For much of the past three decades, China has held a singular position in the global supply chain. A unique combination of manufacturing scale, supplier density, infrastructure maturity, and cost competitiveness has made it the obvious market for sourcing goods. For UK businesses, particularly those who have scaled rapidly over the past decade, China is no longer simply a convenient choice but is instead embedded within their business model itself.
But despite being fundamental to the daily operations and ultimate survival of so many businesses, few scrutinise the risk that comes with their seemingly inseverable relationship with the world’s second-largest economy. That’s despite many western governments, including our own here in the UK, labelling China as a “systemic rival”.
To be clear, the issue isn’t whether China remains an attractive manufacturing base – it unquestionably does. It offers so many advantages that, in many sectors, it will be difficult to replace at scale. The issue is instead dependency and the extent to which growth, margin, and operational continuity has become tied to a single geography when geopolitical risk is becoming more consequential than at any time in modern memory.
You may at this point feel that I’m overstating the core issue or at the very least inflating the urgency. But recent history has already fired two warning shots and, as war rages on in Iran, you could argue the gun is being reloaded or perhaps being replaced with something of greater fire power entirely.
The first of these warnings was the pandemic. COVID-19 exposed, with remarkable speed, the fragility of our so-called highly optimised supply chains. Business models that were built around lean inventory, just-in-time replenishment, and concentrated supplier relationships were shown to lack resilience. From factory closures, port congestion, container shortages, and freight inflation – what had long been viewed as best practice soon become a commercial vulnerability.
As the pandemic engulfed the world, the consequences were immediate. Margins became compressed, trading windows were missed, and product launches slipped. For businesses that were reliant on seasonality or tight promotional cycles, operations disruption quickly translated into lost revenue momentum. But even for those who were not reliant on such levers, a combination of unfounded speculations and harsh reality made for a bumpy 24 months.
The second warning came from Russia’s attempted decapitation of Ukraine from Europe. Albeit different in structure, the implications were similar and reinforced the same commercial truth: geopolitical instability can move from an abstract risk to immediate reality at rapid speed. The result of which was energy costs spiking overnight, sanctions being imposed in rapid succession, and logistic routes being reshaped with little forewarning.
Together, these two events should make one thing clear to leadership teams: geopolitical risk assessment has moved from the margins to the centre of your growth strategy. Put more bluntly, failure to consider and prepare for such instability is a failure to lead your business into the future.
As you read this article, China continues to test the restraint of Taiwan and its allies. Whilst most would argue the likelihood of a kinetic war is unlikely soon, an economic war is not as remote. In fact, some may argue that China and its adversaries are already preparing for such an event or have even begun to probe their enemy’s readiness.
China is not merely another supplier market. For many sectors, it is the central body within the global supply chain. At the same time, Taiwan remains vital to the semiconductor ecosystem as well as a range of high-value components that have implications well beyond the technology sector.
The assumption is frequently that a disruption with either of these countries would primarily affect electronics. But the impact would propagate through second and third-tier supply networks. A retailer that sources through a UK distributor may still depend, several layers down, on Chinese packaging, materials, tooling, and chemicals. Equally, a manufacturer with apparently diversified European suppliers may find that key parts still original from East Asia.
The issue we face here is opacity. Tier-one diversification can provide businesses with the illusion of resilience when leaving the deeper supply chain unchecked. This lack of visibility is what makes concentration risk both difficult to judge and dangerous to ignore. But unlike both the global pandemic and invasion of Ukraine, the impact here extends far beyond delayed shipments or spiralling energy costs.
To begin understanding the implications, you must first concur that supply chains do more than support existing demand. They are the underpinning of product launches, channel expansion, market entry, and customer retention. As a result, disruption increasingly intersects with growth itself.
For businesses, a missed seasonal trading window, a delayed product launch, or the inability to meet retail commitments does not just create operational headaches. They will materially shift revenue trajectories and erode the commercial momentum that likely took quarters or years to build. The inability to realise such growth opportunities does not only hit revenue today but perhaps forever.
Looking beyond revenue, the risk to margin is equally significant. This was demonstrated during the pandemic when freight, insurance, and other costs quickly eroded profitability. Should an escalation occur between China and Taiwan, those pressures would likely be more significant. Even without direct conflict, rerouted shipping lanes, higher insurance premiums, disruption to customs, and broad supplier repricing would strain margins more aggressively than any event in recent memory.
None of this should be read as an argument to abruptly pull away from China or the broader region. Across many businesses, that would not only be commercially imprudent but impossible. China’s supply ecosystem remains wildly difficult to replicate, combining unrivalled scale, capability, speed, and cost-effectiveness. Instead, if you can take one objective from this article it should be to seek resilience rather than to retreat.
To gain some level of resilience you must reduce excessive dependency where commercial vulnerability is highest. You may achieve this through dual-sourcing critical SKUs, building fallback supplier relationships in other regions and, most importantly, understanding your exposure beyond the top-level of your supply chain. Together, these exercises will not only provide resilience but exposes just how resilient or vulnerable you are.
The question is no longer whether China remains a compelling market to source goods from – it continues to for many businesses. Instead, the crucial question is whether any single geography should continue to hold such a dominant position within a company’s growth ambitions. But such a question cannot be answered by the procurement team alone; it must instead be answered by leadership at the highest level.
So, if the past five years have taught leadership teams anything, it is that resilience and efficiency are no longer opposing forces. As inefficient as supply-chain optionality often is, businesses with such a strategic lever to protect growth and margin will likely emerge strongest over the next decade. And despite what we may like to tell ourselves, such levels are important whoever resides in the White House.
