Businesses in India investing in creating higher inventory buffers, reveals latest edition of Trade in Transition study
Focus on increasing the length of supply chains and diversifying supplier base to build resilience
Increased policy support and tech enabled real-time monitoring of cargo adding to optimism
India, Chennai, 19th January 2023: New research has revealed the emergence of major shifts in globalisation, as companies across the world and in India diversify their supplier base and move manufacturing closer to home.
The latest Trade in Transition study, commissioned by DP World and led by Economist Impact, captured the pers pectives of company leaders as they navigate the latest disruptions to global trade – from the conflict in Ukraine to inflation, and extended COVID-lockdowns in some markets.
From a global perspective, the key finding from this study is that 96% companies confirmed making changes to their supply chains due to geopolitical events. Business leaders in India too, resonate with the global sentiment with 58% choosing to diversify their supplier base and 14% shifting manufacturing and suppliers to the local mar ket.
Indian companies building resilience to global disruptions
The recently launched report revealed that 40% of Indian companies preferred increasing the length of supply chains to hedge against risks from current geopolitical events. Further, 47% of respondents from Indian compa nies found ‘exporting to new markets’ as the most effective means of making their trade operations more resili ent as a demand-side strategy. Similarly, from a supply-side strategy, 34% of respondents from Indian companies relied on ‘increasing the use of digital tools for improved inventory management’ to ensure resilience in their tra de operations.
While it is evident that businesses in India can capture substantial price benefits by lengthening their supply ch ains to hedge against geopolitical uncertainties, this approach can also add to production costs, which makes it essential for companies to thoroughly evaluate their needs and options ahead of taking this route.
To ensure supply chain resilience, executives in India are now investing in creating higher inventory buffers with a focus on protecting businesses from external fluctuations. According to latest findings of the study, the avera ge inventory buffer for around 27% of the companies in India is around 2 to 4 weeks, while 20% of companies su rveyed have a buffer of around 1 to 3 months. This indicates a shift from the previously followed ‘Just-in-time’ st rategy to a more risk assessed strategy. The study further revealed that currently only 16% of the companies surveyed in India are operating on the ‘just-in-time’ model.
Additionally, to reduce supply chain costs and risks posed by disruption of critical production inputs, around 33% of the companies surveyed from India are strategizing ways to expand into more stable and transparent markets.
India’s outlook optimistic
Between April and September 2022, merchandise exports from India rose by 17%, and imports to India grew by 38.5%, compared to the same period of the previous year. Building on the momentum, over 60% respondents fr om India are optimistic about the future of global trade over the next few years. Increased support from the Cen tral Government through initiatives like the National Logistics Policy, combined with new technologies aiding th e improved ability to monitor the movement of goods in real-time is further driving this trend.
Rizwan Soomar, CEO and Managing Director, DP World Subcontinent commented: “The current edition of the Tr ade in Transition report accentuates India’s opportunity to transform into a global logistics powerhouse. While ge opolitical challenges and other disruptions have placed pressure on advanced as well as growing economies, India’s size, rich demographic proposition, and domestic consumption trends have largely insulated it from glob al shocks. These characteristics coupled with the country’s focus on enhancing trade efficiencies have cemented its position as a reliable partner to international businesses that are looking to diversify their supplier base while maintaining supply chain resilience.”
Speaking at the launch of the report at the World Economic Forum in Davos, DP World Group Chairman and CE O Sultan Ahmed Bin Sulayem said: “The report is tangible evidence of how globalisation is changing as com pani es look to meet new challenges. By bringing production closer to the final customer, firms can reduce the nu mb er of touch points involved in the supply chain and build greater resilience into the flow of freight cargo aro und the world. But the trade environment is always changing. The next challenge that will alter these trends is the lo oming economic slowdown in regional markets. Agility, real-time visibility and end-to-end supply chain capab ili ties will be critical to ensuring companies can continue to find new efficiencies in an increasingly challenging en vironment.”
John Ferguson, Practice Lead for New Globalisation at Economist Impact, added:
“The shift to regionalisation and reshoring has been sharp but unsurprising given the protectionist measures and diversification of the global trading system since the start of the pandemic. Among the most prominent example s of this is the US-China trade tensions over semiconductors, and although reshoring promises more control over inputs in the short run, it will lead to winners and losers. For example, as the US increases its production of semic onductors, it will increase its reliance on suppliers of mineral raw materials, such as Chile.”
To see the report in full About this research | Trade in Transition (economist.com).
About DP World
We are the leading provider of worldwide smart end-to-end supply chain logistics, enabling the flow of trade ac ross the globe. Our comprehensive range of products and services covers every link of the integrated supply cha in – from maritime and inland terminals to marine services and industrial parks as well as technology-driven cus tomer solutions.
We deliver these services through an interconnected global network of 295 business units in 78 countries acro ss six continents, with a significant presence both in high-growth and mature markets. Our dedicated, diverse, and professional team of more than 97,000 from 158 nationalities are committed to delivering unrivalled value to our customers and partners.
DP World launched three innovation and development centres in India this year — at Bengaluru, Hyderabad, and Gurgaon – where staff are working on cutting-edge applications of heavy automation, artificial intelligence, ma chine learning and robotics, with the aim of making trade efficient by developing innovative technologies that wi ll make the logistics sector more transparent and resilient.
We think ahead, anticipate change and deploy industry-leading digital technology to further broaden our vision to disrupt world trade and create the smartest, most efficient and innovative solutions, while ensuring a positive and sustainable impact on economies, societies and our planet.
