Harping on preparedness for hypothetical disasters might not make you the most popular person in the room, but it might make you the most valuable. And if there’s anything the Covid-19 disruption taught us, it’s to be prepared.
But how to plan for the next disaster without knowing what it is? Geopolitical analyst Jacob Shapiro, founder and chief strategist of Perch Perspectives, sums that up in one word: resilience.
In his keynote speech “Emergency Preparedness: Building in Resilience,” delivered at the Sourcing Journal Summit Hong Kong last month, Shapiro started by dispelling a common misperception.
“The ability to bounce back from a disaster is not resilience, that’s flexibility,” he said. “Resilience is the capacity to imagine that the world can be different, especially when things are going well. Humans like patterns and resist change, but you can make strategic decisions if you are comfortable leaning into that change.”
He views Covid-19 as a “dress rehearsal” for climate-change disruption, and a company’s ability to pivot depends on how much resilience it builds into its system. The key? Look, listen, learn, connect the dots, and imagine what could happen.
“Covid-19 was not a disruptive event,” said Shapiro. “It was an accelerant. It sped up geopolitical processes and risks that were already there: The shift away from globalization, the return of geopolitics to global supply chains and trading relationships—the spark of these problems was apparent to anyone who knew what to look for. Covid just poured gasoline on them.”
To get ready for the next disruption and make supply chains more resilient and flexible, Shapiro advises companies to put their operations through a five-step Intelligence Cycle.
- Understand the limits of your knowledge. Think like Socrates: “What I do not know, I do not think I know.” Be suspicious of anything you think you know well.
- Learn to ask the right questions. To know how geopolitical risk will affect apparel supply chains in coming years, companies must break things down into critical intelligence questions. The big question is too unwieldy.
- Forecast plausible scenarios. As resilience is the ability to imagine a different world, think like the better-prepared oil industry and sketch out all possible scenarios. The goal is to identify everything that is possible, no matter how unlikely.
- For each possible scenario, lay out two sets of signposts. One for developments you expect to see if the scenario is on the right track, and, more importantly, another set of signposts of what you expect to see if the scenario is wrong. This allows companies to start looking for disruption before it’s already happening.
- Don’t get complacent. Patterns are the enemy. Risks are dynamic, not static. Even one variable changes your decision matrix.
“You obviously can’t control the world, but you can control how you react to what the world throws at you,” said Shapiro. “The goal is to be resilient, not infallible. That means leaning into discomfort, not making assumptions and repeating the cycle when one of your signposts has been triggered.”
In looking at the major geopolitical issues affecting the apparel, textile and footwear supply chain, Shapiro termed the low-cost manufacturing exodus from China as cyclical rather than geopolitical, with a 50 percent wage rise since 2015 a bigger culprit than populist calls for nearshoring. Regardless, he cited no single country alternative with the skills, population size and government efficiency to pick up the slack.
So where to turn to over the next decade?
“The answer here is very clearly Sub-Saharan Africa with small pockets and opportunities in central and southern Asia and Latin America,” said Shapiro. “You need political stability and you need an educated workforce open to learning new things,” he said. “If it’s too provincial and conservative, they won’t be open to new training and new ideas. You also need a government that’s relatively on the same page.”
Asking the right questions also helps ascertain risk, Shapiro said, citing instability in East Africa, especially Ethiopia, as an example of a promising region experiencing a setback. “Without inexhaustible budgets for every scenario, it’s really drilling down and looking honestly in the mirror and saying, ‘Okay, I’ve made the choice to be in Ethiopia, so eyes wide open. I need to be prepared for X and YZ risks.”
Shapiro also advises keeping a close watch on global food insecurity, which is often related to adverse climate change in fragile regions.
“From the French Revolution to the Syrian civil war, food prices are the best single geopolitical indicator for future disruption,” he said. Along those lines, population growth maps can indicate pressure points for where things are riskiest in the supply chain in the future.
As for globalization, Shapiro sees a more multipolar world over the next five to 10 years. “Economies of scale won’t be global anymore,” he projected. “Regional power structures will lead to regional economic groupings with the strongest countries, attempting to manage economic life within their spheres of influence. 5G and Industry 4.0 means more monitoring, more tracking, and different networks and infrastructures depending on geography, so your supply chain might literally have to pass through multiple networks. You’ll need to exist and communicate in all of them if you want to stay there,” he said.
At the end of the day, the biggest takeaway is don’t get complacent.
“Our brains are hardwired to see what we want to see, not what is actually in front of us,” Shapiro said, using a common visual brain teaser as an example. And there’s nothing resilient about that.
In Case You Missed It: All of the sessions from this year’s Sourcing Journal Hong Kong Summit: “Recovery & Reinvention” are available to purchase and view on-demand. Click here for access.