Companies continue to rely on global supply chains

According to a recent study by the Ifo Institute on behalf of the Konrad Adenauer Foundation, German companies want to continue to rely on international supply chains instead of switching to national procurement.

The current survey of 5000 German companies shows that most companies do not want to change much in their material procurement. However, in order to increase the resilience of supply chains, the expansion of storage facilities and the expansion of the supplier network are driven. 44 percent of companies in the industrial sector in the survey said they would adjust their sourcing methods – especially if they were struggling with supply chains. “Industrial companies are more likely to say they change their procurement strategy when they are affected by material shortages,” says Lisandra Flach, head of the Ifo Center for International Economics. For wholesalers, the figure is 35 percent, for retailers it is 27 percent. In the service sector, only ten percent are planning a different procurement strategy.

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Both Lisandra Flach and Jan Cernicky, economic expert at the Konrad Adenauer Foundation, are critical of a shift of procurement to Germany. This is detrimental to the national and international economic situation, because the restructuring is “unnecessary” and also “immensely cost-intensive”, says Cernicky.

Effort too great for smaller companies

In particular for small and medium-sized enterprises, the establishment of trade relations abroad is very costly compared to their earnings. Here, the study suggests adjustments to trade agreements and rules of origin that could make it easier for SMEs to take advantage of new procurement opportunities.

Despite the disruption of supply chains during the pandemic, companies continue to rely on a global supply chainThe Corona pandemic had triggered a debate about bringing production back to Germany after medical goods such as masks or protective suits were almost impossible to procure abroad. Currently, the economy – especially the automotive sector – is complaining about a massive shortage of important preliminary products such as microchips. According to the Ifo Institute, large companies are relying on a larger number of suppliers, while small and medium-sized companies are planning more stockpiling.

According to the study, a shift of production back to Germany or to nearby foreign countries would lead to high losses in prosperity. It could be the case, for example, that intermediate goods would have to be produced in Germany, although they had previously been sourced from abroad at lower cost and possibly even in higher quality. This would damage competitiveness. “In the case of a backshift, Germany’s real economic output could fall by almost ten per cent,” Flach said. The same applies to the relocation of production back to European neighbours. In this case, German economic output would fall by 4.2 per cent. “Moreover, such a reshoring would be immensely cost-intensive for the economy and society,” added Cernicky.

According to the study, the value chains within the EU play by far the most important role from a German perspective. The German economy alone is less important as a supplier for China and the USA. However, if the EU is considered as a whole, it is the most important supplier of intermediate products for both China and the USA. “These interdependencies between China and the EU can reduce the likelihood of an aggressive trade policy, as both sides would have a lot to lose in a trade conflict,” Flach said.

Daniel Mahnken
Daniel Mahnken is a Senior Corporate Communications Manager at Saloodo!. As a qualified journalist, writing is practically in his blood. After studying sports journalism, he wanted to become Germany’s Next Sports Commentator, but then he discovered logistics and has been stuck with it ever since.

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