The World Economic Forum, in collaboration with global consultancy Kearney, has today released its latest report, Beyond Cost: Country Readiness for Manufacturing and Supply Chains, highlighting that over 90% of manufacturing executives are prioritising regional supply chain strategies.

Firms have learnt to adapt to recent supply disruptions in recent years like Covid and the Suez Canal blockage, but 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, regionalisation is becoming a key tactic to safeguard against global trade disruptions.

The findings from over 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 labour, 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, characterised 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 labour 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 inward investment improve by 14%.

“Scalers” like Singapore and Ireland have, on average, seen steady FDI growth, up 2% thanks to strong infrastructure and favourable regulatory environments. Similarly, “convergers” such as the US 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 US and Denmark experienced an average 295% rise in FDI in the last 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” like India and Brazil, which recorded just an average of 74% increase.

Per Kristian Hong, partner and Americas strategic operations and performance lead, Kearney, commented: “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.

“Plans to accelerate a sweeping range of policies, intended to reset global trade through tariffs and export controls, will require businesses to re-assess their network manufacturing footprint beyond merely low-cost alone. A more complex and nuanced decision-making process is needed, that considers flexibility and a country’s ability to deliver environmental change in line with global strategic priorities.”

Kiva Allgood, head, Centre for Advanced Manufacturing and Supply Chains, World Economic Forum added: “As global value chains undergo a profound transformation, countries and companies have a unique opportunity to redefine their competitive edge.

“This report highlights how countries that deploy innovative policies and invest across these seven factors can position themselves as leaders in the evolving manufacturing landscape, driving economic growth and societal progress.”

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 amidst the global rewiring of supply chains. These factors serve as a guide for policymakers and industries, covering:

Infrastructure
Resources and Energy
Technology
Labour and Skills
Fiscal and Regulatory
Geopolitical Landscape
Environmental, Social and Governance