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Understanding the Impact of the Ukraine Crisis: Long-term shift to localization and resilience

Michael Holman, Arij van Berkel, Kristin Marshall, Christopher Robinson, Shriram Ramanathan, and Joshua Haslun
April 20, 2022

Beyond the short-term impacts on supply chain disruptions, there are longer-term effects of Russia's invasion of Ukraine. While one of the results of the COVID-19 pandemic has been an increasingly acute awareness of supply vulnerabilities and the need for greater flexibilities and resilience in their logistics and operations, the Ukraine conflict is only reinforcing that lesson.

Again, energy considerations and the push to reduce dependence on oil and gas imports are at the fore, as in the dramatic actions taken by Germany that we highlighted earlier, but the impacts will be broader as well, as illustrated by U.S. President Joe Biden proclaiming in his State of the Union speech on March 1, "Instead of relying on foreign supply chains, let’s make it in America." Executives should review their innovation roadmaps to ensure they are prepared for the growing importance of technologies and trends like the following:

  • Distributed production. One potential solution to the risks of reliance on international trade is to enable local production, whether in chemicals through onsite production of key intermediates, in pharmaceuticals or electronics through "factory in a box"-type solutions, or in manufactured goods with onsite 3D printing of parts. Even in food, controlled-environment agriculture (CEA) can bring production to urban or other areas far from traditional growing areas — while not a solution for major cash crops like wheat and corn, CEA will get a boost from this trend in areas concerned about their dependence on impacts.
  • Alternative feedstocks and flexible production processes. When supplies of critical inputs are at risk, companies will look to locally available alternatives. One obvious source available everywhere is waste. Expect to see greater pull for solutions like advanced pyrolysis processes for converting plastic waste into chemical feedstocks, the use of organic waste for packaging, the production of solid plastic products from municipal solid waste, or methods for using spent grains to produce food ingredients. Flexible processes that can be adapted to produce different outputs at different times will be similarly valued, such as fermentation-based production of fats, proteins, and other food ingredients.
  • New global trade networks. For all the emphasis on self-reliance or independence, business and political leaders should still recognize that autarky isn't the path to greatest prosperity — or the best approach for achieving other vital goals like sustainability. However, new networks will be built to mitigate the risks of the old ones and enable needed innovations. Once more, this is clearest in energy, where global energy networks are shifting from transport of oil and gas to transport of renewable energy. In foods, the rise of plant-based protein is reshaping regional patterns of production and trading as ingredients like pea protein take on newfound importance in food supply chains. Expect global supply networks to get rewired as more areas aim to shift and diversify their imports.

Of course, many of these trends stem from much more than just the current conflict, and if the past two years have taught us anything, it's to be prepared for surprises and changes. We will all need to continue to monitor the evolving global landscape and its effects, but as executives continue to aim for sustainable innovation, continuing to prioritize agility, flexibility, and resilience will become essential.

This blog is the third in a series of posts detailing the impact and fallout from the Ukraine crisis for innovation leaders and businesses. Missed the previous post? Click here to read about short-term supply chain disruptions. Check back Monday, April 25th for our next blog in the series, covering companies responding to social pressure and moving business out of Russia.

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