CFA Level I · CFA Level I Exam · Introduction to Geopolitics
A multinational firm's supply chain relies on a single country for a critical component. Rising geopolitical rivalry leads that country's government to restrict exports of the component. Which response by the firm is most consistent with a move from efficiency-driven to resilience-driven globalization?
Diversifying suppliers across several countries, including friendly or nearby ones, even at higher cost, is the resilience-driven response. It reduces dependence on a single, possibly hostile source. Concentrating on the cheapest supplier keeps the vulnerability, and lobbying for unrestricted sourcing does not address the firm's exposure.
- AConcentrating purchases with the lowest-cost supplier to reduce unit costs
- BDiversifying suppliers across several countries, including friendly or nearby ones, even at higher costCorrect
- CLobbying for removal of all trade rules so that sourcing is unrestricted
Explanation
Resilience-driven globalization accepts higher cost to reduce dependence on one source, achieved through diversification, friend-shoring or near-shoring. Concentrating on the cheapest supplier is the efficiency approach that created the vulnerability, and lobbying does not reduce the exposure.
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