Companies are facing rising political and security risks in emerging market nearshoring hubs, as they pivot supply chains to decrease exposure to growing geopolitical tensions between the West and China.

Analysis of trends in 40 emerging markets that make up a major bloc of the nearshoring, or ‘friendshoring’ universe reveals a combination of risks in 27 of these countries, including the key manufacturing hubs of Indonesia, Mexico, Poland, Thailand and Turkey.

Civil unrest is the standout threat, according to risk intelligence company Verisk Maplecroft’s Political Risk Dataset, while government instability and exposure to conflict and terrorism are also causing disruptions that need to be factored into supply chain strategies.

A combination of global, regional and national issues is driving civil unrest in these countries, although economic inequalities are the key factor, with wage-related protests a particular cause of supply chain disruption, and the forecast for 2024 is for more turbulence.

In Indonesia, widespread, coordinated industrial action at the end of 2023, including protests, broke out over 2024 minimum wage levels. And in Bangladesh, thousands of textile workers forced the closure of hundreds of factories in November 2023, with reports indicating that some facilities were ransacked during clashes.

Mexico, meanwhile (which has recently overtaken China to become the primary source of goods to the US) ranks as the fifth highest risk country globally for civil unrest risks over the next 12 months.

“With the world in a state of extended instability, political risk and disruption triggered by geopolitics, conflict and economic instability will be hard to escape across many key sourcing locations,” said Olivia Dobson, principal risk consultant at Verisk Maplecroft. “Companies need to understand and get ahead of these localised but expanding political threats to protect flows of vital commodities and manufactured goods.”


In detail: Widespread geopolitical tensions (Source: Verisk Maplecroft)

The conflict between Israel and Hamas has highlighted vulnerabilities in a vital international logistics route. A recent escalation in attacks on cargo vessels in the Red Sea by the Houthis, as Iran seeks to react to the war via its proxy in Yemen, has forced major shipping companies to suspend activities in these critical lanes.

Despite US/UK attacks on the Houthis in response, the threat to shipping is unlikely to decrease soon. Without access to the Suez Canal, alternative routes from Asia to Europe and the Americas around Africa are significantly longer, with increased costs that will ultimately be passed on to consumers.

The emerging markets of Hungary, Poland and Slovenia have all shown deteriorations in their political risk scores over the past five years. As well as the obvious sharp increase in exposure to regional conflict, these nations have all seen a rise in civil unrest risks, combined with more pronounced government instability concerns since the start of the Ukraine war in early 2022.

With no end in sight to either conflict, Verisk Maplecroft expects impacts in both Eastern Europe and the Middle East to continue exposing supply chains to direct and indirect consequences.

International supply chains are also caught in the middle of a deepening divide between the West and China. Interstate allegiances and dependencies are increasingly shaping trade relationships as levels of sanctions and countersanctions increase in response to geopolitical tensions. Asia Pacific remains a key area of strategic competition, leaving supply chains exposed to a geopolitical push/pull between the US and China.

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