McKinsey Global Institute (MGI) report on globalisation highlights the impact of sourcing goods

January 24, 2023 /

They have published a new document discussing why the concentration in the origins of traded products is widespread, prompting questions about whether to diversify or decouple.

This in turn means that trade patterns are expected to change, as recent economic and geo-political shocks have exposed weaknesses in supply chains.

Their main points are:

No region is close to being self-sufficient. Every region relies on trade with others for more than 25 percent of at least one important type of good.

About 40 percent of global trade is “concentrated.” Importing economies rely on three or fewer nations for this share of global trade.

Three-quarters of this concentration comes from economy-specific choices. In these cases (30 percent of global trade), individual countries source a product from only a few nations, even when global supply options are diversified.

Over the past five years, the largest economies have not systematically diversified the origins of imports. All have vulnerabilities, some more than others.

Informed reimagination of global trade requires a granular approach¸ both in mapping concentrated trade relationships and in deciding on action—whether to double down, decouple, or diversify.

We live in a highly interconnected world. Every region relies on imports for more than 25 percent of at least one important type of good, according to recent McKinsey Global Institute (MGI) research. Interconnections have created broad benefits over time, improving efficiency, increasing global product availability, and fostering economic growth. But recent supply chain disruptions, Russia’s invasion of Ukraine, and rising tensions between China and the United States have highlighted the importance of resilience. Firms and policy makers alike are examining where inputs come from and, in some cases, contemplating reconfiguring or even breaking certain long-standing trade ties.

Concentrated global trade creates complications. On the one hand, concentrated trade relationships can reflect and drive efficiency gains. On the other, interruption of concentrated trade flows can be particularly disruptive if products are harder to replace on short notice due to a lack of visibility and alternatives.

Where do concentrated trading relationships exist across products and between countries? In the face of new disruptions, how should companies and countries adjust these relationships, if at all? To examine these questions, this article builds on the findings of MGI’s recent research on global flows, analyzing concentration across more than 120 countries, roughly 6,000 products, and eight million individual trade corridors.

If you would like to find out more please visit the website here - and if you scroll to the bottom you can download the whole report.

Source: McKinsey / The Loadstar