Restructuring global supply chains and investing in infrastructure could drive significant economic benefits for developing markets
As the world recovers from the Covid-19 crisis, many organisations are rethinking their supply chain strategy. Their reliance on single suppliers, often in distant geographies, was exposed by the disruption that the pandemic caused. But is there a danger that this rethink could see developing economies lose out, with businesses in regions such as Asia and Africa losing valuable contracts as western customers look to source closer to home?
Possibly, but some procurement experts believe there is now a golden opportunity to create a more resilient model in which developing market suppliers move up the value chain. Relationships built on western businesses scouring the world for the cheapest supplier did not do developing markets any favours, they argue.
“While the strategy has seen pockets of success, outcomes have generally been disappointing from a developmental perspective,” argues Professor Carlos Cordon of IMD Business School in Switzerland. In most developing economies, contracts went to a small group of suppliers and created very few broader economic benefits, he says.
“Sustainable supply chains are rapidly becoming the new normal, rather than a theoretical nice to have.”
By contrast, argues Professor Cordon, “There will be opportunities for poor countries in the transformations that lie ahead.” More suppliers and countries should benefit as businesses look to diversify their supply chains, he suggests.
Saif Malik, CEO, UK and Regional Head, Client Coverage, UK & Europe at Standard Chartered, agrees. Corporates are now looking more closely at how their supply chains can evolve not only to become more resilient but also to support a more inclusive global model.
“Supply chains have been shocked and stretched over the last few years,” says Malik. “Businesses of all sizes are reacting by reviewing not only where they trade, but how. Transparency, inclusion, diversification and dialogue are becoming as important as speed, efficiency and performance. Sustainable supply chains are rapidly becoming the new normal, rather than a theoretical nice to have.”
This sense of optimism resonates with Standard Chartered’s research, which sees a radically different future for trade. Globally, more organisations are focused on implementing fair and sustainable trade practices, it points out, not least because their own customers are demanding this. Digital technology and ecommerce present an opportunity for globalisation to become more equitable, with increased opportunities for smaller businesses to play their part in global supply chains.
“Research reveals that 89 per cent of corporates now see a need to implement sustainable and fair-trade practices across their supply chains.”
Certainly, these firms’ customers appear ready to look beyond a race to the bottom on price. The bank’s research reveals that 89 per cent of corporates now see a need to implement sustainable and fair-trade practices across their supply chains to make trade more equitable and responsible.
Even so, the growth of developing market suppliers will not necessarily depend solely on the decisions made by buyers in developed markets. As economic growth in regions such as Asia outstrips growth in western countries, suppliers will increasingly find more local customers, too. As of 2022, Asia’s share of global trade had risen from 38 per cent to 45 per cent over the previous decade, according to data from World Economics, and is expected to pass 50 per cent by 2030.
However, to maximise the opportunity, many developing economies will need to build more robust infrastructure for their enterprises to participate in increased trade. “We desperately need to see investment in physical infrastructure such as the rail and road networks required to move goods,” says Sara Pantuliano, CEO of the Overseas Development Institute. “And better digital infrastructure will also be crucial to ensure businesses can transact with one another and with customers overseas.”
That, in turn, is likely to require private investment with funding for capital development in short supply in many countries. In Tanzania, for example, Standard Chartered has provided almost $1.5bn to fund the construction of a new railway link between the port of Dar es Salaam and Makutupora. The link has the capacity to carry 10,000 tonnes of freight per trip and will connect Tanzania to Burundi, Rwanda and the Democratic Republic of Congo, enhancing regional trade.
Ensuring that developing economies are able to meet fast-growing energy needs – and that they can do so sustainably – will also be crucial. In Pakistan, for example, the World Bank’s International Finance Corporation worked with the Asian Development Bank, ECO Trade and Development Bank and Habib Bank to finance a $159mn wind power project that has underpinned industrialisation in the country’s Sindh province.
“Only through continuing to finance, invest in and deliver these vital projects at a local level will we unlock global economic potential, create more valuable jobs and raise living standards,” adds Malik. “Modern digital and physical infrastructure is a necessary component to re-setting globalisation and leading us to a brighter, more inclusive future.”
The promise is a virtuous circle. If investors can rise to the challenge of financing the infrastructure improvements required in developing economies, more suppliers will be able to participate in regional and global trade. That, in turn, will help deliver the economic dividends necessary for further sustainable growth.
This content was paid for and produced by Standard Chartered in partnership with the Commercial Department of the Financial Times.