A new era: why efficiency alone is no longer enough

If you were to use a pen to draw the supply chain journey of a single smartphone on a world map, you would need an unbelievable amount of ink. You’d have to draw lines across all five continents and connect mines in Africa and South America with factories in Asia. After all, your smartphone comprises around 1,000 individual parts and covers tens of thousands of kilometers by road, air and sea before you can finally hold it in your hands, make phone calls, send texts, and take photos.

If you take a look at the chips inside your smartphone, it gets even more complex: The manufacture of a modern semiconductor takes about six months and over 1,000 production steps. Design modules from the United States, equipment from Europe and materials from Japan are assembled in Asian factories.

This impressive global supply chain reflects the close interlocking of our modern world and how it is optimized for speed, specialization and cost savings; in short: efficiency. But this complexity is exactly what makes it susceptible to disruptions. Geopolitical tensions, natural disasters or pandemics can disturb the precise rhythm of production. Sometimes, a single event – like a 400-meter-long container ship getting stuck in the Suez Canal – is enough to bring the flow of goods to a halt.

These kinds of disruptions have changed the rules of play for companies. Efficiency, which was considered the gold standard for business success for decades, is now no longer enough. After all, highly optimized systems are vulnerable: If one tiny component is missing, the entire production can be bogged down in the worst case.

The question is, apart from efficiency, which feature do companies need to be successful?

From globalization to a multiplex world order

To answer this question, let us take a look back in time: For decades, our global economy has been driven by globalization. The founding of the WTO in 1995 opened markets around the globe. The European Economic Community evolved into the EU, with people, goods and capital flowing freely between the member states. The rise of the Internet turned the world into a “global village” overnight. But then the cracks appeared. In 2016, the British people voted for Brexit and for the first time, a country left the EU. In the same year, Donald Trump was elected President of the United States and promptly imposed punitive tariffs on certain products from China. China retaliated with tariffs on US products, which escalated the conflict. And in 2020, the Covid-19 pandemic revealed how vulnerable our global supply chains had become. Protective masks, medicines and even toilet paper were in short supply. The semiconductor industry too found itself at the center of a supposed supply chain crisis; however, this was not caused by interrupted supply chains, but rather an unexpected surge in demand: The automotive industry had reduced its chip orders just before demand for cars recovered faster than expected, causing bottlenecks.

Political scientist Amitav Acharya coined a suitable term for this new reality: the multiplex world order. Today, our world is no longer shaped by a single superpower (such as the United States), but by various players, ideas, institutions, and cultures. The United States is focusing on “America First”, China is pursuing its New Silk Road and Europe is fighting for strategic autonomy. Instead of one globalized world, several worlds are emerging alongside one another. And these worlds often have different rules of play, which aren’t always compatible with each other.

These days, anyone planning a new factory, setting up global supply chains or developing a product line doesn’t know whether the current political and economic order will still be around tomorrow. New tariffs can make production sites uneconomical overnight, supply chains can be interrupted, markets can close.

New challenges for the semiconductor industry

The true extent of this challenge is demonstrated by a current study by Economist Impact, which was commissioned by Merck KGaA, Darmstadt, Germany. We surveyed 464 managers from the semiconductor, IT and electronics industries. The result was clear: The greatest concern among companies is uncertainty about the long-term direction of geopolitical blocs. Around 42% of those surveyed named this as one of their three most significant problems.

For this reason, the Electronics business sector of our company developed its “in the region – for the region” strategy years ago: Instead of managing everything centrally, we organize ourselves so that most of our value chain is on location. We produce things that are needed in Asia predominantly in Asia, while things that are in demand in America are mostly manufactured in America. This brings us closer to our customers.

But this resilience has a price – regional production that is adapted to customer needs inevitably increases costs. New sites need to be built, supply chains reconfigured, and teams developed on-site. At Merck KGaA, Darmstadt, Germany, we compensate for the associated costs as far as possible with a continuously optimized setup for production, storage and delivery. “In the region – for the region” is an investment in reliability for our customers and thus our future viability – a natural safeguard against risks such as interrupted supply chains, geopolitical conflicts or trade barriers so that our products remain available. 

Regionalization as a strategic answer

Our study also confirms the trend toward regionalization. As such, 23.9% of the companies rely on supply chains close to their customers, 22.8% are relocating their IT systems into local data centers and 25% are joining forces with regional partners. If you want to be successful these days, you have to think locally.

But no company can overcome these challenges alone. Modern technologies have long since been system services: Today, a high-performance chip is created thanks to the interplay between countless specialists – from laser optics and materials science to software architecture. This close collaboration across companies and countries ensures continuity in an unpredictable world.

From efficiency to agility: the new paradigm

Adapting to this new world is challenging. And it costs money. According to our survey, customers are primarily concerned about higher expenses for research and development (24.6%), investments in new sites or transfers of production (22.8%) and rising costs due to tariffs and trade restrictions (23.7%). But our study also shows that our industry is prepared for the new multiplex world order – and is already taking strategic measures. Of our respondents, 27.8% are increasingly monitoring geopolitical developments, 34.3% are developing parallel product lines for various markets and 31.9% are adapting their research and development to regional guidelines.

But despite this trend toward regionalization, a multiplex world doesn’t mean the end of globalization but rather the end of its uniformity. The single, all-encompassing global market is giving way to a mosaic of smaller markets in which companies have to pursue several strategies at once. And as a result, in addition to efficiency, another crucial paradigm has emerged for successful companies: agility. Survival in this era means being flexible and adapting quickly.

This entails fundamental change for managers – in the past, they could plan and implement strategies with longer lead times, but today, they have to make decisions in real time and under time pressure. Every decision comes with risks, but inaction is not an option.

Companies that are acting flexibly, building up regional structures and investing in partnerships today will be the winners of tomorrow. In a multiplex world, the goal is not to avoid disruptions, but to make smart, fast and conscious decisions when disruptions come along.