Beyond globalisation: How geopolitics is reshaping supply chain strategy

Companies are retaining global sourcing for critical products such as pharmaceutical APIs, but are adding multiple suppliers, transport routes and regional capacity to reduce exposure to geopolitical and logistical disruption.

Higher inventories, alternative airports and corridors, dual sourcing and regional stockholding are being used as a bridge while longer-term manufacturing relocation takes years or even a decade to complete. Supply-chain design is shifting from pure cost optimisation towards balancing efficiency with resilience.

Tariffs, strategic-autonomy policies and diversified sourcing can increase unit costs, inventory and inflation, but companies increasingly view these costs as insurance against a single supplier, route or jurisdiction disrupting the entire network.

For decades, supply-chain strategy has been built around a relatively simple proposition: optimise the network for cost, efficiency and predictability. In today’s environment, companies increasingly have to make decisions without knowing what governments, competitors or geopolitical events will do . The consequence is not the collapse of globalisation, but a more complicated operating model in which resilience and optionality sit alongside cost efficiency.

“Globalisation will continue for some critical products like APIs in pharmaceuticals, like some critical mass products, some other important elements,” Professor Dr. Wouter Dewulf of the University of Antwerp, said. “Companies not only go for multiple source; they also go for multiple routing, and they also go towards some more regionalisation.”

European and North American manufacturers remain exposed to internationally concentrated production of active pharmaceutical ingredients, while building replacement capacity is a multi-year undertaking. Companies, therefore, have to manage today’s vulnerabilities while investing in networks that may only become operational years from now.

That is producing a layered supply chain rather than a wholesale retreat from international trade. Regional inventories can sit alongside global sourcing, while alternative suppliers and transport routes provide additional protection against disruption. The objective is increasingly to ensure that a single failure does not bring the network to a halt.

This represents a fundamental departure from the supply-chain orthodoxy that dominated corporate thinking through the 1990s and 2000s. “When I was studying in the 90s and the 2000s, everything was driven towards economic efficiency, having the shortest supply chain, the cheapest supply chain, the leanest inventory, the leanest processes, all driven towards an economic efficiency. That you see that adagio from that time is not so valid anymore, at least not for some critical products like APIs and pharmaceuticals,” Dr Dewulf continied.

From lean networks to strategic optionality Establishing a second supplier, relocating production or developing regional manufacturing capacity requires capital, regulatory approvals, infrastructure and time. Yet geopolitical conditions can change much faster than those investments can be completed.

Higher inventories, alternative airports, additional transport corridors and multiple suppliers can provide a bridge between the network a company operates today and the one it ultimately wants to build.

“My feeling, and when I hear what these CFOs and CEOs are saying, it looks like they have a clear vision where they want to end up in 10, 15 years. But it takes lots of capital. It takes lots of time as well before there. In the meantime, they try to mitigate the risk up to a maximum,” Dr Dewulf outlined.

Inventory, once viewed principally as trapped working capital, can become an insurance policy against geopolitical disruption. Dual sourcing may carry a premium, while alternative routes can be more expensive than the theoretically optimal transport solution. But the additional expenditure buys flexibility when circumstances change.

Rather than seeking one globally optimal manufacturing footprint, companies are increasingly considering where production and inventory should sit to limit exposure to individual political or logistical shocks. Proximity does not eliminate risk, but it can reduce the number of variables outside a company’s control.

Tariffs, incentives and strategic-autonomy programmes increasingly influence corporate network design, meaning decisions production locations can no longer be separated neatly from trade policy.

“You see, it is happening. It’s already happening in the automotive industry. It’s happening in the chemical industry. Now it’s happening in the pharmaceutical industry, and you do see that geopolitics and strategic autonomy for some important products, become more and more important. Europe is doing this. China was doing this already quite some time. United States is also doing this, and even Canada now jumps on that wagon,” Dr Dewulf stated.

Tariffs, relocation and the cost of resilience Tariffs can encourage companies to reconsider their footprint, but their immediate effect is more complicated. Where relocation takes years, companies need ways of absorbing the cost of trade barriers now. That can mean adjusting inventory, changing sourcing patterns or using financial and commercial mechanisms to reduce the impact.

The pharmaceutical industry is especially exposed because of the structure of its economics. High fixed costs associated with research and development mean that companies may have considerable scope to manage where costs and margins are allocated across an international network.

“There is a short-term measure with the aim of having long-term impact that might help in the longer term, although in yesterday we don’t see many occasions where that really helped, and it definitely did help the welfare of the people. On the other side, it can really push companies towards relocation, but it will take long before they’re there. And then the strategy needs to be consistent,” Dr Dewulf explained.

For multinational companies, the result is not necessarily a clean choice between globalisation and localisation. Instead, they are building networks capable of operating under several possible conditions. A production site may remain globally integrated while additional capacity is developed closer to customers; a company may retain its established suppliers while qualifying alternatives; and inventory may be deliberately duplicated across regions.

Multiple suppliers mean smaller purchasing volumes and potentially higher unit costs. Regional stockholding consumes capital. Alternative routes may be less efficient. Additional manufacturing capacity can remain underutilised when geopolitical conditions are benign. Yet the cost of not having those options can be considerably harder to quantify until a disruption occurs.

“In the short term, it definitely pushes the prices because if you are starting to modify things in your supply chain, which is economically efficient, if you add tariffs on top of parts of that, if you are going for multiple sourcing, if you go for multiple routing, all of these are cost increases, which result in price increases, which result in high prices and inflation,” Dr Dewulf said.

The emerging supply chain is, therefore, more deliberately distributed, with redundancy built around products and markets considered strategically important. Global networks remain economically valuable, but companies are increasingly unwilling to depend on a single supplier, route or jurisdiction when the consequences of disruption extend beyond normal commercial risk.

Instead of asking only where production can be performed most cheaply, companies have to consider where they can retain room to manoeuvre when circumstances change. In Dewulf’s formulation, the objective is not always to win every hand, but to ensure that the company still has cards to play.

“You see that companies are saying, ‘Yeah, I will invest in the United States. I will open up this and that.’ But before that process has been initiated and before it is completed, that will take years, if not a decade, before they are there,” Dr Dewulf concluded. “So in the meantime, they have to improvise, and that improvisation, what’s happening for the moment, that results into multiple lane. You use multiple routes. They use multiple airports. They use multiple sources, and they try to be less dependent from some key suppliers.”