The Ferrari Consulting and Research Group, via its affiliated Supply Chain Matters blog calls reader attention to two recently published research papers that address evidence of ongoing shifts in global supply component and end production sourcing.



As the month of August comes to a close, we wanted to revisit one of our 2023 Predictions for Industry and Global Supply Chains published at the beginning of this year.

Prediction Ten indicated that: Government incentives tied to industrial policy are leading to the eventual regionalization of component supply and end production capabilities for deemed essential industries. This prediction pointed to three specific industry sectors, namely automotive, alternative energy including solar, wind, and battery, high tech including semiconductor production, transitioning to three spheres of global regionalization over a five year horizon.

Our notion of regionalization has more to do with supporting and servicing major markets of product demand, from regionalized supply networks focused on mitigation of supply risk, ensuring supply agility, or taking advantage of direct labor cost or infrastructure advantages. The further and perhaps a more influential aspect are increasing government policies that include monetary incentives that seek to domesticate supply networks for certain deemed strategic products.

In these veins, we wanted to highlight for Supply Chain Matters readers two recently published research studies that we believe provide added evidence of such shifts.


The Looming Great Allocation

In conjunction with the Jackson Hole Symposium held last week and organized by The Federal Reserve Bank of Kansas City, a research paper titled: Global Supply Chains: The Looming “Great Reallocation” was released.

The authors were Laura Alfaro, Harvard Business School, CEPR and NBER, and Davin Chor, Tuck School of Business at Dartmouth and NBER.

The abstract notes that the research paper “documents that shifts in the pattern of U.S. participation in global value chains over the last four decades in terms of partner countries, products and modes, with a focus on the last five years (2017-2022).”

The stated goal of this paper is to provide an early assessment of recent shifts in global supply chains. The data is quite extensive in terms of scope and activity levels.  The paper itself is quite comprehensive and worthy of a review for supply chain sourcing and strategy leaders.

Among the paper’s various findings were some key observations that we noted:

  • China’s share of S. imports peaked at 21.6 percent in 2017 and have since fallen to 16.5 percent in 2022. Locations that have benefitted from this sourcing shift are noted in the report as Vietnam and Mexico, the latter being a preferred nearshoring or friendshoring alternative.
  • Of particular interest for us, the paper indicates that reallocation has been occurring among specific industry supply network dimensions. As an example, the authors point to Vietnam gaining ground in electronics, apparel and textiles, while Mexico has been increasing U.S. import share in auto parts, glass, iron and steel products.
  • At the same time the authors qualify that while China’s share of U.S. imports has fallen, its share of Europe’s imports has risen and that trade volumes with Vietnam and Mexico have also increased.

The report’s conclusions are especially noteworthy:

Rather than signaling a trend towards deglobalization, the available data hints at a looming “great reallocation” of U.S. supply chain activity. This shift is marked by a decline in direct U.S. sourcing from China, with a correspondingly rise in import share from low-wage locations, chiefly Vietnam, and regional trade areas, particularly Mexico.”

The above seems to imply, from our lens, the movement toward China Plus sourcing activity.

A further expressed concern in the paper is a belief that this push to reallocation will incur additional costs and that future research should be directed at the monetary impacts on both consumers and firms. Specifically indicated are: “Policies in favor of freindshoring, nearshoring or reshoring may nevertheless be justifiable if these generate dynamic gains that offset or exceed the static losses.


Apple’s iPhone Supply Chain Sourcing Shifts

Bloomberg Intelligence recently released a published report: Apple’s iPhone Supply Chain Suppliers Under U.S. China Tensions. (Paid subscription or metered view)

The sub-title theme is: Shifts beyond China are likely to increase prices for consumers.

This report compiles data on more than 370 suppliers to Apple noting their changes in factory locations and plans for new capacity in regions other than China.

The report observes that for Apple’s supply network, Vietnam and India are the new benefactors in a China Plus sourcing shift along with other supplier hot spots in Asia that are currently playing out. In the latter, the report indicates a fourfold increase in companies assembling Apple hardware products. Noted is that the electronics industry exports accounted for 32 percent of the country’s exports last year. For the latter, no suppliers existing in 2012 and now India is the home of 14 suppliers including iPhone assembly operations accounting for a reported 7 percent of shipments. Foxconn, in turn, is reportedly investing in iPhone supply components production in southern Karnataka province.

As our ongoing research advisories and Supply Chain Matters content has highlighted for many years, the sheer influence and supplier spend volumes for Apple make for a lot of influence on high tech and consumer electronics supply network sourcing strategies.

The report reinforces that formerly Taiwan based assemblers still support a lot of production volume within China, but they are also supporting the majority of China Plus sourcing actions. An example noted are Foxconn’s plans to establish a MacBooks production facility in Vietnam in a campus the size of 93 football fields.

This report concludes: “China isn’t going to lose its standing as the world’s main production hub for devices anytime soon.” Additionally indicated is that: “Ultimately though, a greater proportion of Apple’s capacity is going to be situated outside of China.”

Further indicated is that replicating the juggernaut (China) is not feasible in the short run. But U.S. and Japan based companies such as Dell, HP and Sony are leading the charge toward alternative sourcing options. In mid-July, this blog highlighted reports of how HP was modifying its global sourcing strategy.


Additional Thoughts

We are sharing these two cited reports as providing added evidence and belief that a shift among previously configured global supply networks among certain industries has begun and will likely continue. The open question is overall timing and scope of regionalization that occurs over the coming months or years.

The overall sense of both of these papers is that sourcing changes will vary by specific industry. Once more, such sourcing shifts reportedly include intermediate component along with final production capabilities.

As for the notions of increased prices of goods as a result of these geographic shifts, we believe that such a conclusion is not that clear at this point. Consumers are already balking at $1000 plus smartphone, tablet, personal computer or kitchen appliance price tags. And it’s no secret that Apple not only has healthy margins on its iPhone models, but generates far more margins and profitability from all of the apps, services and subscription based revenues stemming from the large installed base of iPhones and other hardware devices.

In the midst of the current ongoing freight recession, carriers will have to ultimately come to grips with realities that increased freight rates have their own direct effect on manufacturer and retailer sourcing strategies and that logistics fulfillment and last mile delivery networks are the next to undergo certain remakes.


Bob Ferrari

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