Proxima: How Companies are Navigating Global Sourcing Risks

A new Global Sourcing Risk Index from Proxima, developed in collaboration with Oxford Economics, examines the sourcing landscape, which is littered with a range of challenges.

The index is helping companies navigate this complex landscape. The index evaluates the top 20 global economies and 10 fast-emerging markets, which make up 85% of global GDP and 65% of international trade across 10 key sectors and eight risk dimensions.

These include geopolitical conflict, climate, governance, human rights and supplier concentration. This tool offers procurement leaders a strategic view of high-risk, country-sector pairings and practical insights for responding with clarity and control.

High-risk destinations: understanding the trade-offs

Mexico, Turkey and Russia emerge as the highest-risk destinations in the assessment, largely driven by climate disruption vulnerability, governance limitations and geographic concentration factors. In contrast, European economies generally present lower risk profiles, albeit with substantially higher cost structures.

These risks do not suggest people do not source from the countries mentioned. Instead it is weighing up the potential risk trade-offs for the huge economic advantages that they may offer – companies should be aware and manage their supply strategy accordingly.

While generally less risk means more expensive, it's all about understanding the trade-offs.

When asked how companies should weigh higher risk versus higher cost when choosing sourcing locations, Simon Geale, Executive Vice President at Proxima, says: "This really is key. There is risk in every relationship and a businesses "risk appetite" will dictate just how much of that risk they are prepared to take for the price paid or relationship put in place.

"Generally speaking managing risk out gets incrementally more expensive and not all companies have the economic means to support this, margins could be too low to take on this cost internally, or customers might have a ceiling price which means it can't be passed on, or both.

"Step one is to be informed of potential risks in a location, step two is to agree the balance or risk, cost, reward (or appetite), and then step three is to take any associated managing or mitigating steps. There are a lot of tactics that can be deployed to mitigate or manage risk, they will vary by location, sector and risk type, they could include, policy, process, technology, collaboration, innovation, re-engineering or even cost optimisation."

Five forces reshaping supply chains

Global sourcing is no longer solely about cost and efficiency. Five major forces are now driving change including reorientation - trade is increasingly aligned along geopolitical lines. For example, in 2023, Mexico surpassed China as the US's top trading partner, reflecting a shift towards nearshoring and friendshoring. Countries like Poland, Turkey, India, Colombia, Brazil and ASEAN nations are also emerging as key beneficiaries of this trend.

When asked what US procurement leaders can do to address the specific sourcing risks they face, Simon adds: "The US as a sourcing destination fares mid-table in our report with top 10 scores in geopolitical conflict risk, labour input costs and climate. Climate risk is mostly concentrated in certain locations and generally the US has strong adaptive and coping capacity (something buyers should be looking at). In the case of labour price risk, this is more acute in manual labour sectors such as manufacturing and logistics.

"This has been particularly hit since Covid and challenges here will be exacerbated by immigration reduction, onshoring and reindustrialisation. Buying domestically needs to factor these risks in and consider mitigating factors.

"What's really interesting for US procurement leaders are the complexities that sit behind their global sourcing decisions. With tensions ramping up between the US and China, alternative or additive supply is very much a priority in sectors with a high reliance on China or raw materials coming out of China.

"This is not simple, partly because of rules of origin and partly because of Chinese influence over a number of countries, particularly in Africa and the APAC region. Further, the US's largest trading partner Mexico places top in our aggregate score. Mexico is growing fast and with that comes some risks around supply concentration, energy and infrastructure, for example.

"This does not mean do not buy from Mexico, far from it, it means understand the trade-offs and factor them into your commercial strategy and decisioning. The US's trading relationships with the rest of the world are fast evolving, it's imperative that strategic supply decisions are based on a sound footing."

The other major forces are:

Reindustrialisation: Strategic onshoring is on the rise, particularly in high-value sectors. Cumulative investment in reindustrialisation is projected to reach US$4.7tn in 2025, up from US$3.4tn in 2024, with 75% of executives prioritising it over short-term profitability.

Digitisation: Emerging technologies such as AI, automation, IoT and digital twins are transforming how supply chains are managed. These innovations enable real-time risk mapping and smarter decision-making, shifting the competitive balance towards domestic production.

Sustainability: Sustainability goals are now central to procurement decisions for 70% of companies, according to a 2024 global survey. However, progress is uneven, with robust sustainability legislation in Europe and mixed signals from the US.

Risk and Resilience: Resilience has become a core business objective, with risk management now front and centre in every sourcing decision. The shift from cost minimisation to predictability and control is driving shareholder value.

Global trade: not collapsing, but realigning

While globalisation is slowing – international trade as a percentage of global GDP has plateaued – global trade remains deeply interconnected. Every major region still relies on imports for at least 25% of its critical resources, goods or services.

The IMF and World Trade Organisation continue to forecast modest year-on-year growth in global trade volumes, underscoring that trade is realigning rather than collapsing.

When talking about which findings from the index most challenge traditional sourcing assumptions, and how should leaders respond, Simon adds: "At an aggregate level the top five countries in the index are Mexico, Turkey, the Philippines, India and Russia. Russia aside, these four are key beneficiaries of the current and expected reorientation of supply chains, a lot of investment is going into them.

"The global sourcing risk index tells us that while they may have huge economic advantages, they are definitely not without risk. If we are trading one set of risks for another, we must understand why this is the right course of action, something we can do through strategy and sourcing.

"Reports suggest that a majority of CEOs are now looking to embed greater resilience at the expense of short-term profitability. This reorientation is really only just beginning at scale, but it will accelerate.

"When we talk about reducing reliance on more risky locations, who is your plus-one? When we talk friendshoring, who is your friend? Leaders should recognise that there is risk in every supply decision, and seek to understand what those risks are, and if further strategies are required to sit alongside new or existing supply arrangements.

"We have always been aware of risk as part of sourcing decisions, but as the world becomes more volatile, it should get greater consideration in strategic conversations around supply."

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