Global Sustainability Agenda #56: The Future of Multinational Production – A New Supply Chain Paradigm

Global Sustainability Reality

Almost all nations miss UN deadline for new climate targets (France 24)

Majority of Countries Miss Deadline for Updated NDCs (Climate Action)

Risk of breach of 1.5C of global warming here sooner than expected, studies find (Carbon Brief)

The climate is warming and sea levels rising way faster than governments are acting (Climate Action Tracker)

Global Sustainability Business Impact

Maersk: New U.S. Tariffs and Red Sea Crisis Shaping Global Maritime Trade in Early 2025 (GCaptain)

Tariffs: Their Unintended Consequences, and How to Respond (Supply Chain Brain)

Global investment into energy transition exceeded USD 2 trn (The Global Energy Association)

Top 10 Ship Building Countries In The World (Marine Insight)

India’s $3 Billion ‘Strategic Push’ For Shipbuilding: With Tax Breaks, Policy Reforms & Key Incentives, Can India Invigorate Its Industry? (EurAsian Times)

The Circularity Factor: Creating value on the journey to Net Zero (Carbon Trust)

Circularity in the built environment: Unlocking opportunities in retrofits (McKinsey)

IKEA gets praise for shipping decarbonization efforts (Safety4Sea)

Supply Chain Management (SCM) Software Market to Grow by USD 24.87 Billion from 2025-2029, Driven by Supply Chain Visibility and Event Management, with AI Impact (Yahoo Finance)

Top 6 energy investment themes in 2025 (S&P Global)

Hearings Focuses on Improving America’s Maritime Infrastructure, Shipbuilding, and Competitiveness (Transporation and Infrastructure)

SHIPS for America – can the US really rebuild its maritime industries? (Seatrade-Maritime)

The future of maritime careers: Adapting to digitalization and decarbonization (Safety4Sea)

IONATE Raises $17 Million to Help Grids Meet Decarbonization and AI Needs (ESG Today)

Wartsila CEO says US energy transition will continue despite Trump (Reuters)

The path forward

1. The Decline of Globalization and Supply Chain Adjustments

The idea that “globalization is dead” is no longer an exaggeration but a reality. As early as the early 2000s, analysts at ANBOUND Think Tank predicted that the world would become increasingly fragmented and regionalized. This has now materialized, influenced by major events such as:

• The U.S.-China trade war (2018)
• The COVID-19 pandemic (2020)
• The Russia-Ukraine war (2022)
• The Israel-Hamas conflict (2023)
• The potential return of U.S. isolationist policies

Historically, multinational corporations thrived in a globalized world, prioritizing profit maximization and utilizing low-cost labor in developing countries. The post-Cold War period until the 2008 financial crisis was a golden era for global supply chains, where companies benefited from seamless international trade and reduced political barriers. However, today’s world is vastly different—geopolitical risks, economic nationalism, and regional conflicts now dictate global production and trade decisions.

2. Rising Geopolitical Costs & Business Resilience

Geopolitical instability is increasing operational costs for multinational corporations. For example, the Red Sea crisis caused by the Israel-Hamas conflict has forced shipping companies to choose between:

• Higher insurance premiums to navigate dangerous waters
• Longer, costlier alternative routes around Africa

Both options increase costs, ultimately affecting consumers. As a result, traditional global supply chain models are no longer viable, forcing companies to rethink their production strategies.

Even business schools acknowledge that classic economic theories, which emphasize global cost efficiency, are becoming obsolete. Today, companies must prioritize resilience over pure profit by restructuring production based on regional stability, political risk, and logistics security.

3. The Future of Multinational Production

The transformation of multinational production is no longer just about corporate decisions but also about spatial and geopolitical considerations. Transaction costs now include geopolitical risks, which significantly impact overall business expenses. Companies that fail to balance profit-seeking with risk management will struggle to sustain long-term operations in this new era of de-globalization.

This shift underscores the increasing importance of regionalized production models and the need for companies to adapt to a fragmented global economic landscape.

Based on tracking research and analysis of global trade trends, researchers believe that there will be three significant changes in supply chains:

1. Shorter Supply Chains—Long supply chains introduce higher risks and uncertainties in the current geopolitical and geoeconomic landscape. As a result, companies are prioritizing security and stability over cost, leading to shortened supply chains as a key restructuring trend.

2. Regionalized Supply Chains—Disruptions and market distance create new risks, including potential order losses due to supply chain uncertainty. To mitigate these challenges, companies are regionalizing their supply networks and forming localized and distributed supply chain systems to better serve regional markets.

3. Selective Supply Chains—Once driven primarily by business efficiency, supply chains are now heavily influenced by geopolitics, national security, alliances, values, and human rights. Future supply chains will likely become more selective, shaped by political and ideological factors rather than purely economic considerations.

4. Nearshoring and Friendshoring: U.S. Strategies to Restructure Supply Chains

Since the Obama administration, the U.S. has promoted nearshoring (relocating production closer to domestic markets) and friendshoring (building supply chains in allied nations). These strategies are designed to:

• Reduce U.S. dependence on Chinese manufacturing
• Boost job creation and economic growth in Latin America and the Caribbean (LAC)
• Alleviate illegal immigration by creating economic opportunities in LAC
• Counter China’s growing influence in the Western Hemisphere

5. China’s Continued Role in Global Supply Chains

Despite U.S. efforts to reduce reliance on China, Chinese capital remains deeply embedded in global supply chains. Research presented at the 2023 Federal Reserve Bank of Kansas City’s Jackson Hole meeting suggests that while U.S. dependence on China has become less direct, it has not disappeared. Some analysts argue that complete “decoupling” or “de-risking” is unlikely, and the West will struggle to fully break free from Chinese supply chains.

6. The “Close Produce” Model as a New Supply Chain Paradigm

The Close Produce Model in Global Manufacturing refers to a strategic approach where major component industries are deployed around central markets and key productivity hubs.

This model, introduced by the Chinese think tank ANBOUND in 2022, aligns with the evolving global economic landscape, where companies must navigate rising costs, geopolitical risks, and shifting market dynamics.

Instead of viewing supply chain shifts solely as nearshoring or friendshoring, Close Produce integrates aspects of both while recognizing the complexity and diversification of modern supply networks.

The model represents a shift in multinational corporations’ priorities from pure profit-seeking to a strategic approach centered on technology, capital, and consumption to optimize production and operational costs, prioritizing spatial proximity and social-environmental alignment to create an integrated and efficient production system. While supply chain layouts in the future will still prioritize “profit”, “resilience” will be even more important.

This shift can be interpreted as a form of economic decoupling from China, driven by internal strategic adjustments. While some Chinese companies are also adopting regionalized production models to expand globally, geopolitical tensions—particularly between the U.S. and China—pose significant risks to their overseas growth.

However, this “Close Produce” approach serves as a macro tool for analyzing how industries restructure amid the ongoing transformation of global trade.

7. Key Components of the Close Produce Theory:

1. Technology as a Core Factor to Reduce Monopoly Costs

Advanced technology is essential for enhancing production efficiency and product quality. However, global technology monopolization is increasing, limiting access to high-tech innovations. High-tech products tend to be concentrated in certain countries, creating barriers for others. For example, the semiconductor industry remains dominated by a few firms controlling critical components. To remain competitive, multinational companies must invest in R&D, form strategic partnerships with technology hubs, and minimize dependency on monopolized technologies.

2. Capital Allocation to Reduce Financing Costs

Access to diverse financial resources, including stock and bond markets, is crucial for expansion, innovation, and stability. However, global capital flows have become more concentrated due to shifting geopolitical and economic conditions. The U.S. leads in market capitalization, followed by China, Japan, and Europe, but capital flows are shrinking, making financing more complex. Companies must align with emerging capital trends and strategically position themselves to secure lower-cost funding.

3. Proximity to Consumption Centers to Reduce Logistics Costs

Locating production near key consumer markets improves efficiency, market responsiveness, and cost control. With rising shipping costs due to geopolitical conflicts, security risks, and labor expenses, logistics costs have become a major factor in supply chain decisions. Companies like Maersk report increased profits despite continued disruptions in shipping routes like the Red Sea. Multinational firms must adapt by setting up operations closer to demand centers, reducing reliance on vulnerable trade routes.

8. Additional Factors Shaping Close Produce

1. Ideological and Political Considerations

• Rising nationalism and economic protectionism are reshaping global trade.
• Companies must adapt to political risks, as seen in cases like Chinese firms facing regulatory barriers in India or increasing tariffs in the United States.
• Trade tensions and geopolitical shifts are fragmenting global supply chains, impacting investment and trade flows.

2. Market Order and Legal Consistency

• Companies face increased legal risks, including market access restrictions, tax regulations, intellectual property disputes, and labor laws.
• To mitigate risks, businesses will prioritize locations with legal and financial frameworks aligned with their home markets.

3. Logistics Cost Optimization

• Rising costs in transportation, labor, and fuel make spatial proximity a key factor in production decisions.
• The U.S. is promoting “nearshoring” to shift manufacturing to North America, benefiting Mexico’s growing industrial base.

4. Shifts in Production Costs

• The role of cheap labor is declining due to wage increases in developing countries.
• The rise of smart factories and AI-driven automation is reducing dependence on human labor, favoring high-tech, automated manufacturing hubs.

In addition, several other factors play a crucial role in companies’ decision-making, such as:

• Country Infrastructure: This includes both digital and physical infrastructure, such as broadband capacity, technological advancements, and transportation networks. It is essential to assess current infrastructure capabilities and anticipated developments, including new airports, ports, highways, and rail systems, that may enhance the viability of alternative sourcing locations.
• Workforce Availability: The talent pool in a given country is a key factor, encompassing the education level, technical skills, and logistics expertise of the workforce. Additionally, demographic factors, such as the age distribution of workers, influence long-term sustainability and labor market stability.
• Regulatory Environment: Businesses must consider tax structures, customs procedures, tariffs, and trade agreement participation, which directly impact operational efficiency and cost. Additionally, intellectual property protections and regulatory frameworks play a critical role in ensuring compliance and safeguarding business interests.

However, with careful planning, adopting the Close Produce approach can provide companies with more resilient, efficient, and sustainable production systems that are better equipped to navigate the complexities of today’s global economy.

9. Close Produce Model in Key Industries

1. Automotive Industry 🚗🔋

Application: The shift toward electric vehicles (EVs) has intensified the need for regionalized supply chains to ensure that battery production, component sourcing, and final assembly are close to key markets. Example:

• North America: Companies like Tesla, Ford, and GM are investing in local battery gigafactories in the U.S. (e.g., in Texas and Michigan) rather than relying on Asian imports. This reduces supply chain vulnerabilities and aligns with government incentives for domestic production.
• Europe: Volkswagen and other automakers are establishing EV supply chain clusters within the EU to comply with sustainability regulations and reduce dependency on China.
• Asia: Japan and South Korea maintain integrated automotive ecosystems with component suppliers and final assembly plants co-located for efficiency.

2. Electronics & Semiconductor Industry 📱💻

Application: The production of chips and electronic components is shifting closer to key markets due to geopolitical tensions, supply chain risks, and national security concerns. Example:

• United States: Intel and TSMC are building semiconductor fabrication plants (“fabs”) in Arizona to reduce dependence on Taiwan and China.
• Europe: The EU is investing in chip manufacturing through the European Chips Act to secure a more resilient supply chain.
• China and India: China is increasing domestic semiconductor production, while India is positioning itself as an alternative electronics manufacturing hub (e.g., Apple is moving iPhone production there).

3. Consumer Goods & Retail (Fast Fashion, Apparel, and E-Commerce) 👕📦

Application: Retailers are rethinking fast fashion and e-commerce fulfillment by producing closer to consumer markets to enable faster turnaround times and reduce environmental impact. Example:

• Zara (Spain): Uses a nearshoring model, manufacturing a significant portion of its clothing in Spain, Portugal, and Morocco to enable rapid replenishment.
• Shein & E-commerce Brands: Moving away from long lead-time manufacturing in China toward distributed micro-factories near demand centers (e.g., Shein investing in Mexico and Brazil).
• U.S. & Mexico: Brands like Levi’s and Nike are increasing production in Mexico and Central America instead of Asia to shorten supply chains and benefit from trade agreements like USMCA.

4. Pharmaceutical & Medical Equipment Industry 💊🩺

Application: The COVID-19 pandemic exposed vulnerabilities in global pharma supply chains, pushing for localized production of critical medicines and medical devices. Example:

• U.S. & Europe: Governments are incentivizing domestic production of essential drugs (e.g., insulin, antibiotics) to reduce reliance on India and China.
• India: Strengthening its role as a global pharmaceutical hub while investing in local supply chains to reduce raw material dependencies.

5. Heavy Industry & Shipbuilding ⚓🏗

Application: Ports, logistics, and heavy industry require close coordination between manufacturers, suppliers, and distribution hubs. Example:

• South Korea & China: Shipbuilding remains clustered around key industrial zones (e.g., Hyundai Heavy Industries in Ulsan, China’s Jiangnan Shipyard).
• Europe: Ports like Rotterdam and Hamburg are investing in localized green hydrogen production to decarbonize heavy industry.
• United States: The Jones Act incentivizes domestic shipbuilding and logistics operations, keeping supply chains within U.S. waters.

Implications for Global Manufacturing

The Close Produce Model signals a transformation in global supply chains, moving away from cost-driven outsourcing to localized, resilient, and technology-driven production networks. Companies must reorganize and realign their global operations, leveraging automation, proximity to markets, and strategic financial positioning to maintain competitiveness. This shift will likely influence capital markets, trade policies, and technological investments worldwide.