Lessons from Swedish Firms

The ability of the business sector to withstand and recover from economic shocks has become increasingly important amid rising geopolitical tensions and global market uncertainty. In this report, we evaluate various resilience strategies using data from 1,828 Swedish industrial companies from 2017 to 2023. Our statistical analysis shows that geographical diversification of supply chains and increased stockpiling of inputs help reduce the sector’s vulnerability, while the effects of so-called ‘friendshoring’ must be assessed on a case-by-case basis.

Summary

Stylized facts about sourcing

Swedish companies primarily rely on regional EU/EEA suppliers due to their low trade costs and reduced delivery risks. Less frequent and intermittent suppliers often come from more distant regions, reflecting a diversification strategy. Adaptation to changing global market conditions occurs gradually, suggesting that switching suppliers entails relatively high costs.

Resilience Strategies: Combining Stockpiling and Diversification may be the best option

Our statistical analysis shows that both diversification and stockpiling effectively reduce firms’ vulnerability to global supply disruptions. Combining these strategies may be the most effective approach, as the marginal benefit of each individual measure diminishes. However, each company must weigh its options based on its specific circumstances.

Friendshoring is not a panacea

The potential benefits of relocating sourcing to allied countries are assessed through an analysis of historical supply disruptions for various inputs. The results are mixed: random friendshoring reduces supply risks in 40% of cases but increases them in 60%. Therefore, friendshoring is not a universal solution but rather a strategy that must be evaluated on a case-by-case basis with careful consideration of future risks.

Adaptation to a more uncertain global economy has primarily occurred through more stockpiling — not friendshoring

Adjustments to a riskier global economy have primarily been made through increased stockpiling. Significant friendshoring has yet to take place, except for a shift away from Russia due to war-related sanctions. Instead, procurement has been redirected to other rival and non-aligned countries—including China, which the EU highlights in its strategy for "strategic autonomy." This underscores the challenge of decoupling from China and other rivals, as businesses remain dependent on sourcing inputs where they are available and competitively priced.

Small firms stockpile, large firms diversify

Resilience strategies vary by company size and industry. Smaller firms primarily rely on stockpiling, while larger firms focus on diversification—reflecting differences in costs and capacity. Primary industries that source raw materials from organized markets diversify less than those dependent on customized parts and components.

Policy conclusions

If the private sector underinvests in resilience, public intervention may be warranted to strengthen the economy’s ability to withstand shocks. Many argue that this is the case, citing the collapse of supply chains during the pandemic and rising geopolitical tensions. Confirming this hypothesis would require a comprehensive cost-benefit analysis, which falls outside the scope of this study. What we do observe is that companies are investing more in resilience than before, primarily by increasing their inventories of inputs to bridge temporary disruptions. Whether these investments are optimal from a broader societal perspective remains uncertain.

If further analysis concludes that government intervention is necessary, efforts should focus on addressing the root causes of rising global market risks. Many supply risks are political, as highlighted by the measures imposed by Donald Trump following his reinstatement as U.S. president in January 2025. The most effective way to mitigate these risks is to restore a rules-based global trading system under the WTO. Retreating into rival trade blocs would not only restrict firms' market access but also hinder their ability to diversify risk.

If this is not feasible in today’s geopolitical climate—which currently appears to be the case—the key political challenge will be to design defensive measures without further escalating tensions in the global economy. Determining the specific actions to be taken, both nationally and within the EU framework, is a task for policymakers.1