A Look at Emerging Markets in 2016’s Global Supply Chain

2016 has begun, and thought leaders in global supply chain are already making lists of the  movements that will shape the year ahead.

For our part, we’ve got an eye on the rise and fall of global economies whose futures will effect trends in technology, e-retail, corporate sustainability, and big data. Already at the break of the new year the largest emerging economies in Asia and Latin America are positioned to bookend the global economic spectrum.

In Latin American, Brazil faces near-imminent disaster, with economists predicting a decline of 2.5-3% in 2016, As the B in BRICS, Brazil is supposed to be in the vanguard of fast-growing emerging economies. Instead it faces political dysfunction and perhaps a return to rampant inflation. Only hard choices can put Brazil back on course, and it’s yet to be seen whether those decisions will be put to action in time, and how Brazil’s instability will effect nations with supply chain entanglements.

Meanwhile, China grows but will confront major changes in its economic identity in the months ahead. China is moving away from a manufacturing-based economy to a service-based economy, and has ended a period of intensive fixed asset investment. Overcapacity within the steel industry, for example, has resulted in zero profitability of steel companies and insufficient demand, not to mention supply gluts in the global market. Firms that are inefficient are to enter bankruptcy or be merged with other firms. Excess investment in the real estate sector has also led to an oversupply of houses, which has led to falling home prices, especially outside of the larger cities. Promotion of urbanization policies may help to shore up the demand for real estate. Much of the oversupply in manufacturing and real estate occurred as a result of or in tandem with overlending to local governments, which accumulated massive amounts of debt building up infrastructure in recent years. The risks of local government debt default are to be controlled in this coming year in order to maintain financial stability. The issuance of local government bonds has allowed local governments to stay afloat despite holding high levels of debt. Certainly, improving the real estate outlook will help local governments to improve the prospect of further land development and land sales for generating revenue.

As emerging markets like these continue to face challenges linked to identity and growth, thought leaders should keep an eye to how domestic supply chains will react — for example, through increased near-shoring or data sharing collaborations. How will Brazil and China’s positions shape the field?