Slowbalization: Rethinking Global Supply Chain

Most companies will need to find several geographic options to replicate the scale of say, China, which for some sectors isn’t realistic in the near- to medium term, while determining whether they are truly reducing geopolitical risk in making the moves. They also face execution risks including lack of necessary infrastructure such as labor and logistics in new locations, keeping supply from old sources flowing during the transition and potential competitive disadvantages if competitors don’t alter their approaches. 

While the amount of time needed to rejigger supply chains varies by industry, most Morgan Stanley analysts expect three to five years for the conversion. For semiconductors, though, it could take 10 years or more mainly due to lack of a concentrated skilled labor force outside of Taiwan.

Indeed, the transition may weigh heavier on certain sectors. Because of the supply-chain bottlenecks of the past few years, analysts flagged semiconductors, tech hardware, machinery and autos as sectors where supply-chain realignment needs to happen the quickest.

“The sectors we’re watching that may benefit from spending on supply chain realignment include semiconductor capital equipment, automation, clean tech, defense and cybersecurity, industrial gases, capital goods, and metals and mining,” Zezas notes.

Others could be see profits pressured as they have to devote more capital toward securing supply chains, including semis (especially commodity products), European chemicals, midstream and downstream natural gas utilities in Europe and Asia, automotive original equipment manufacturers and some portions and leisure and transportation.

And while the discussions for companies in the U.S. and Europe center around decreased reliance on China in particular for goods, services and production, Zezas and team say investors shouldn’t rule out the potential upsides for the super power as the forces driving slowbalization continue to unfold. 

“We see the transition to a multipolar world creating opportunities in parts of the Chinese economy and equity market–with industry policy looking to increase self-sufficiency in areas including commodities, new energy materials, semiconductors and capital markets.”

For more Morgan Stanley Research on the outlook for global eCommerce, ask your Morgan Stanley representative or Financial Advisor for the full reports, “‘Slowbalization’ and Supply Chain Opportunities  (May 23, 2022) and “Navigating ‘Slowbalization’ & the Multipolar World” (May 18, 2022). Plus more Ideas from Morgan Stanley’s thought leaders.