More than 90% of manufacturing executives are prioritizing regional supply chain strategies, according to a recent report, Beyond Cost: Country Readiness for Manufacturing and Supply Chains, from the World Economic Forum and Kearney.
The report concludes that while companies have learned to adapt to recent supply disruptions (such as Covid and the Suez Canal blockage), the industrial landscape remains unsettled by a mix of geopolitical and environmental factors, including a year of numerous elections across the globe and the resulting impact of potential protectionist tariffs.
As a result, regionalization is becoming a key tactic to safeguard against global trade disruptions.
The findings from more than 300 global operations executives show that nearly two-thirds of manufacturers are adopting a “power-of-two” strategy, having the majority of their spend sourced across two separate regions. This shift moves beyond the traditional focus on best cost to include holistic factors such as infrastructure, technology, skilled labor, and sustainability.
Foreign direct investment (FDI) in low-cost manufacturing declines as priorities shift
The shift from “best-cost” to “value-driven” investment strategies is also playing a key role in foreign direct investment (FDI) trends in manufacturing hubs, with traditional low-cost regions losing their appeal.
“Adapter” countries such as Brazil and India, characterized by a GDP per capita that sits below the global average and with a limited contribution of the manufacturing sector to GDP, have experienced a 15% decline in FDI attractiveness, as cheap labor alone is no longer enough to sustain long-term investment.
In contrast, “connectors” such as Bangladesh and Mexico which (like adapters) have historically traded on their best-cost status but whose contribution of manufacturing to GDP is higher, have seen the appeal of their incoming investment improve by 14%.
“Scalers” like Singapore and Ireland have, on average, seen steady FDI growth, up 2% thanks to strong infrastructure and favorable regulatory environments. Similarly, “convergers” such as the United States and Denmark have also seen an average 2% increase in FDI, attracting long-term investment by focusing on factors like sustainability and infrastructure.
This shift in FDI confidence aligns with actual FDI changes over the same period. Countries with higher GDP per capita have experienced more significant FDI growth, regardless of the manufacturing sector's contribution to GDP.
“Convergers” such as the U.S. and Denmark experienced an average 295% rise in FDI in the past 10 years, while “scalers” like Singapore and Ireland saw an average 215% increase. On the lower end, “connectors” like Mexico and Bangladesh saw FDI growth of an average 144%, double that of “adapters” such as India and Brazil, which recorded just an average 74% increase.
“With over 2 billion voters across 50 countries having cast ballots in 2024, 2025 will be a critical year for every company reliant on cross-border operations," said Kristian Hong, partner and Americas Strategic Operations and Performance Lead, Kearney, in a statement.
“Plans to accelerate a sweeping range of policies, intended to reset global trade through tariffs and export controls, will require businesses to reassess their network manufacturing footprint beyond merely low-cost alone," Hong added. A more complex and nuanced decision-making process is needed, one that considers flexibility and a country’s ability to deliver environmental change in line with global strategic priorities.”
The World Economic Forum and Kearney report identifies seven critical readiness factors that drive private sector decision-making and shape the attractiveness of a country amid the global rewiring of supply chains.
These factors serve as a guide for policymakers and industries, covering:
- Infrastructure
- Resources and energy
- Technology
- Labor and skills
- Fiscal and regulatory
- Geopolitical landscape
- Environmental, social, and governance
