Four different paths to digital competitiveness
The different ways that economies tackle digital competitiveness can make them at once resilient and vulnerable in today’s increasingly fragmented digital economy, says Fabian Grimm. ...
Supply chain
Supply chains need more than a tariff calculator
New models of economic development are emerging from global trade fragmentation. Supply chain executives must now weigh far more complex trade-offs, says Christos Cabolis
In late September 2025, the Dutch government invoked a 70-year-old emergency law to take control of the chipmaker Nexperia. The issue was not about operational failure or financial distress. It was that Chinese ownership had become geopolitically unacceptable due to pressure from the US. Within hours, European automakers faced the threat of supply disruptions from a decision that had been driven entirely by geo-economic factors.
This trend has become all too familiar. State interventions in supply chains, influenced by geopolitical factors rather than commercial logic, are now a common aspect of the global economy. And they are increasing in frequency and scope.
Supply chains used to be organized around three factors: cost, speed, and reliability. Those calculations still matter, but are no longer enough on their own. Today, supply chains are becoming shaped by a more volatile configuration: the strategic decisions countries are making regarding their economic futures. These decisions are branching off into new territories.
The fractured consensus
For many years, global trade functioned within a shared framework built on efficiency, globalization, and multilateral rules. It was a form of consensus within which countries competed according to how good their execution was: Who could build infrastructure faster? Who could streamline customs? Who could attract investment more aggressively? But they were playing the same game, meaning they were pursuing convergent strategies toward similar models of economic development.
That era of convergence has ended. Countries performing identically on traditional competitiveness metrics are now pursuing fundamentally different national strategies. Singapore and Vietnam might have similarly efficient logistics, but they are making profoundly different choices about economic sovereignty, social standards, and climate transition.
Those choices determine their viability for different supply chain roles and their exposure to different kinds of risks and disruptions.
The question for supply chain executives is no longer just “Which countries are performing well?” but also “Which countries are making choices aligned with or opposed to our needs for stability, efficiency, and compliance?” And more urgently, “Which countries are moving toward positions that create either risks or opportunities for our operations?”
This is where the Hinrich-IMD Sustainable Trade Index (STI) – a joint annual ranking and accompanying report of 30 economies, by the IMD World Competitiveness Center and the Hinrich Foundation – becomes a strategic compass rather than just a benchmark.
“Vietnam is a case in point: it has modernized rapidly, attracting manufacturing fleeing China, and becoming Southeast Asia’s leading assembly hub.”
Three trade-offs that define supply-chain strategy
The STI reveals how economies navigate three fundamental trade-offs. Understanding these positions is becoming as critical as understanding tariff schedules. They are:
1 – Efficiency vs. resilience
Some countries optimize for efficiency by streamlining processes, reducing costs, and maximizing throughput. Vietnam is a case in point: it has modernized rapidly, attracting manufacturing fleeing China, and becoming Southeast Asia’s leading assembly hub. The trade-off lies in its growing dependence on Chinese supply chains and infrastructure.
Other countries are building resilience by accepting higher costs and more regulatory oversight in exchange for stability and strategic independence. Australia fits this profile: strong institutions, predictable regulatory frameworks, and premium positioning (i.e., an institutional and reputational premium). It is more expensive and more predictable when geopolitical pressure intensifies.
The implication is not that one approach is universally superior. Cost-driven firms will gravitate towards efficiency-optimizing countries, while companies in high-value and risk-sensitive sectors will favor resilience-building economies. The choice becomes clear only when these positions are mapped explicitly.
2 – Profitability vs. social cohesion
Some economies prioritize growth over social standards, offering cost advantages but creating potential reputational exposure. Bangladesh is competitive in labor costs but faces persistent challenges in social foundations. This means buyers must either invest heavily in supplier standards or accept reputation risk.
Other economies maintain strong social foundations despite higher labor costs. South Korea’s robust social pillar enables premium supplier positioning. The costs are built into the price, but so is sustainability.
For supply chain leaders, this trade-off determines where cost-driven strategies create hidden liabilities and where premium positioning justifies higher sourcing costs. Brand-sensitive industries in consumer goods, fashion, and electronics are increasingly attracted to partners with stronger social foundations. The STI’s social pillar makes these vulnerabilities and strengths visible before they become crisis points.
3 – Climate ambition vs. development sovereignty
Some countries are embedding environmental standards into their economic models, raising compliance costs but aligning with stringent markets like the EU. Chile is aggressively pursuing a green transition, positioning itself for climate-conscious buyers willing to pay for verified sustainability.
Others optimize development over environmental transition. They remain competitive now but are exposed to future carbon tariffs, border adjustments, and supply chain restrictions. Indonesia’s development-first approach delivers cost advantages today but creates compliance risk tomorrow.
Climate-conscious buyers align with green transition economies. Cost-driven firms turn to development-focused countries, but the gap is narrowing as regulatory pressure builds. Understanding which trajectory a country is on and how fast it is moving matters as much as its current position.
The same country can play different roles depending on the policy context.
From static to dynamic: the moving map
National strategic positions are not fixed. They are evolving with shifting geopolitical dynamics, policy experimentation, and external pressures.
Vietnam’s attractiveness to supply chain planners did not surge because its infrastructure suddenly improved, or its workforce became more skilled. It did so because the US-China relationship changed Vietnam’s relative positioning. The country did not move. The map did.
The same country can play different roles depending on the policy context. Malaysia was positioned as an efficiency-focused modernizer. When the concentration of supply chains in China became a vulnerability, Malaysia’s value proposition shifted not because of domestic policy, but because its relative position in the global map changed. It became a resilience hedge, offering geographic proximity to China without the geopolitical dependence. Same economy, different role.
This is why static country assessments are increasingly insufficient. What matters is understanding not just where economies sit on these trade-offs today, but the trajectory they have followed to reach that position. Also, which countries currently occupy similar strategic positions, and which have moved in a fundamentally different direction?
The STI reveals economies’ current positionings across three dimensions and tracks how that positioning has evolved. Those historical movements provide valuable insights into the choices countries are making.
From analysis to action
For supply chain executives, the strategic question par excellence is shifting from “Where should we source?” to “What kind of strategic diversification does our supply base need?” How should they even start to tackle it?
The first step is to map their current suppliers by their 2025 STI positioning: where do critical suppliers sit on the three trade-offs? Are they concentrated in countries pushing similar national strategies, or are they diversified? Understanding what that concentration means for risk exposure is essential.
A portfolio concentrated on efficiency optimizers located in geopolitically tense regions creates disruption risk; not operational-failure risk, but the kind of state-intervention risk that affected Nexperia. Concentration in countries with weak social foundations creates reputational risk. Concentration in development-focused economies creates future compliance risk as carbon border mechanisms are activated, meaning that countries or indeed regions start charging importers for the carbon emissions linked to the production of certain goods made outside their borders.
Once the current positioning is mapped, the next step is identifying systemic vulnerabilities. Suppliers in countries optimizing for efficiency within geopolitically tense regions signal potential disruption. Those in countries with weak social foundations signal reputational exposure. Those in development-focused economies signal compliance risk on the horizon.
The final step is strategic diversification. This is not just geographic diversification anymore. It is a national strategic diversification. Building a supply base across different trade-off positions means that different kinds of disruption do not cascade through entire networks simultaneously.
The Nexperia seizure was not a black swan. It was part of an established and accelerating pattern. Countries are making different strategic evaluations about their economic futures, and those plans determine which supply chain roles they can and will be allowed to play.
Here is the insight that matters: a geographically diversified supply chain is not actually diversified if all the suppliers operate in countries making the same strategic trade-offs. Concentration in efficiency optimizing economies across different continents still means the entire network faces the same type of disruption when geopolitical pressure intensifies. Concentration in development-focused economies means the entire network faces the same compliance shock when carbon border mechanisms are activated.
Strategic diversification now requires two dimensions, not one. Geographic diversification remains essential, but it must be combined with diversification across national strategic positions. A resilient network needs suppliers positioned across all types: efficiency optimizers and resilience builders; countries with strong social foundations and those still developing them; green transition economies and development-focused ones. Different positions face different risks at different times.
The companies that thrive will be those that recognize this dual requirement and design their networks accordingly.
Authors
Related
From resilience to realignment: How global trade is re-wiring without the US
The fragmentation of the global trade system is leading to the rise of new trade coalitions and corridors, said economists in a joint IMD-Hinrich Foundation webinar. ...
In an age of disruption, optimism is a leader’s greatest asset
For decades, efficiency and scale defined competitiveness. Today, resilience and trust matter more – and optimism is what unlocks both. IMD President David Bach explains why Europe’s leaders must combine realism about...
The energy trilemma: why it pays to get the balance right
Dealing with the conflicting demands of price, sustainability, and security of energy supplies is challenging, but it’s a useful way to assess your firm’s resilience and agility....
Audio available
Learn Brain Circuits
Join us for daily exercises focusing on issues from team building to developing an actionable sustainability plan to personal development. Go on - they only take five minutes.
Explore Leadership
What makes a great leader? Do you need charisma? How do you inspire your team? Our experts offer actionable insights through first-person narratives, behind-the-scenes interviews and The Help Desk.
Join Membership
Log in here to join in the conversation with the I by IMD community. Your subscription grants you access to the quarterly magazine plus daily articles, videos, podcasts and learning exercises.