Recent years have brought numerous challenges to the global supply chain, including the Covid-19 pandemic, the ongoing war in Ukraine, and rising geopolitical tensions. The OECD Supply Chain Resilience Review presents a nuanced perspective on navigating these risks while harnessing the benefits of global trade expansion. It highlights that, despite growing concerns of dependence on specific trading partners, most trade flows are still relatively diversified. Approximately 70% of exported products are described as “well diversified,” indicating that competition in international markets remains robust.
Nevertheless, a troubling trend emerges from the data: countries are increasingly turning to a smaller pool of suppliers, leading to a rise in import concentration. The report notes that there has been a significant increase in instances where nations source products from fewer than half of available global suppliers, marking a 50% rise since the late 1990s. This trend poses vulnerabilities to economic shocks and is primarily driven by non-OECD countries. China’s growing influence is a critical factor in this evolution.
Over the past 25 years, its share in significant import concentration has escalated from 5% to 30%, while the combined influence of the US, Germany, and Japan has diminished. This mutual dependency underscores China’s role as a major supplier, especially in sectors such as advanced manufacturing. The report also emphasizes that interconnected economies are more susceptible to supply chain shocks, with countries like Canada, Germany, and the UK facing heightened risk. The OECD suggests that governments collaborate to mitigate uncertainties through trade agreements and enhanced multilateral cooperation.
Interestingly, the review challenges the idea that “re-localizing” supply chains could be a solution for resilience. Such a strategy may inadvertently reduce global trade and GDP while offering no more stability against disruptions than existing interconnected systems. Moreover, digital transformation and sustainability are reshaping supply chains. While digital technologies offer improved efficiency and visibility, they also introduce risks, such as cyberattacks.
Furthermore, the demand for environmental goods, while growing, highlights the vulnerability of supply chains reliant on geographically concentrated raw materials. As countries adopt sustainability laws impacting worker rights, there is potential for increased transaction costs that may disproportionately affect developing nations and small businesses.