Emerging manufacturing hubs record spike in political risk threat to supply chains

Multinationals diversifying their supply chains to build greater resilience face growing political risk and civil unrest threat in the majority of emerging market manufacturing hubs, warns risk intelligence firm Verisk Maplecroft.

Indonesia, Mexico, Poland, Thailand, Turkey and Vietnam are among the countries running an increased risk of civil unrest, government instability or exposure to conflict and terrorism, which all threaten to disrupt production, the new research finds.

Verisk Maplecroft said these risks “need to be factored into supply chain strategies”.

Its research reveals that political risks have increased for 70% – or 27 out of 40 – of emerging market manufacturing hubs, which companies have started to use to mitigate geopolitical risks and delays in receiving supplies further afield, in particular from China.

“Multinational companies are facing rising political and security risks in nearshoring and friendshoring hubs, as they pivot their supply chains towards emerging markets to decrease exposure to widening geopolitical tensions and the strategic competition playing out between the West and China,” Verisk Maplecroft said.

“With the world in a state of extended instability, political risk and disruption triggered by geopolitics, conflict and economic instability will be hard to escape across many key sourcing locations,” warned Olivia Dobson, principal risk consultant at Verisk Maplecroft. “Companies need to understand and get ahead of these localised but expanding political threats to protect flows of vital commodities and manufactured goods.”

Civil unrest is the main driver for an increase in political risk in emerging market manufacturing hubs, Verisk Maplecroft finds. All 40 countries analysed are classed as running high or very high civil unrest risk over the next 12 months. Bangladesh, which in November last year saw supplies disrupted as workers protested against low wages, scored the highest levels of civil unrest of the 40 countries. But Mexico, which has overtaken China to become the primary source of goods to the US, ranks as the fifth-highest-risk country globally for civil unrest risks over the next 12 months.

The conflict between Israel and Hamas is adding to supply chain challenges, with vital transportation routes disrupted in the Middle East causing delays to exports from Asia to Europe. Verisk Maplecroft said “the threat to shipping is unlikely to decrease soon”, with major shipping companies re-routing vessels around the Cape of Good Hope to avoid attacks from Houthi militants in the Red Sea.

“The conflict between Israel and Hamas has highlighted vulnerabilities in a vital international logistics route… Without access to the Suez Canal, alternative routes from Asia to Europe and the Americas around Africa are significantly longer, with increased costs that will ultimately be passed on to consumers,” it added.

The Ukraine war has also weighed on political risk scores for the emerging manufacturing markets of Hungary, Poland and Slovenia. They all recorded a rise in civil risk unrest and more pronounced government instability since the start of the Ukraine War. Verisk Maplecroft said the Ukraine/Russia war has “created a unique set of emerging supply chain risks for countries bordering war-torn Ukraine”.

It expects impacts in both Eastern Europe and the Middle East to continue exposing supply chains to direct and indirect consequences.

“In an increasingly dynamic world, supply chain professionals looking to operate more strategically and build resilience need to create as much certainty as they can,” said Dobson. “Tracking political risks in manufacturing hubs and logistics pinch-points, alongside using scenario analysis to map potential geopolitical shifts, can help organisations understand where the next shocks could come from.”