Sourcing in Supply Chain: Building Resilience in Asia
27 Jan 20259 min read
Summary
- Global sourcing strategies are being reshaped as companies prioritize resilience and adaptability amid pandemic aftershocks, geopolitical tensions, and trade disruptions. In Asia, long regarded as the world’s manufacturing hub, a shift toward regionalized and localized production—such as the “China for China” model—is redefining how organizations balance cost, efficiency, and risk.
- Different industries are adopting regionalization at varying paces. Automotive and consumer electronics manufacturers are localizing production to strengthen supply chain reliability, while sectors such as textiles and pharmaceuticals are pursuing hybrid approaches due to differences in complexity, infrastructure, and regulatory environments.
- As regionalized sourcing gains traction, it also aligns with growing sustainability goals by reducing transportation distances and promoting efficient use of local resources. However, companies must navigate challenges such as high investment costs, skill shortages, and regulatory variations, making a balanced, hybrid sourcing strategy the most viable path forward for Asia’s evolving supply chain landscape.
Global sourcing strategies have undergone significant shifts in recent years as companies have sought to enhance their supply chains by making them more resilient, regionalized, and adaptable to emerging challenges. The importance of sourcing in supply chain management has become more evident due to the COVID-19 pandemic, ongoing geopolitical tensions, and supply chain disruptions, which have highlighted vulnerabilities in traditional global supply chain models.
Consequently, businesses are reevaluating their sourcing strategies, especially in Asia, which has long been the world's manufacturing hub. A new era has emerged—one focused on "regionalized production" (or "Region for Region"), sourcing closer to customer bases, and creating localized supply chains like "China for China."
While these trends promise increased efficiency, cost reduction, and risk mitigation, they also raise significant questions about the adaptability of various industries to these shifts. Can all types of production and manufacturing accommodate these changes? Are specific sectors better suited to regionalization, or are there inherent limitations? Furthermore, how are sourcing strategies in Asia evolving, and what challenges do companies face as they seek to implement these localized and near-customer models?
The Evolution of Sourcing in Asia: A Response to Global Disruptions
Asia has long been the global manufacturing powerhouse, with countries like China, Vietnam, India, and Indonesia playing critical roles in producing goods for multinational corporations and smaller companies. The region has benefitted from competitive labor costs, a well-established industrial base, and a favorable investment climate. However, this reliance on globalized supply chains has been increasingly challenged recently.
Recent conflicts, such as the war in Ukraine, and rising geopolitical tensions in regions like the South China Sea have intensified scrutiny over the reliability of sourcing from certain areas. These geopolitical upheavals have prompted businesses to reconsider their dependencies on specific countries, particularly those susceptible to political risk. The urgency to diversify supply chains has become paramount as companies seek to mitigate the impacts of disruptions stemming from military conflicts or diplomatic strife.
A notable example is the ongoing trade tensions between the United States and China, which have created uncertainty surrounding tariffs, export controls, and supply chain security. Consequently, many companies are actively working to minimize reliance on Chinese manufacturing by exploring alternative sourcing locations across Asia. This shift has led to adoption of regionalized production strategies, emphasizing the importance of manufacturing within specific regions to serve local markets, thereby reducing logistical complexities and enhancing supply chain resilience against unforeseen geopolitical events.
These factors have catalyzed a shift toward more regionalized and resilient supply chains, where businesses focus on producing goods closer to their customer bases or within the same region.
In Asia, the "China for China" concept has gained traction. Multinational companies establish production facilities within China to serve the domestic market rather than export from China to the rest of the world. This strategy helps businesses reduce risks associated with tariffs, trade restrictions, and geopolitical uncertainties while benefiting from China’s vast consumer market and production capabilities.
“
For Rainer Kern, the chief financial officer for China at Kärcher, “This year has been a tough year. Lockdowns are difficult for any business. However, the Chinese market has developed in the last two years. We want to develop more local for local production. We will sooner or later export because certain trends that start here will also go into other markets, with a delay of three to five years.”
Industry Adaptability: Which Sectors are Better Suited for Regionalized Production?
The success of these regionalized sourcing strategies depends on the type of industry, the nature of the products, and the underlying production processes. Some industries are better suited for regionalized production and near-customer sourcing, while others may face inherent limitations.
• Automotive Industry: The automotive sector has increasingly embraced regionalized production due to its complex supply chains and high sensitivity to disruptions. Automakers have historically relied on just-in-time (JIT) manufacturing models that require parts to be delivered precisely when needed. During the pandemic, JIT models collapsed due to supply chain interruptions, leading to production delays and significant losses. Consequently, many automotive companies are shifting towards "Region for Region" strategies, establishing manufacturing hubs closer to key markets in Asia, Europe, and North America. This shift reduces the risks associated with long-distance shipping and trade barriers.
For instance, the rise of electric vehicle (EV) manufacturing in China is a prime example of localized production benefiting local consumers and international exports. Chinese automakers have built extensive supply chains within the country to support the growing demand for EVs, reducing dependence on imports. Similarly, Western automakers have sought to establish EV production lines in Asia, targeting local and regional markets.
• Consumer Electronics: The consumer electronics industry, traditionally reliant on global supply chains, is increasingly exploring regionalized production models. Companies like Apple and Samsung are diversifying their Asian production bases to mitigate risks associated with dependence on a single country. Vietnam, Indonesia, and Malaysia have emerged as alternative manufacturing hubs for consumer electronics as businesses seek to balance production between cost efficiency and risk mitigation.
However, the high complexity of electronics manufacturing poses challenges for complete regionalization. The intricate supply chains for semiconductors, displays, and batteries make it difficult to source all necessary parts within a single region. While companies may relocate assembly lines closer to end markets, they may still need to rely on globally sourced components, limiting the full realization of regionalized production.
• Textile and Apparel Industry: The textile and apparel sector is well-positioned for near-customer sourcing and regionalized production due to its relatively low technological complexity and labor-intensive nature. Companies are increasingly relocating their production from China to countries like Bangladesh, Vietnam, and Indonesia to reduce costs and diversify their supply chains. The emergence of "nearshoring" strategies—where companies establish production facilities closer to key consumer markets—has become a popular trend in the industry. This allows brands to reduce lead times, lower transportation costs, and better respond to changing consumer demands.
One of the challenges the textile industry faces in fully embracing regionalization is the availability of skilled labor and infrastructure development in new production regions. Shifting production away from traditional hubs like China requires significant investment in human capital and logistics networks, which may limit the transition speed.
• Pharmaceutical and Medical Device Industry: The pandemic has also forced the pharmaceutical and medical device industries to rethink their sourcing strategies. The global shortages of critical medical supplies during the COVID-19 crisis exposed the vulnerability of relying on distant suppliers. As a result, there has been a push for localized production of essential medical products, such as personal protective equipment (PPE) and vaccines, in regions closer to end markets.
However, pharmaceutical production is heavily regulated, requiring specialized knowledge, equipment, and raw materials that may only be readily available in some regions. For this industry, achieving fully localized supply chains is challenging, particularly for complex products such as biologics or advanced medical devices. Nonetheless, companies are focusing on building more resilient supply chains by establishing dual-sourcing strategies and diversifying their supplier base across multiple Asian countries.
The Implications of Regionalized Supply Chains for Sustainability
Regionalized supply chains also offer significant implications for sustainability goals. As companies navigate the complexities of modern sourcing strategies, the drive towards environmental responsibility and sustainable practices is becoming increasingly intertwined with supply chain decisions.
“
According to Cloris Zhang, Senior Vice President of Integrated Supply Chain AMEA at Mondelez, “Sustainability roles contain different skills, including management of government and NGO relationships, understanding carbon emissions including definition of data with regards to collection and analysis to enable visibility and change management to work on people’s mindset.”
Additionally, regional supply chains facilitate more efficient use of local resources. Companies can reduce waste and optimize production processes by sourcing materials and components from nearby suppliers. This proximity allows for more effective recycling and reuse of materials, further contributing to sustainability efforts. Moreover, localized supply chains can foster collaboration among businesses and suppliers to develop innovative solutions that promote sustainability across the value chain.
Challenges in Implementing Regionalized and Localized Sourcing Strategies
While regionalized production and near-customer sourcing offer significant benefits, they also present challenges that businesses must address.
Establishing new production facilities or relocating existing ones requires significant capital investment in infrastructure, technology, and workforce development. In many cases, emerging manufacturing hubs may need more infrastructure to support large-scale production, leading to delays and additional costs. For example, countries like Vietnam and Indonesia, while increasingly attractive as alternative production bases, may not yet have the same industrial sophistication and logistics networks as China.
Finding a skilled workforce is another challenge, particularly in industries that require advanced technical knowledge, such as electronics and pharmaceuticals. Companies must invest in training and education programs to build the necessary talent pool in new regions, which can take time and resources.
Even in a regionalized model, some industries may still require components from different parts of the world. Assembling complex products, such as automobiles or consumer electronics, often involves multiple tiers of suppliers spread across various countries. While companies can shift certain stages of production closer to their customers, they may still depend on global supply chains for critical components, making complete regionalization difficult.
Businesses must also navigate regulatory differences between regions, which can complicate sourcing strategies. Trade barriers, tariffs, and differing standards can hinder the smooth flow of goods between countries, especially in industries requiring strict regulations, such as pharmaceuticals or medical devices.
While regionalizing supply chains can mitigate some risks, geopolitical tensions and trade disputes remain challenging. Companies must carefully assess the political landscape in their operating regions, as instability or shifting government policies could disrupt production.
The Future of Sourcing in Asia: A Balanced Approach
As businesses strive to navigate the increasingly perilous global trade landscape, the urgency for adopting regionalized production, near-customer sourcing, and localized supply chains has never been more critical. These strategies are essential for enhancing supply chain resilience in the face of growing risks. However, it is important to recognize that they are not a universal solution applicable to all sectors.
Industries with intricate production processes and specialized components may require additional resources and support to embrace regionalized models fully. Consequently, many companies may adopt a hybrid approach combining regionalization with global sourcing, bolstering resilience while achieving cost efficiency.