While almost all (94%) companies surveyed reported a Covid-19 induced disruption to their supply chains, U.S. companies stand out, with 26% reporting a “severe disruption” (vs. 17% on average for other countries), as well as companies in machinery and equipment, IT, tech and telecoms and energy and utilities (25% vs. 16% of companies in the chemicals and automotive sectors). 

To cope with the crisis, most companies (52%) resorted to hedging through insurance, stockpiling and the search for alternative supply solutions to activate when needed. Companies also engaged actively in a better monitoring and understanding of supply chains. Supply-chain reorganization follows, with four out 10 companies indicating they were already changing some overseas suppliers and moving parts of their production. An average of 32% of respondents indicated they are increasing ESG due diligence on suppliers to mitigate the disruption in supply chains. In addition, 57% of highly digitized companies (reporting six to eight different digital activities) searched for potential hedges compared to just 43% of the less digitized ones (reporting zero to two digital activities), suggesting their higher agility and proactivity when the crisis hit. 

While 55% of companies surveyed are considering looking for new suppliers in the next six to 12 months, and 62% are considering it in the long-term, in a third of the cases they are looking at countries already in their top three existing supplier locations. In fact, 20% of companies surveyed consider finding new suppliers at home, which is more than any other country. The Covid-19 crisis does not mean the end of the Chinese supplier, which remains the most popular outside local suppliers, likely due to the search for cost-effectiveness in times of great uncertainty and after an unprecedented shock. “Improving margins” is cited as the most popular reason to look for a new supplier. 

Will Covid-19 mark the beginning of the end of globalization? Not so fast: Less than 15% of companies consider reshoring. But when aggregating responses, we find around 30% of companies favor nearshoring i.e. bringing production to a nearby country (particularly if it’s part of the same customs union or Free Trade Agreement). Companies are divided on the reasons for this choice, from finding better quality suppliers, increasing turnover and margins to reducing delays and better managing inventories. One third of French companies mention a desire to create jobs at home. 

What does this mean for global trade? Resilience strategies will be multifaceted as competing dynamics shape international production and the demand for protection increases. What will drive supply-chain decisions? Traditional issues such as production costs, quality and transportation issues and investment costs. For instance, if reshoring, 40% of companies surveyed would pass costs along to customers. Multi-shoring or diversification is also on the agenda, but companies are also worrying about environmental risk, potentially announcing more scrutiny and streamlining of supply chains on the basis of ESG criteria. 

What does this mean for policymakers? Governments have a role to play in boosting domestic supply-chain resilience. But there is no miracle drug and companies’ responses are split across different policy measures, which underlines the multifaceted future of international production. In the UK, supply-chain worries related to Brexit are self-evident, with companies concerned about cost-competitiveness: 51% mention Free Trade Agreements in their top three measures to boost resilience. In France, the focus is on labor market flexibility and R&D investment to assert the country’s place in global value chains, while in Italy companies are concerned about domestic tax incentives to enhance attractiveness.