revitalise the sector. It introduced the Phased Manufacturing Programme and raised import duties on finished mobile phones.
India then followed up with import duties on certain components to promote the “assembly, programming, testing and packaging” model of manufacturing. It enjoyed some success through this initiative, with the number of mobile phone manufacturing plants rising from just two in 2014 to 105 in 2019. Production increased from US$11 billion in 2017 to US$30 billion in 2021, while exports in that time frame rose from US$200 million to US$4 billion.
Reshoring, nearshoring and friend-shoring are undoubtedly in focus for the global economy, and opportunities are vast. However, supply chain rewiring is complex as it requires substantial investment and is likely to take years to bear fruit. Complexities flow from decisions made by firms about production, shipping and inventory management.
Producing requires setting production plans, finding suppliers, locating workers and the decisions of millions of people about whether to enter the labour force and, if so, what job to take. Geopolitics, incentives and labour market dynamics are at play and will collectively conspire to define the real winners of this great reallocation.
Ecaterina Bigos is chief investment officer of core investments (Asia ex Japan) at AXA Investment Managers