Global supply chains: The race to rebalance

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While the COVID-19 pandemic years were about rebalancing and de-risking the supply chain, we now face a new reality. With shocks growing more frequent and severe, companies must move from an "ought to change" to "need to change” mindset. There’s a global race happening right now as businesses look to rebalance their supply chains and seek new suppliers, locations and talent. It’s no longer enough to focus on resilience and short-term profitability. Businesses need to transform to survive and grow. 

In today’s episode, we will be exploring what companies must do to win in this challenging environment, together with our host, Jeremy Prepscius - Managing Director, Asia Pacific Sustainability, Sustainable Supply Chains, PwC Hong Kong - and guest, David Wijeratne - International Growth Practice - Global lead, Partner, PwC Singapore.

For a deep dive into this topic, read our latest piece of thought leadership: Global supply chains: The race to rebalance

Release date: November, 2023

Full transcript

Ivy Kuo:Hello! I'm Ivy Kuo, PwC Asia Pacific Sustainability leader, and you're listening to PwC's ESG podcast, Defining Asia Pacific’s Future. The podcast for bite-size updates on the latest sustainability trends, from climate change to social and labour rights due diligence. We bring together ESG practitioners to discuss and solve today and tomorrow's sustainability challenges, reflecting PwC's strategy of building trust and delivering sustained outcomes.

Following the success of earlier episodes, I am pleased to announce that we will feature various PwC sustainability specialists in this podcast series.

Jeremy Prepscius:Greetings and thank you for joining us for this PwC podcast where we will be exploring global supply chains. The race to rebalance. In the COVID-years, we saw the vulnerability of global supply chains exposed. Now, life is and has been moving past the pandemic and many have breathed a sigh of relief as things seem to begin to get back to normal. But look around, actually, we aren't back to normal. We now face a new reality with shocks to the world of trade, finance and international business growing more frequent and severe. Companies must move from a COVID-driven, we ought to change to a... No, we need to change (our) mindset. It's no longer enough to focus on resilience. Business needs to transform to survive and grow. In the race to rebalance we are seeing today, a global race for new suppliers, geographic sites and talent.

This is already happening. CEOs and business leaders must respond. The race to rebalance is on. So, what must companies do to win this race? Well, let's get started with this podcast episode. 

My conversation partner to explore this question today is David Wijeratne, a colleague of mine at PwC. And my name is Jeremy Prepscius. David, you lead PwC's international growth practice and global team focusing on market expansion, global location analysis, international sourcing, global talent strategies and international trade. And you're based in Singapore. Tell us a little bit about your background and what led you to this seat today.

David Wijeratne:Yeah, thanks very much, Jeremy and it's great to have this discussion today. Yeah, well, so I'm originally from Scotland. I'm a lawyer by background, believe it or not. Actually, my first job was in Japan. It wasn't as a lawyer, it was in the education sector straight out of university. A couple of years there, (I) had my own business out in Japan and then came back, spent a bit of time in industry, in the chemicals and paints industry in fact, before moving into consulting in about 2005. Back in 2010, (I) had the opportunity to come to Singapore, which is where I'm based now and build the international growth practice, which has now been going for about ten years. And as you say, (it) focuses on international market expansion, but then also on international transformation, which sort of includes global location analysis, global supply chain strategy, global talent strategy as well.

And those three elements have really come to the fore in the last three or four years as companies start to look at their global operating model and where they should rebalance, but also positioning themselves for resilience and growth. So, it's been a great journey and especially as they say at this period in time, it is particularly exciting.

Jeremy Prepscius:That's great. My background actually echoes a little bit of yours. I had the chance to start some of my teaching career in Japan back in the day, and so all good careers start off with a bit of teaching at some point in it. So, enough about us, let's get this conversation going and let's explore the business side of the race to rebalance first. David, we both sit here in Asia and it's pretty easy to look around and see the shifts to the impacts on the changes in global supply chains. What's driving this?

David Wijeratne:I mean if I see myself or you sit in C-suite shoes just now and they look at the road ahead for their company, I think they see two specific drivers. One (is) what we might call fundamental shifts that... Or mega-trends as we call them here at PwC, which really shake the global economy over the next 10-20 years, next generation. And these include things such as the emergence of new consumer markets, whether that's in Southeast Asia, towards the Middle East, subcontinent, Latin America - really growing consumer pools. Stronger supplier markets, whether that's in Latin America or here in ASEAN (Association of Southeast Asian Nations) or Central Eastern Europe, growing again to serve these new consumption markets. We're seeing the emergence and growth of digitalisation particularly relevant for the topic we're saying today through supply chains, the digitalisation of supply chains. And of course, ESG is at the forefront of a lot of corporate boards just now as they think about how to ensure that their future strategies are environmentally and sustainably and governed appropriately.

So, all of these I would say are the fundamental shifts which are shaping the road ahead of the corporate strategy. And then on the other side, I think you have a series of events, disruptive events which companies have to pay attention to and have to react to almost immediately. Now between the early 2000s, up until about 2019, these disruptive events were happening maybe every five or eight years, whether it's the global financial crisis or an environmental disaster. These events were happening over a period of time, which makes many companies think that they didn't really have to change their operating model too much. There were bumps in the road, there were tweaks to their operating model, but by and large they could continue with the business model that they had.

Then we enter 2019 going forward and we see these disruptive events becoming more frequent and coming from various different directions, whether they're political or financial or as we know health, we had the COVID (pandemic), environmental, even more recently, we've seen conflicts as well.

And all of these events are happening, as I say, a lot more frequently coming from different directions, happening almost even not on a monthly but quarterly basis. And over the last three, four years, companies are beginning to realise that there's no end in sight to these series of disruptive events. You cannot predict when this will end and will go back to being a little bit more of a stable outlook. So, this is really prompting a change in mindset, that mindset from 2000s to 2018, 2019 where companies think, "Yeah, I should change and if I do, I'm in control of the timeline, of how I address some of these fundamental shifts of capturing new consumer markets and tapping into new supplier markets with ESG as a key part of the strategy" to now actually thinking "I have to change and I need to change now, because if I don't, I'm going to be behind the curve with my competitors."

Jeremy Prepscius:I'm going to build on that and build the layer on the fundamental shifts coming down the road and the imperative to change. Because we're also facing from a sustainability perspective, the issue of climate change. And to be clear, a four-degree world is not inhabitable. We do need to work with our clients to achieve a 1.5-degree world, and that is going to mean fundamental changes in the energy architecture of the world. It's going to be impacts on things like carbon border taxes. It's going to mean things like impacts on which of your suppliers are located where and their ability to adapt to climate change. And then layering on top of that, the digital architecture that is growing and underpinning the world today, making traceability clear, making issues like labour conditions or forced labour conditions clear, which is really integrating the whole question on what we're often externalities to business being integrated into the value proposition of business itself via emerging regulation around the world.

So from a C-suite perspective, the world is changing. The world is changing from a macro perspective and the sustainability issues I would argue are intrinsically interwoven into those which really sets up what needs to happen next. So, maybe let's explore that. So, the world is shifting, David, what do companies need to do about it starting with the now, the today, right? So, I'm a global business, I'm in the C-suite, I'm looking at the next three years. What do I need to make sure my business is doing now and why?

David Wijeratne:Yeah, no, it's a good question. I mean, if I think about the reality of what some of the clients are coming to PwC with, and a lot of them are coming with risks or asking how can they manage some of these big risks that they see that are threatening their existing operating model, their existing supply chain. Now, I think the risks that a lot of our clients are coming with are absolutely valid. They tend to be dominated by some of the loudest and most prominent risks, which as I say are relevant. But what they also tend to do is they tend to eclipse a lot of the other risks that are threatening a company's business or a company's operating model, whether that is strategic risks or operational risks, the financial risks or compliance risks.

So, I think the first point as we start to look towards a future network design or a future operating model is to do a comprehensive risk assessment. Let's just focus on the loudest and the largest that are in the room, but look comprehensively, because as we design for the future, we don't want to be leaving ourselves susceptible to some of the challenges that we could have addressed whilst creating that future design.

So, first of all, I think we're starting with that comprehensive risk analysis, but secondly though, I would say the other side of the coin, which is really about growth. And you touched upon it there earlier, Jeremy, and I think it has been a difficult conversation to have with certain companies until recently to say, "Look, let's look at growth. Let's look at future growth when we're dealing with so many challenges." But to be honest, I think a number of companies now are beginning to see that as 2024 holds a return to growth, perhaps not at the rate of growth that we'd seen previously, but shoots of growth emerging.

And having a look at understanding where future growth lies for a particular sector is important because as we begin to design for the future, design a more resilient and rebalanced operating model, understanding positioning for future growth ensures that you are well positioned to execute on it at the right time as opposed to only thinking about it and making changes at that point.

So, it's really trying to do that comprehensive risk and growth assessment as two key ingredients before I then begin to move into what the future might look like. And then when I start to think about that future, my future (of) rebalanced resilient operating models positioning for growth as well, I'm thinking where am I going to locate certain parts of my business? Where am I going to put certain manufacturing sites, production sites, propositions as well? Where am I actually going to source suppliers and therefore how do I secure talent pools? Now in that design, when I'm trying to piece this together, I need to realise that I'm not the only one that is doing this. As we mentioned, the disruptive events, particularly in the last two or three years, whether it's COVID, the supply chain, challenges, the geopolitical tensions - they have brought most companies to a starting line, but then started a race.

So, the majority of companies and through their value chains are looking at some sort of change, some sort of relocation, some sort of evolution or transformation of their partner and supplier portfolios, looking for new talent. So, there's a competition, there is a race to rebalance in that regard.

Now, what's accentuating this race is what governments are doing around the world in trying to attract this foreign direct investment by way of government incentives. And in fact, what this is doing is actually, as I say, aggravating or accentuating the race to relocate and capture new sites, supplies and talent. Now, whilst the government incentives are a key component, they're not the only component to a successful redesign of a global operating model. Understanding how to win over new suppliers and capture talent pools is critical to the execution. Otherwise, you might find as we've seen a couple of companies in this case are securing new government incentives in a particular region, but then not being able to actually execute, build out these new hubs, because they can't secure the suppliers and the talent pool.

So, what's critical within the design of the future network design or future operating model is understanding not only where am I going to, but how am I going to win? How am I going to differentiate myself from all those other companies that are competing for these talent pools and competing for these suppliers to ensure that I am the one that the suppliers want to respond to and want to work with? And I am the company that the talent pools are attracted to and want to stay with. And it is these areas of differentiation. Gone are the days where a company can say, "We will offer you to build up your capabilities to be as strong as the rest of our supplier network. We will ensure that you're ESG compliant." These are table stakes in many regards. Companies have to offer this to their partners, to their future talent pools.

They have to go beyond that and think about things that will benefit their suppliers in a way that they differentiate from the other competitors. And that might be, for example, offering financing. So, deep tier financing, which enables a manufacturer to part its financing through to its suppliers. It differentiates from another manufacturer or working with education institutions and local governments to create talent ecosystems, not just try and identify the number of people you need for a particular facility, but actually create an environment which in itself attracts talent and thereby creates more of a talent hub rather than just a finite talent resource pool that eventually is going to become tapped out.

So, I think as companies look ahead, they've got to really understand first of all the preparation of what goes into a future operating model. That's where that point about risk and growth and understanding those key components as the key ingredients, realising that this is a race, we really do need to start to move and understand what does that new operating model look like, but in particular, how do you win? How do you win that race to the point that you can not only secure the incentives and the land sites, but also secure most importantly the suppliers and the talent pools which enable you to actually execute and get this new rebalanced and resilient operating model up and running.

Jeremy Prepscius:I totally agree, and we're seeing a couple things in the sustainability world that actually amplify this clearly, right? Europe has a corporate sustainability reporting directive, CSRD, which actually requires something called double materiality, which is of course the opportunities for the business, but also the impact on the business and the world around it. The impacts external, and you can look at those at risks that need to be mitigated or you can look at those as, well, these are also opportunities. So, if our risk is an extended producer responsibility directive coming down the road, the company that manages to tackle that and support it first should by definition win.

So, what are those risks from the impact on the company, but also how the company impacts the world and what's going to be changing in the future? The second thing that's been clearly important through all of the supply chain processes going back for decades is partners matter and partners are going to matter even more than ever before in the future.

How are your partners going to impact your carbon border adjustment mechanism and a tax liability? How are your partners going to manage a talent pool in a varied and different country and geography and historical background? How are your partners going to manage questions such as nature, biodiversity and deforestation? How are your partners going to be able to attract and find access to capital to enable them the growth, to meet your needs? How do they put all those together in an environment where automation is changing, access to labour is changing, consumer expectations are changing, and you're going to have to be increasingly clear how you market your product to avoid greenwashing claims.

So, those are all going to come back to how do you engage your suppliers? And the core of this at the end of the day is, as you said, talent pools, right? And so your ability to attract, manage, build ecosystems and develop the workforce of the future, not only within your own operations, but within the operations of your extended supply chain, that has to be a competitive advantage. So, let's look a little bit further in the future. Okay, with all these changes going on, and it's a bit maybe murky and risky to make some prognostications, but 2030 isn't that far away. I've talked about climate, 2030 is going to be a major climate checkpoint on the road to 2050 and the business environments (are) going to continue to have evolved. So, David, with this in mind, what are some of the longer term investments companies should be taking, looking beyond a three-year horizon that will help them to win this race?

David Wijeratne:Yeah, I think first and foremost we should realise that what are we moving from and what are we moving towards? Historically we've been working or companies (have) been working in an environment where they have fully understood their value pools, their consumer pools, where their consumers lie and have fully understood where are the best places to manufacture and supply to then serve those consumer pools. And I think the focus of business for the last 20 years or so has been really about joining those two together in the most efficient and profitable manner. As we move forward, and really going back to what we were saying earlier around the fundamental shifts, well these fundamental shifts in particular, if we think about consumer pools and these supplier pools just picking two have not landed, they have not settled. So, what companies are moving from, towards, what they're moving to is not defined yet, and therefore, in whatever future operating model, whatever resilient and rebalanced supply chain business model they move to has to be adaptable.

It needs to have the ability to flex almost six-monthly, certainly yearly, as these consumer pools and supplier pools mature and change and vary in demand. So, one of the key things that we as a firm are helping our clients to understand, first and foremost is how do you scenario plan on a much regular basis to be able to react to this future state that we're moving to, which is continually evolving. And it's not a programme, it's not a defined finite programme that you transition to. It's actually almost a different way of working. It's a different operating mindset of how to win and compete, first and foremost, agility and being able to respond quickly to events, demand drivers and value pools being absolutely key in that. I mean those who can plan and put the right tools in place to first of all predict and understand the variances in demand and supply flows and the ability then to connect and react to that will be the ones that really do win this race. They would've created a winning rebalanced operating model.

Now, within that, you think about going back to really to the two points around suppliers and around our talent. How are we going to be able to enable and work with our suppliers partnering, as you mentioned earlier, effectively to ensure that we can react and work in this agile manner that the world that the global economy is going to require us to do and that has been able to work with our suppliers in a way that we help them from a digitalisation, we build up their capabilities digitally so that we can understand and get quick access to data and be able to react to it accordingly. Being able to bring them, as I said, from an environmental sustainable and governance perspective up to the standards that again enable us to be globally compliant almost.

If you think about how we're going to flex, and that is quite a jump. Do you know what I mean? If we think about we're just trying to be territorial compliant, how do we become globally compliant? That is in a way quite a leap. But as I say, if we're looking to be able to flex and respond to demands on a much nearer-term or regular basis, we need to be able to react to that. And then again, from a talent perspective, I think talent really is, as you already said, where it all comes down to, because the talent pools that you create, it takes time. It takes time to evolve the skills and nurture those skills and in fact retain these skills. So, it's moving away from the fact that, "Okay, I need 2000 people in this particular part of the world." To "Actually, how do I create talent ecosystems in different regions, which therefore one actually endears me to that region because I'm seen to be more than just the manufacturer. I'm actually bringing value to the community. I'm actually creating skills and talent pools beyond my own need."

But actually what that does is it means that when one person leaves, there is a much bigger talent pool, even though they may be working for other companies, to draw upon. So, working as I think we mentioned earlier, closely with local government, closely with local educational institutions, but it's corporate led. It's really saying this is what the world needs, this is what our customers and consumers are demanding. These are the types of skills therefore we need to develop, let us help develop the curriculums. Let us make sure that those who are coming out of tertiary education are ready to join the workforces and serve the consumer pools of the future.

So, as I say, I think this is a very interesting time, but it's a mindset. One of the key things I'll come back to is we are moving to a different way of doing business. It is not the rigidity and the luxury of three and five year plans. It's something that I think we're slightly moving away from and we're moving to being able to react a lot quicker to the fluxes in demand and therefore what we need to supply to meet those demands going forward.

Jeremy Prepscius:Absolutely. So in an agile rapid response, I think there's going to be to build on what you're saying, three fundamental building blocks, and these are things that we all know, right? So, first and foremost is in an agile distributed response, the building blocks of corporate values of making sure that your people understand the goal, the target, what the parameters are, fundamentally important. I think the second one is how do we count and measure all of this? The investments in data. Now, I personally think all investments in data, data acquisition, the ability to count and measure both business operations and the external operations, external impacts on education, talent development, recruitment, retention are going to pay huge dividends in the future. And the last one is how do you build the relationships across your value chains so that you are participating in a broader push towards this agenda with your value chain to enable (you) to find the efficiencies to really make it a competitive differentiation?

I think on that note, David, we're probably going to wrap up and I do hope our listeners found this interesting. In brief summary, the world is changing, (the) supply chain world is changing, the sustainability world is changing. Because of this, business leaders must think differently. They must think more holistically, and this is about a broader business model transformation, not just a supply chain transformation.

There are a myriad of ways that businesses can win this race, and we've seen many with varying degrees of success. The point is to act now, boldly go to the future, future-proof your business for your growth, and find the solutions that are going to meet the needs of both today's world and the future world. These are going to relate to the issues in the world we inhabit, integrating into our target operating model, the social, environmental, the economic, and other externalities from the impacts of climate change to the opportunities for inclusion, jobs, talent acquisition, and just transition. These will create the world we live in and hopefully will create the world we want. 

If you're interested in further details, you find a link to our latest piece of thought leadership “Global supply chains: The race to rebalance” in the podcast notes. One last addition, © 2023 PwC. PwC refers to the PwC network and one or more of its member firms, each of which is a separate legal entity. This content is for general information purposes only and should not be used as a substitute for consultation with professional advisors. All opinions are our own and not reflective of any organisations with which we may otherwise be associated. Thank you very much for listening.


© 2023 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. 

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Ivy Kuo

Ivy Kuo

PwC Asia Pacific Sustainability Leader, Partner, PwC China

Jeremy Prepscius

Jeremy Prepscius

Asia Pacific Sustainability, Sustainable Supply Chains, Managing Director, PwC Hong Kong

David  Wijeratne

David Wijeratne

International Growth Practice - Global Lead, Partner, PwC Singapore

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