Leigh Vogel | Getty Images For businesses seeking to diversify into new markets – especially given the geopolitical risks surrounding China – India, Southeast Asia and Mexico are prime candidates, former Australian Prime Minister Kevin Rudd said on Sunday. “When I look around the world, I see three sets, three zones of activity that are currently benefiting from let’s call it ‘the great diversification’ or… [the] “discussion of early disengagement,” he told the Asia-Pacific German Business Conference in Singapore. “One is Southeast Asia, where we are now, the second is India… And certainly from a North American perspective, it’s Mexico, which obviously benefits from Nafta or the Nafta-plus economic arrangements.” India in particular has seen a pivotal shift in economic policies in the past year that could turn it into a new market and manufacturing hub for multinational companies, said Rudd, who is also chairman of the Asia Society. “As someone who has been involved with India for the last 20 years, for the first time, I am convinced that they are going to attempt a major policy change,” Rudd told the conference. “If they can pull this off, it can turn India into the next China in terms of the large-scale consumer market, as well as a reliable, global factory,” he added. “Can [Modi] translate it into reality? Again, an open question.” India, in particular, could potentially offer exporters not only opportunities to diversify supply chains, but also new end markets. Increased competition between the US and China and the disruptions caused by the pandemic have reinforced the importance of diversification for global businesses. He has also heralded new trade alliances and so-called “friend-shoring” — the creation of supply chain networks between allies and friendly countries.

“The Right Balance”

Rudd said Germany, as Europe’s largest economy, would play an important role in shaping the “China debate” on the continent. Germany has extensive investments in China and has faced criticism for its reliance on the country for trade and business, although business representatives have downplayed those concerns.
Last week, German Chancellor Olaf Scholz’s maiden in-person visit to Beijing caused uproar in Europe amid growing political pressure for Germany to reduce its reliance on China. “My German friends constantly underestimate their level of influence in the global debate and they underestimate their level of influence in the China-specific debate,” Rudd said.
“I had a look at Chancellor Scholz’s written statement a few weeks ago … before his visit to Beijing, I think he had the right balance in how he articulated German interests.” Before his trip to Beijing, Scholz explained in an op-ed for the Frankfurter Allgemeine Zeitung and Politico that he would not seek decoupling from China, but instead seek diversification and economic resilience. Rudd said it was important countries did not “walk away” from the difficult job of balancing national security interests, relations with allies, human rights obligations and an economic relationship with China. Gunther Kegelk, CEO of German multinational Pepperl and Fuchs, who spoke on a panel at the conference, said German businesses were not “naive” in establishing supply chains and business relationships in China and elsewhere. But Kegelk, who is also president of the German Association of Electrical and Digital Industry, said businesses may have to start splitting their companies as part of a new geopolitical playbook. “And that would be the exact opposite of what I’ve been doing for 30 years [ago] – [in globalizing] the company … and globalization was right for the company in terms of strategy, in terms of sales … it was also right for the economy,” he said. “Now suddenly, it’s all wrong. We were called naive or stupid to get into these kinds of relationships, but we’ve made a lot of money over the years. Not just us, but the whole European and German economy.” He added that many businesses are now struggling to adapt, especially in the face of sanctions and trade rules imposed on China by the US and others.