Global supply risks and resilience : lessons from Swedish firms.
Date: 2025-04-02
Institutions: Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs
Subjects: customs tariff, financial risk, financial stability, green economy, industrial policy, international trade, raw material, single market, supply chain

 
 
 
 
 
 
Paper submitted to the 

Research Conference on the Single Market 

organised by 

European Commission, Directorate General for Internal Market, Industry, 

Entrepreneurship and SMEs 

Brussels, 10 April 2025 

EUROPEAN COMMISSION 

Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs 
Directorate A – Strategy & Economic Analysis 
Unit A1 – Chief Economist Unit 

Contact: GROW-A1@ec.europa.eu 

The opinions expressed in this paper are the authors’ alone and cannot be attributed to the European Commission 

European Commission 
B-1049 Brussels 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Global Supply Risks and Resilience 
Lessons from Swedish Firms 

Single Market Economics Papers 

Josefin Videnord  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LEGAL NOTICE 

This document has been prepared for the European Commission however, it reflects the views only of the authors, and the 
European Commission is not liable for any consequence stemming from the reuse of this publication. More information on the 
European Union is available on the Internet (http://www.europa.eu). 

EN PDF  

ISBN 978-92-68-25779-1 

ISSN 2529-332X 

DOI:10.2873/3147489  ET-01-25-015-EN-N 

Manuscript completed in March  2025 

1st edition 

Luxembourg: Publications Office of the European Union, 2025 

© European Union, 2025  

The reuse policy of European Commission documents is implemented by the Commission Decision 2011/833/EU  
of 12 December 2011 on the reuse of Commission documents (OJ L 330, 14.12.2011, p. 39). Unless otherwise noted, the reuse 
of this document is authorised under a Creative Commons Attribution 4.0 International (CC-BY 4.0) licence 
(https://creativecommons.org/licenses/by/4.0/). This means that reuse is allowed provided appropriate credit is given and any 
changes are indicated. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Global Supply Risks and Resilience 

3/36 

Table of contents 

Preface ............................................................................................................................................. 2 

Summary ......................................................................................................................................... 4 

1. 

Introduction............................................................................................................................ 6 

1.1  Disposition ..................................................................................................................... 6 

2.  Framework and data ............................................................................................................. 7 

2.1  Data  ................................................................................................................................ 7 

2.2  Model .............................................................................................................................. 8 

2.3  Supply disruptions ....................................................................................................... 9 

2.4  Individual supplier risks ............................................................................................ 11 

3.  Does risk matter in practice? .............................................................................................. 13 

3.1  Results........................................................................................................................... 13 

4.  Resilience .............................................................................................................................. 16 

4.1  Diversification and stockpiling ................................................................................. 16 

4.2  How effective are diversification and stockpiling as resilience strategies? ........ 17 

5.  Friendshoring ....................................................................................................................... 21 

5.1  Background .................................................................................................................. 21 

5.2  Friends and foes .......................................................................................................... 21 

5.3  Friendshoring is not a panacea ................................................................................. 23 

6.  Adaptations to a more uncertain world ........................................................................... 25 

6.1  No rise in friendshoring ............................................................................................. 26 

6.2  Increased stockpiling to hedge against future supply shocks .............................. 28 

7.  Resilience strategies by industry and size ........................................................................ 30 

7.1  Diversification across sizes and industry ................................................................ 30 

7.2  Stockpiling across sizes and industry ...................................................................... 31 

7.3  Small firms stockpile, large firms diversify ............................................................. 32 

8.  Policy implications .............................................................................................................. 33 

9.  References ............................................................................................................................. 34 

 
 
 
 
 
 
Global Supply Risks and Resilience 

4/36 

Summary 

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. 

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. 

 
 
 
Global Supply Risks and Resilience 

5/36 

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 

1 In the next report in this series, we will take a closer look at the issue of critical raw materials for the green 

transition and the measures the EU has taken to strengthen strategic autonomy. 

 
 
 
 
 
 
Global Supply Risks and Resilience 

6/36 

1. 

Introduction 

Economic resilience is defined as the ability to withstand and recover from economic 
shocks. 

In this report, we evaluate various strategies that companies can use to strengthen their 
supply chains—something that has become increasingly urgent due to the geopolitical 
situation and unpredictable trade conditions, particularly concerning import tariffs and 
export restrictions on critical raw materials from countries such as China, which holds an 
almost monopolistic position in rare earth elements, essential for the green transition. 

Our evaluation is based on microdata from 1,828 Swedish industrial firms, covering the 
period from the first quarter of 2017 to the last quarter of 2023. It examines three key 
strategies for reducing vulnerability: 

•  Diversification of the supplier base 
•  Stockpiling of raw materials and intermediate inputs 
• 

Increased sourcing from allied countries ("friendshoring"). 

These three strategies address supply chain risks in different ways. The first aims to 
reduce the risk by engaging alternative suppliers as backups. The second strategy focuses 
on mitigation. By keeping inventories of critical inputs, production can continue and, if 
carefully calibrated, sustain operations until supply resumes. The third strategy seeks to 
minimize risks as much as possible by choosing reliable suppliers, a practice that has 
been equated in the current geopolitical debate with increasing purchases from allied 
nations, commonly referred to as friendshoring. 

As Swedish industrial firms use different strategies, they can be evaluated empirically. 
This study builds on Tillväxtanalys (2023), which examined supply chain disruptions 
during the pandemic, as well as Lafrogne-Joussier et al. (2023) and de Lucio et al. (2023), 
who analyse resilience strategies using French and Spanish microdata.  

1.1  Disposition 
This report summarizes the findings of a longer working paper with the same title.2 We 
begin by presenting the analytical framework and data, followed by a description of 
methods for measuring supply risks. Next, we analyze how these risks influence sourcing 
decisions and how diversification and stockpiling strengthen firms' resilience to global 
supply disruptions. The effects of friendshoring are addressed in a separate section. We 
then examine how companies have adapted to an increasingly uncertain global economy 
in recent years, as well as differences across industries and firms of various sizes. The 
report concludes with a brief summary and policy discussion 

2 Tillväxtanalys (2025). Global Supply Risks and Resilience - Lessons from Swedish firms. WP 2025:01 

 
 
 
 
 
 
 
Global Supply Risks and Resilience 

7/36 

2.  Framework and data 

2.1  Data 
The study covers 1,828 manufacturing firms in Sweden over the period from the first 
quarter of 2017 to the last quarter of 2023. The firms are categorized into 23 industries at 
the main level of the Swedish Standard Industrial Classification and into four size classes 
based on the average number of employees per firm during the study period: micro (1–9), 
small (10–49), medium-sized (50–249), and large (250+). Table 1 presents the distribution 
of firms by industry and size class.  

Table 1. The distribution of firms across industries and size classes 

Sector (ISIC) 

10. Food 

11. Beverages 

12. Tobacco 

13. Textiles 

14. Apparel 

15. Leather 

16. Wood 

17. Paper 

18. Printing and reproduction 

20. Chemicals 

21. Pharmaceuticals 

22. Rubber and plastics 

23. Mineral products 

24. Basic metals 

25. Fabricated metal 

26. Computers and electronics 

27. Electrical equipment 

28. Other machinery 

29. Motor vehicles 

30. Other transport equipment 

31. Furniture 

32. Other manufacturing 

33. Repair and installation. 

Micro 

Small 

Medium 

Large 

Total 

14 

5 

3 

4 

6 

4 

12 

13 

23 

9 

6 

64 

34 

12 

40 

25 

8 

1 

14 

23 

30 

1 

13 

5 

5 

21 

25 

14 

36 

7 

75 

14 

22 

125 

55 

35 

110 

28 

13 

10 

20 

10 

43 

3 

3 

13 

2 

2 

27 

19 

4 

34 

9 

61 

18 

20 

92 

33 

33 

112 

42 

12 

22 

13 

9 

15 

4 

2 

1 

11 

20 

16 

7 

4 

14 

15 

15 

8 

6 

32 

21 

5 

5 

5 

2 

102 

8 

5 

32 

10 

11 

65 

68 

30 

99 

23 

163 

55 

63 

296 

130 

86 

294 

116 

38 

38 

52 

44 

Total 

320 

674 

626 

208 

1828 

 
 
 
 
  
  
  
  
  
  
  
 
 
Global Supply Risks and Resilience 

8/36 

2.2  Model 

2.2.1  A simple sourcing model with Leontief technology  
The analysis is based on a model in which firms produce output using fixed proportions 
of various inputs, a standard assumption in analyses of global supply chains. A key 
characteristic of the Leontief technology is that production is constrained by input 
shortages. This creates a direct link between disruptions and production, which we 
leverage to study the effects of inventory management and diversification. 

Figure 1 illustrates an example of this connection, drawn from the Swedish automotive 
industry during the COVID-19 pandemic. At the peak of the crisis in April 2020, imports 
of parts and components had fallen to just 25 percent of normal levels, while revenue—
partially sustained by sales of finished vehicles from inventory—declined to 40 percent. 
After a production halt of approximately six weeks, operations gradually resumed, 
reaching full recovery by the end of the year, followed by a post-pandemic boom as 
backlogged orders were fulfilled. Employment was only marginally affected, as the costs 
of the production stoppage were shared with the state. 

Figure 1. Imports of production inputs, turnover and number of employees in the Swedish automotive industry 
in 2020, compared to the same month in 2019 (2019 = 100) 

120

100

80

60

40

20

0

)
0
0
1
=
9
1
0
2
(
x
e
d
n
i

WHO declares 
pandemic on 11 
March, 2020.

jan

feb mar

apr may jun

jul

aug

sep

oct

nov dec

Imports

Turnover

Employees

2.2.2  Sourcing in a risk-free world 
In a risk-free world without supply shocks, firms buy their supplies from the country 
offering the best price for each input, factoring in transportation margins, tariffs, and 
other trade costs. In this context, splitting an order between two or more suppliers would 
not be rational unless the required volume exceeds the supply capacity of the lowest-cost 
supplier. Therefore, in general, the full order will go to the supplier that offers the best 
overall conditions. 

2.2.3  Risk management in an uncertain global economy 
If there is a risk that a company may be unable to deliver the agreed volume, it can be 
rational to distribute orders among multiple independent suppliers that can cover for 

 
 
 
 
 
 
Global Supply Risks and Resilience 

9/36 

each other, even if this results in a slightly higher total cost. In the working paper, we 
demonstrate that the most effective strategy is to combine suppliers whose production 
tends to be negatively correlated. Under optimal conditions, this can reduce the risk of 
running out of inputs to near zero. 

Since resilience comes at a cost, companies must weigh the benefits and costs of different 
measures. The supply chain management literature recommends selecting primary 

suppliers based on cost while engaging secondary (backup) suppliers to ensure stability. 
This can be achieved through a two-part contract, where a fixed share of the volume is 
allocated to each supplier, with an option to purchase additional units if needed at a 
slightly higher price as compensation for the added flexibility. 

For customized inputs, such as tailor-made microchips that are not readily available off-
the-shelf on the open market, it is particularly important to secure alternative suppliers in 
advance to minimize the risk of production stoppages. 

2.2.4  Diversification versus stockpiling 
An alternative to diversifying the supplier base is to stockpile inputs to create a buffer 
against temporary disruptions. Depending on the circumstances, a company may choose 
to diversify, stockpile, combine both strategies, or rely on a single supplier per input. The 
choice of strategy varies across industries and company sizes, suggesting that there is no 
universal solution (see Section 7 for further discussion). 

2.2.5  Data limitations 
Although Sweden has better microdata than many other countries, it is not possible to 
measure all dimensions of firms' risk diversification. We cannot assess risk diversification 
between suppliers within the same country or between domestic and foreign suppliers, 
as Statistics Sweden (SCB) does not provide transaction data for confidentiality reasons. 
For the same reason, we cannot identify imports conducted via domestic wholesalers, 
which is likely a common sourcing strategy for smaller firms to avoid costs associated 
with direct imports. Finally, there is a risk that goods cleared through customs in another 
EU country before being shipped onward to Sweden are incorrectly classified as 
originating from the EU, even if they were manufactured in, for example, China (the 
'Rotterdam effect'). 

These sources of error are unfortunately unavoidable, limiting the analysis to measuring 
only geographical risk diversification between suppliers in different countries, with the 
caveat of the so-called Rotterdam effect. Therefore, the study includes only companies 
that import input materials directly, which typically means larger firms. Micro and small 
enterprises are included only if they import input materials themselves rather than 
sourcing them through domestic wholesalers. 

Supply disruptions 

2.3 
To evaluate different resilience strategies, data on import disruptions experienced by 
each company is required. These disruptions are defined as the difference between the 
ordered and delivered quantities in a given quarter. Unfortunately, we lack data on 
ordered quantities and can only observe actual deliveries. 

 
 
 
Global Supply Risks and Resilience 

10/36 

    Supply Disruption = Ordered Quantity – Actual Delivery 

In a previous study focusing on the COVID-19 pandemic, we estimated the disruptions 
by assuming that orders for 2020 corresponded to actual deliveries in the same quarter of 
2019. This method is based on the assumption that demand remained, on average, 
unchanged compared to the previous year—a reasonable assumption for 2020, as 
forecasts had predicted stagnant growth before the pandemic changed the landscape. 

If the same method is applied in a more dynamic business environment, where some 
companies are growing while others are shrinking, it may become misleading. Therefore, 
we will use a more advanced instrumental variable (IV) method, in which we estimate 
disruptions for each individual input based on EU data and aggregate them into a 
unique, import-weighted disruption index for each company. 

Figure 2. EU imports of production inputs, excluding Sweden and the UK (2017Q1=100) 

Reference period
2012Q1-2016Q4

Studied period
2017Q1-2023Q4

)
0
0
1
=
1
Q
7
1
0
2
(

150

125

100

75

50

   2012    2013    2014    2015    2016    2017    2018    2019    2020    2021    2022    2023

Value

Volume

To illustrate our reasoning, we can look at Figure 2, which shows the import of inputs 
into the EU, excluding Sweden (to avoid endogeneity) and the United Kingdom (due to 
Brexit). We use import data instead of export data from partner countries, as EU data is 
available on a quarterly basis and provides a more detailed product-level breakdown. 

The time series, which extends back to 2012, shows a positive trend with seasonal 
fluctuations but also clear disruptions linked to the COVID-19 pandemic in 2020, 
followed by an inflation-driven recovery phase and a new downturn after Russia’s 
invasion of Ukraine in February 2022. The rise in inflation is clearly reflected in the 
difference between the value and volume of imports during the recovery phase. 

For each input good and partner country, we estimate a log-linear, seasonally adjusted 
import trend based on EU data (excluding Sweden and the United Kingdom), using 
quarterly data from the past five years. This trend is then projected one quarter ahead to 
calculate the current deviation, which serves as an instrument (or proxy variable) for 
measuring supply disruptions in the Swedish market. 

 
 
 
 
Global Supply Risks and Resilience 

11/36 

The calculations are based on real time series (volume indices) rather than import values, 
as the focus is on real supply shocks and how these can be mitigated through various 
resilience strategies. In the final step, disruptions for each input good and partner 
country are aggregated into an import-weighted disruption index, which is unique 
toeach company depending on the specific input goods it uses and the country (or 
countries) from which they are imported.  

Figure 3. The evolution of general supply conditions over time (measured as the mean logarithm deviation from 
the projected supply across all inputs) 

n
o
i
t
a
i
v
e
d
m
h
t
i
r
a
g
o
l

n
a
e
m

0,3

0,2

0,1

0,0

-0,1

-0,2

-0,3

2017

2018

2019

2020

2021

2022

2023

By aggregating the index for all input goods (Figure 3), we obtain a general overview of 
supply conditions during the studied period. The index fluctuates around zero until mid-
2019, followed by a sharp decline during the COVID-19 pandemic in 2020, a strong 
recovery in 2021, and another drop triggered by Russia’s invasion of Ukraine in February 
2022. A further decline occurred in the second half of 2023 as geopolitical tensions 
escalated globally. 

In other words, the index appears to reflect global events, reinforcing its validity as an 
instrument for measuring disruptions in the Swedish market. 

Individual supplier risks 

2.4 
Using this framework, we can calculate the supply risk for each product and country as 
the standard deviation of disruptions over the past 20 quarters divided by the mean:  

. 

𝑆𝑆𝑆𝑆𝑆𝑆𝑗𝑗𝑗𝑗,𝑡𝑡

𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑗𝑗𝑗𝑗,𝑡𝑡

(2)   𝐶𝐶𝐶𝐶𝑗𝑗𝑗𝑗,𝑡𝑡 =
 is a size-neutral measure of supplier risk that can be 
The Coefficient of Variation 
compared across products, supplier countries, and time. As a complementary measure, 
adapted from the finance literature (CAPM model), we calculate the covariance between 
the individual suppliers and the overall market supply 
:  
market variance 

, normalized by the 

�𝐶𝐶𝐶𝐶𝑗𝑗𝑗𝑗,𝑡𝑡�

�𝐶𝐶𝐶𝐶𝐶𝐶𝑗𝑗𝑗𝑗𝑀𝑀,𝑡𝑡�

�𝐶𝐶𝑉𝑉𝑉𝑉𝑗𝑗𝑀𝑀,𝑡𝑡�

 
 
 
 
 
 
 
Global Supply Risks and Resilience 

12/36 

. 

𝐶𝐶𝐶𝐶𝐶𝐶𝑗𝑗𝑗𝑗𝑗𝑗,𝑡𝑡

𝐶𝐶𝑀𝑀𝑉𝑉𝑗𝑗𝑗𝑗,𝑡𝑡

(3)   𝛽𝛽𝑗𝑗𝑗𝑗,𝑡𝑡 =
The β-measure is relevant when adding new suppliers to the "portfolio" for stabilization 
purposes, where values below one are stabilizing and values above one are destabilizing. 
Suppliers with negative β-values are particularly valuable from a stabilization 
perspective. 

 
 
 
 
 
Global Supply Risks and Resilience 

13/36 

3.  Does risk matter in practice? 

To what extent do companies take supplier risks into account? To statistically examine 
this question, we estimate a risk-adjusted logit gravity model. More specifically, we 
assess the probability that a company chooses country 
supplying the same input good 
intermittent suppliers, and new suppliers to evaluate whether decision-making differs 
depending on the supplier’s role, as suggested by the theoretical model. Core suppliers 
are selected based on cost considerations, while intermittent and new suppliers are 
chosen for stabilization purposes.  

. Separate regressions are conducted for core suppliers, 

 over alternative countries 

𝑘𝑘

𝑗𝑗

The following definitions are used to categorise suppliers: 

•  Core: Suppliers engaged in all of the last four quarters. 
• 
•  New: Suppliers not engaged in the last four quarters. 

Intermittent: Suppliers engaged in at least one of the last four quarters. 

The definition is dynamic. Core suppliers become intermittent if not used consecutively, 
and vice versa for intermittent suppliers. Similarly, new suppliers are moved to the 
intermittent category if they are used a second time during a four-quarter interval, after 
which they can graduate to core suppliers if used consecutively. Finally, suppliers not 
used for four quarters are treated as discontinued and are classified as new if re-engaged 
at a later stage. 

3.1  Results 

3.1.1  Size, distance and trade costs  
We first examine the influence of standard gravity variables on sourcing decisions, 
including exporter size (measured by total exports to the world market), geographical 
distance, and other trade cost factors. These include EU and EEA membership, contiguity 
(shared borders), the World Bank’s Ease of Doing Business Index (where a higher score 
indicates fewer restrictions), and indicators of business group relationships (such as 
parent companies or foreign subsidiaries). Additionally, we include a dummy variable to 
capture the effects of EU sanctions on Russia following its invasion of Ukraine. The 
regression results appear in the lower section of Table 2 under the heading 'Gravity.'  

The first column ('Total') presents the results without distinguishing between core, 
intermittent, and new suppliers. As expected, firms prefer larger exporters over smaller 
ones and favour nearby suppliers over distant ones. Low trade costs—linked to EU/EEA 
partners, neighbouring countries, or countries with high Ease of Doing Business scores—
also positively influence sourcing decisions. Additionally, business group ties with the 
exporting country further strengthen trade.  

The novel aspect of the regressions is the distinction between supplier types. Notably, the 
EU dummy is positive for core suppliers but negative for intermittent and new suppliers. 
This suggests that core suppliers, used consistently, are more likely to be from the EU (or 
EEA), while intermittent and new suppliers, which fill gaps, are often from other regions. 
This is supported by the finding that distance matters less for alternative suppliers. 

 
 
 
Global Supply Risks and Resilience 

14/36 

Explanatory variables 

(Total) 

(Core) 

(Intermittent) 

(New) 

Risk: 

𝑙𝑙𝑙𝑙�𝑆𝑆𝑢𝑢𝑢𝑢𝑢𝑢𝑙𝑙𝑢𝑢 𝑠𝑠ℎ𝑜𝑜𝑜𝑜𝑘𝑘𝑗𝑗𝑗𝑗𝑡𝑡�

𝐶𝐶𝐶𝐶𝑗𝑗𝑗𝑗

𝛽𝛽𝑗𝑗𝑗𝑗
Gravity: 

𝑙𝑙𝑙𝑙�𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑆𝑆𝑒𝑒𝑢𝑢𝑜𝑜𝑒𝑒𝑒𝑒𝑆𝑆𝑒𝑒𝑗𝑗𝑗𝑗�

𝑙𝑙𝑙𝑙�𝐷𝐷𝑆𝑆𝑠𝑠𝑒𝑒𝐷𝐷𝑙𝑙𝑜𝑜𝑆𝑆𝑗𝑗𝑗𝑗�

𝐸𝐸𝐸𝐸𝑗𝑗𝑗𝑗𝑡𝑡

𝐸𝐸𝐸𝐸𝑉𝑉𝑗𝑗𝑗𝑗𝑡𝑡

𝐶𝐶𝑜𝑜𝑙𝑙𝑒𝑒𝑆𝑆𝐶𝐶𝑢𝑢𝑆𝑆𝑒𝑒𝑢𝑢𝑗𝑗𝑗𝑗

𝑙𝑙𝑙𝑙�𝐷𝐷𝑜𝑜𝑆𝑆𝑙𝑙𝐶𝐶 𝑏𝑏𝑢𝑢𝑠𝑠𝑆𝑆𝑙𝑙𝑆𝑆𝑠𝑠𝑠𝑠𝑗𝑗𝑗𝑗�

𝐵𝐵𝑢𝑢𝑠𝑠𝑆𝑆𝑙𝑙𝑆𝑆𝑠𝑠𝑠𝑠 𝐶𝐶𝑒𝑒𝑜𝑜𝑢𝑢𝑢𝑢𝑖𝑖

𝑆𝑆𝑢𝑢𝑏𝑏𝑠𝑠𝑆𝑆𝑆𝑆𝑆𝑆𝐷𝐷𝑒𝑒𝑢𝑢𝑖𝑖𝑗𝑗𝑗𝑗𝑡𝑡

𝑀𝑀𝑜𝑜𝑒𝑒ℎ𝑆𝑆𝑒𝑒𝑖𝑖𝑗𝑗𝑗𝑗𝑡𝑡
Sanctions agains Russia  

0.017** 
(0.003) 

-3.116** 
(0.063) 

-0.002 
(0.001) 

0.226** 
(0.001) 

-0.403** 
(0.003) 

0.179** 
(0.005) 

0.122** 
(0.010) 

0.186** 
(0.006) 

3.783** 
(0.027) 

0.232** 
(0.008) 

0.831** 
(0.011) 

1.503** 
(0.007) 

-4.659** 
(0.334) 

0.004 
(0.004) 

-4.419** 
(0.100) 

-0.001 
(0.001) 

0.262** 
(0.001) 

-0.530** 
(0.004) 

0.390** 
(0.007) 

0.238** 
(0.013) 

0.120** 
(0.007) 

3.820** 
(0.040) 

0.293** 
(0.011) 

0.746** 
(0.015) 

1.537** 
(0.008) 

-4.448** 
(0.448) 

0.025** 
(0.004) 

-4.220** 
(0.105) 

0.002 
(0.002) 

0.171** 
(0.001) 

-0.261** 
(0.005) 

-0.035** 
(0.008) 

0.063** 
(0.016) 

0.193** 
(0.009) 

3.720** 
(0.041) 

0.147** 
(0.012) 

0.799** 
(0.017) 

1.040** 
(0.011) 

-4.407** 
(0.500) 

0.029** 
(0.006) 

-0.975** 
(0.134) 

-0.006** 
(0.002) 

0.101** 
(0.002) 

-0.159** 
(0.008) 

-0.241** 
(0.015) 

-0.004 
(0.027) 

0.207** 
(0.017) 

2.964** 
(0.063) 

0.182** 
(0.023) 

0.708** 
(0.029) 

0.630** 
(0.024) 

Observations 

Pseudo R2 

Industry & Size 

8,954,969 

8,954,969 

8,954,969 

8,937,548 

0.112 

Yes 

0.140 

Yes 

0.056 

Yes 

0.027 

Yes 

Note: One star (*) indicates that the coefficient is statistically significant at the 5% level, while two stars (**) 
indicate statistical significance at the 1% level. 

3.1.2  Suppliers are combined to manage risks 
Turning to the risk parameters, note first that current supply conditions have little impact 
on the selection of core suppliers, which are chosen for their long-term advantages in cost 
and supply risk. In contrast, the current supply capacity is important for intermittent and 
new suppliers, who fill gaps, while the coefficient of variation is less important for them. 
Note, finally, that the β-coefficient is negative for new suppliers and insignificant for the 
other groups. This suggests that new suppliers are chosen for their stabilization merits.  

The results align with portfolio theory, which suggests combining suppliers to improve 
supply security. To our knowledge, these findings are new to the trade literature, though 
they may be familiar in supply chain management studies, a field we know less about.  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Global Supply Risks and Resilience 

15/36 

However, the model’s explanatory power, as reflected in the pseudo R², is low, indicating 
that it is incomplete. A key missing factor is persistence in the supplier set, suggesting 
that finding and integrating new suppliers is costly. Indeed, as shown in Figure 4, about 
90 percent of suppliers are retained from one year to the next, implying an annual 
turnover of approximately 10 percent. roups. This suggests that new suppliers are chosen 
for their stabilization merits.  

Figure 4. Share of suppliers retained over an annual cycle (%) 

Overall, the data suggest that firms adopt a portfolio risk management approach, 
balancing costs and risks while making gradual adjustments to changes in the global 
market. This approach involves prioritizing long-term costs and stability for core 
suppliers while employing more flexible, short-term strategies for intermittent and new 
suppliers, considering both current supply conditions and long-term risk factors. 

 
 
 
 
 
 
Global Supply Risks and Resilience 

16/36 

4.  Resilience 

As outlined in the introduction of this paper, the resilience toolbox includes three 
primary tools to mitigate the effects of global supply disruptions: 

•  Diversifying the supply base, 
•  Stockpiling inputs, and 
•  Sourcing from nearby and allied countries (friendshoring). 

In this section, we evaluate the first two strategies, which are often used together. The 
question of whether friendshoring can avoid risks is deferred to Section 5, along with the 
complex issue of defining friends and foes, a prerequisite for testing the friendshoring 
hypothesis. 

We begin by presenting stylized facts about supply diversification and stockpiling in the 
Swedish manufacturing industry, including measurement issues. Using this data, along 
with the estimated supply disruptions from Section 2.3.1, we will evaluate how well these 
strategies mitigated global supply shocks during the covered period and, therefore, their 
potential to withstand future disruptions.  

4.1  Diversification and stockpiling  

4.1.1  Diversification 
With the available data, we can only measure diversification across countries, as we lack 
information on the supplying firms. The simplest diversification measure is the average 
number of supplying countries per input. For example, if a firm uses two inputs, where 
the first input is imported from one country and the second input is imported from two 
countries, the average is 1.5. 

We will use a slightly more sophisticated measure that also accounts for market shares, 
based on the assumption that the effective risk diversification is greater when the shares 
are equal. For instance, a 50-50 split between two suppliers is more effective than a 90-10 
split, which seems like a reasonable assumption.  

Specifically, the effective risk diversification is measured by the complement to the 
Herfindahl-Hirschman index of market concentration. 3 This index ranges from 0 to 1, 
where a higher value indicates a more diversified supply chain across countries. We refer 
to the index as the Geographical Risk Diversification (GRD). 

3 
2
of j (denoted 
 𝐺𝐺𝑉𝑉𝐷𝐷𝑖𝑖𝑡𝑡 = 1 − ∑ ∑ 𝑤𝑤𝑗𝑗𝑠𝑠𝑗𝑗𝑗𝑗
𝑤𝑤𝑗𝑗

𝑗𝑗

,

) in the input basket of firm i in period t. 
𝑗𝑗

2
𝑠𝑠𝑗𝑗𝑗𝑗

 where 

 is the squared market share of supplier k for input j, weighted by the share 

 
 
 
 
 
 
Global Supply Risks and Resilience 

17/36 

Figure 5. The geographical risk distribution of the Swedish industry in 2017 and 2023 

%

35

30

25

20

15

10

5

0

0

]
1
.
0
-
0
.
0
(

]
2
.
0
-
1
.
0
(

]
3
.
0
-
2
.
0
(

]
4
.
0
-
3
.
0
(

]
5
.
0
-
4
.
0
(

]
6
.
0
-
5
.
0
(

]
7
.
0
-
6
.
0
(

]
8
.
0
-
7
.
0
(

]
9
.
0
-
8
.
0
(

]
0
.
1
-
9
.
0
(

2017

2023

Figure 5 illustrates the GRD for the Swedish industry. The distribution is skewed to the 
right, with an average of 0.166 in 2017, rising to 0.171 in 2023. This corresponds roughly 
to a 90/10 split between two suppliers. That is, a firm imports 90 percent of an input from 
a main supplier and 10 percent from a backup supplier. Note that approximately one-
third of firms do not diversify risks at all; they rely on a single supplier for each input. 
This is particularly true for smaller firms, likely due to administrative costs, whereas 
larger firms tend to be more diversified. Detailed data, broken down by size and 
industry, is provided in Section 7.1 of the paper. 

Inventories 

4.1.2 
The stocks of inputs and finished goods are surveyed quarterly by Statistics Sweden with 
focus on medium-sized and large industrial enterprises. For smaller firms we only have 
intermittent data. The panel is therefore unbalanced. 

Inventory data exhibit a seasonal pattern, with a peak in the first quarter of each year, 
except for 2021. This pattern is similar for inputs and finished products, though for 
different reasons that are not entirely clear. For inputs, it may reflect the annual planning 
process (repeated each year) and the advantages of bulk purchases. For outputs, it likely 
reflects low first-quarter demand, with firms building inventory for later sales. The 
exception in the first quarter of 2021 is likely a lingering effect of the pandemic, during 
which inputs could not be stocked in the usual manner because of remaining supply 
constraints, while back-logged orders were delivered directly from the production line. 
Detailed data, broken down by size and industry, is provided in Section 7.2 of the paper. 

4.2  How effective are diversification and stockpiling as 

resilience strategies? 

Against this background, we evaluate how well diversification and stockpiling were able 
to mitigate the supply shocks during the covered period and, therefore, their potential to 
withstand future disruptions of similar kind.  

 
 
 
 
 
Global Supply Risks and Resilience 

18/36 

4.2.1  Deviation from trend as supply shocks 
Our primary supply shocks are the deviations from the seasonally adjusted import trend 
in the EU, excluding Sweden and the UK (see section 2.3.1 for details). As these shocks 
are measured at the product level, they must be weighted to the firm level. In the spirit of 
Bartik (1991) shift-share instruments, we combine the country-product-period level 
shocks with firm-level trade exposure weights. 4 

4.2.2  Both diversification and stockpiling reduce firms' 
vulnerability to global supply disruptions  

The regression results in Table 3 show that both diversification and stockpiling reduce 
firms' vulnerability to global supply disruptions, but a combination may be the most 
effective approach. Determining the optimal degree of resilience requires a thorough 
cost-benefit analysis, which is beyond the scope of this paper and likely varies across 
industries and firm size classes. 

Since we lack quarterly production data, we use the turnover as a proxy. This proxy is 
not ideal since the turnover includes revenues earned from current production as well as 
inventory sales. We therefore include the inventories of finish products as an additional 
control variable.  

To avoid reversed causality, that is, that turnover may influence imports, we use a two-
stage instrumental variable (IV) approach. In the first stage, we estimate the relationship 
between imports, the supply shocks, and geographical risk diversification, and in the 
second stage the knockdown effects on the production, controlling for the inventories 
held by each firm. Firms that use both resilience strategies have, in principle, the best 
chances to ride out a storm. 

Table 3 presents the results of the instrumental variable regressions. The first stage 
regression for the full sample of firms, without stockholding data, is shown in column (1), 
followed by the second stage regression in column (2). The supply shock and GRD are 
positive (+) and statistically significant. The negative coefficient of  
diminishing effect of GRD (-), suggesting that there is some optimal level of GRD after 
which the positive effect weakens, similar to our findings in Tillväxtanalys (2023). 

2
𝐺𝐺𝑉𝑉𝐷𝐷𝑖𝑖𝑆𝑆

shows a 

Turning to the knockdown effect of imports on production in column (2), we find, as 
expected, that higher imports lead to increased turnover.5 Since all of our specifications 
include industry-size fixed effects, the estimated changes are driven by differences in 
responses within industry and firm-size combinations that are not explained by the 
overall trends for each group. 

4 Detailed information about the supply shock instrument and firm-level weights, as well as robustness tests, 

are provided in the full working paper version: Tillväxtanalys (2025). 

5 A one percent increase in imports yields an 0.2 percent increase in turnover. 

 
 
 
 
 
 
 
 
 
Global Supply Risks and Resilience 

19/36 

Table 3. Resilience: Instrumental Variable regressions 

(1) 

(2) 

(3) 

(4) 

    0.19** 
𝒍𝒍𝒍𝒍(𝑰𝑰𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒊𝒊𝒎𝒎)
(0.02) 

𝒍𝒍𝒍𝒍(𝑻𝑻𝑻𝑻𝒎𝒎𝒍𝒍𝒎𝒎𝑻𝑻𝑻𝑻𝒎𝒎𝒊𝒊𝒎𝒎)

0.16** 
𝒍𝒍𝒍𝒍(𝑰𝑰𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒊𝒊𝒎𝒎)
(0.03) 

𝒍𝒍𝒍𝒍(𝑻𝑻𝑻𝑻𝒎𝒎𝒍𝒍𝒎𝒎𝑻𝑻𝑻𝑻𝒎𝒎𝒊𝒊𝒎𝒎)

𝑙𝑙𝑙𝑙(𝑆𝑆𝑢𝑢𝑢𝑢𝑢𝑢𝑙𝑙𝑢𝑢 𝑠𝑠ℎ𝑜𝑜𝑜𝑜𝑘𝑘𝑖𝑖𝑡𝑡)

𝐺𝐺𝑉𝑉𝐷𝐷𝑖𝑖𝑆𝑆

2
𝐺𝐺𝑉𝑉𝐷𝐷𝑖𝑖𝑆𝑆

𝑙𝑙𝑙𝑙(𝐼𝐼𝑚𝑚𝑢𝑢𝑜𝑜𝑒𝑒𝑒𝑒𝑖𝑖𝑡𝑡)

    7.43** 
(0.15) 

 -6.07** 
(0.25) 

0.20** 
(0.01) 

𝑙𝑙𝑙𝑙�𝑆𝑆𝑒𝑒𝑜𝑜𝑜𝑜𝑘𝑘𝑠𝑠 𝑜𝑜𝑜𝑜 𝑆𝑆𝑙𝑙𝑢𝑢𝑢𝑢𝑒𝑒𝑠𝑠𝑖𝑖,𝑡𝑡−1�

𝑙𝑙𝑙𝑙�𝑆𝑆𝑒𝑒𝑜𝑜𝑜𝑜𝑘𝑘𝑠𝑠 𝑜𝑜𝑜𝑜 𝑜𝑜𝑆𝑆𝑙𝑙𝑆𝑆𝑠𝑠ℎ𝑆𝑆𝑆𝑆 𝐶𝐶𝑜𝑜𝑜𝑜𝑆𝑆𝑠𝑠𝑖𝑖,𝑡𝑡−1�
Observations 

Adj. R2 

First stage F-value 

Industry*FirmSize FE 

38,148 

0.22 

1 562 

Yes 

6.73** 
(0.22) 

-5.24** 
(0.34) 

0.20** 
(0.01) 

0.04** 
(0.00) 

    0.14** 
(0.01) 

    0.13** 
(0.00) 

    0.02** 
(0.00) 

15,270 

0.27 

842 

Yes 

is the shift-share instrument for the supply shocks facing producer 

Notes: 
weighted by the lagged input shares over the previous year. 
Diversification of firm i over the last four quarters (denoted by index 
Sargan overidentification test verifies the validity of the instruments. * p<0.05, ** p<0.01. 

, 
 measures the average Geographic Risk 

𝑙𝑙𝑙𝑙(𝑆𝑆𝑢𝑢𝑢𝑢𝑢𝑢𝑙𝑙𝑢𝑢 𝑠𝑠ℎ𝑜𝑜𝑜𝑜𝑘𝑘𝑖𝑖𝑡𝑡) 

). Robust standard errors in parenthesis. A 

 in period 

𝐺𝐺𝑉𝑉𝐷𝐷𝑖𝑖𝑆𝑆

𝑒𝑒

𝑆𝑆

𝑇𝑇

4.2.3  Firms with relatively more inventories are more resilient 
To assess the effects of inventory on turnover, we have fewer observations at our disposal 
since inventory data is only available for firms that have responded to the inventory 
surveys of Statistics Sweden. The first stage results of the smaller stockholding sample in 
column (3) are similar to those of the full sample in column (1) in sign, but are slightly 
smaller in magnitude. In column (4), we find that, given a supply shock, both inputs and 
finished goods have positive effects on turnover (+), although the impact is much larger 
for input inventories. 6  

4.2.4 
Input inventories serve as a buffer to hold up production 
In the short run, input inventories serve as a buffer to hold up production in case of a 
negative inventory supply shock. On the other hand, stocks of finished goods mainly 
serve as a control variable for the difference in production and turnover. Without a stock 
of finished goods, sales would be determined only by what you can produce here and 
now. However, holding a stock of finished goods enables the firm to keep up sales 
during a negative supply shock, at least until they run out of stocks. As an example, 
stockholding was the main reason the drop in sales was considerable smaller compared 
to the drop in imports when the Covid-19 pandemic hit. 

6 To interpret the coefficients, given a supply shock, a ten percent increase in input inventories yields a 1.3 

percent increase in production, and an import increase of similar magnitude yields a 1.4 percent increase in 
production. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Global Supply Risks and Resilience 

20/36 

4.2.5  A combination of stockpiling and diversification may be the 

most effective resilience strategy 

We conclude that increased geographical risk diversification has a positive impact on 
imports, but the effect is diminishing as GRD grows lager. It may be that firms spreading 
their buys too thin across suppliers lose in terms of priority. Large customers are often 
prioritized by suppliers in case of shortages, and this should be considered when firms 
decide on the degree of risk diversification. Furthermore, we conclude that both GRD 
and stockholding contribute positively to firm-level production through separate 
channels. Given a supply shock, firms diversifying and spreading risks, and firms 
holding more stocks, are better off in terms of production compared to other firms. 
Overall, our results suggest that firms may need to consider multiple dimensions when 
deciding on the optimal resilience strategy. We will return to this discussion in Section 7. 

 
 
 
 
 
Global Supply Risks and Resilience 

21/36 

5.  Friendshoring  

5.1  Background 

Friendshoring refers to the strategic relocation of supply chains to safer and more reliable 
“shores”, which, in the current geopolitical landscape, has become synonymous with 
sourcing from allied nations. 

The term was introduced by former U.S. Treasury Secretary Janet Yellen in April 2022 
during a speech at the Atlantic Council, an independent think tank based in Washington, 
D.C., where she emphasized the need to reduce U.S. dependence on Russia and China. 
The first concrete measure was implemented by President Joe Biden under the Inflation 
Reduction Act (IRA), which provided significant incentives to boost domestic production 
of electric vehicles and green technology at the expense of other countries. However, the 
fundamental idea of strengthening U.S. independence from China and other geopolitical 
rivals dates back to the first Trump administration (2017–2021) and has been sharpened 
rhetorically during his second term (2025–) as part of the America First policy. 

The European Union has pursued a similar path to strengthen its 'strategic autonomy,' 
following one step behind the U.S. EU policy aims to reduce dependence on external 
forces without compromising multilateral trade principles. Two key legislative 
instruments—the Critical Raw Materials Act (CRMA) and the Net-Zero Industry Act—set 
to take effect in 2024—underscore this strategy. 

China does not have an official friendshoring policy, but for over a decade, it has been 
building strategic alliances with developing countries worldwide through the Belt and 
Road Initiative (BRI), launched in 2013. This initiative aims to promote trade, 
infrastructure, and investment across the Global South, thereby reducing reliance on the 
Global North. Unlike the EU's approach, which is based on ideological alignment, China 
follows a pragmatic strategy focused on economic interests regardless of political 
systems—emphasizing advantageous deals, a strategy the new Trump administration 
has also adopted. 

Friends and foes  

5.2 
The first challenge in analysing the resilience effects of friendshoring is the absence of an 
official list categorizing countries as either friends or foes. For the purposes of this paper, 
we utilize a three-tier classification system—allies, non-aligned, and rivals—based on five 
criteria: (1) UN votes on Russia’s aggression in Ukraine; (2) NATO status; (3) Freedom 
House Index of Political Rights and Civil Liberties; (4) EU free trade agreements; and (5) 
OECD membership. Countries are scored -1, 0, or 1 on each criterion (Box 1), and the 
scores are then summed to classify countries into one of the three groups:  

•  Allies: Total score of 3 or higher. 
•  Rivals: Total score of -3 or lower. 
•  Non-Aligned: Total score between -2 and 2 (inclusive). 

 
 
 
 
 
 
Global Supply Risks and Resilience 

22/36 

Box 1. Classification of allied, non-aligned and rival countries 

1. Voting Record in the UN General Assembly on Resolutions Regarding Russia's 
Aggression Against Ukraine (2022-2024).  

Six resolutions (ES 11/1–11/6) calling, inter alia, for cessation of hostilities, peaceful 
settlement in line with the UN Charter, and reparations: 

• 
• 
• 

1: Voted in favour of at least four resolutions. 
0: Abstained or were absent for the majority, or are non-members of the UN. 
-1: Voted against the majority of the resolutions. 

2. Relationship with NATO (2024): 

• 
• 

• 

1: NATO members. 
0: NATO partners, including the Partnership for Peace, the Mediterranean 
Dialogue, the Istanbul Cooperation Initiative, and Partners Across the Globe. 
-1: Countries without a formal relationship with NATO. 

(Note: Russia and Belarus are scored -1 due to their suspension from the Partnership for 
Peace.) 

3. Freedom House Index of Political Rights and Civil Liberties (2024):  

• 
• 
• 

1: Countries classified as "free." 
0: Countries classified as "partly free" or unclassified. 
-1: Countries classified as "not free." 

4. EU Free Trade Agreements (2024). 

• 

• 
• 

1: Members of the EU, EEA, or countries with ratified bilateral free trade 
agreements. 
0: Countries with non-ratified agreements or ongoing trade negotiations. 
-1: All other countries, including those covered by EU preferential trade 
agreements for former colonies and least developed countries. 

5.  Relationship with the OECD (2024): 

• 
• 
• 

1: OECD members. 
0: OECD partners. 
-1: Non-members. 

 
 
 
 
 
 
 
 
 
 
 
Global Supply Risks and Resilience 

23/36 

The classification is presented in Figure 6, with allies in green, non-aligned countries in 
amber, and rivals in red. While some classifications may be subject to debate, the map 
effectively illustrates the dynamics of a multipolar world. This global landscape 
highlights a clear divide between the 'Global West' and the 'Global East,' while the 
'Global South' largely remains non-aligned. The classification reflects the situation as of 
2024 and does not account for subsequent events, including policy shifts under the 
second Trump administration. 

Figure 6. Allies, non-aligned and rival countries 

Friendshoring is not a panacea 

5.3 
We analyze the effects of friendshoring by examining whether deliveries from allied 
countries have been more stable than those from rivals during the studied period. The 
results are presented in Figure 7. On the x-axis, input materials are indexed from 0 to 100, 
while the y-axis shows the change in the coefficient of variation when shifting from an 
average rival to an average allied country. Note that random friendshoring reduces 
delivery risk in only about 40% of cases but increases it in approximately 60%. Therefore, 
general claims about the benefits of friendshoring should be avoided, as the outcome 
depends on specific circumstances.  

 
 
 
 
 
 
 
Global Supply Risks and Resilience 

24/36 

Figure 7. The resilience effect from friendshoring 

 
 
 
 
 
 
Global Supply Risks and Resilience 

25/36 

6.  Adaptations to a more uncertain 

world 

Firms can use a number of different strategies to build resilience. Some of the available 
tools discussed in this paper are diversification, friendshoring, and stockpiling. Each 
figure below shows the average change within firm-product combinations from the 
baseline period (2017Q1) for a given resilience strategy.7 

6.1  Rise in diversification after the pandemic 
We measure diversification at the firm-product level in two different ways. The first is 
the number of countries from which a given firm-product combination is sourced. The 
second is geographic risk diversification (GRD). 

Figure 8 shows increased diversification relative to the 2017Q1 reference point. Both the 
average number of suppliers (left panel) and GRD (right panel) increase, implying more 
geographically diversified sourcing within a given firm-product combination. 

There is a sudden downward shift in both diversification measures when the Covid-19 
pandemic hit in mid-2020. In addition, we find a decline in the number of suppliers, and 
even a clear decline in GRD from mid-2022 onward - leaving open the question for future 
research whether this is the beginning of a declining trend or just another temporary 
downturn. 8 

Figure 8. Diversification: Number of Suppliers and Geographical Risk Diversification with 95% CI:s. 

7 Inspired by de Lucio et al. (2023),7 we run the following regression for each resilience strategy: 

2023𝑞𝑞4

Where 
term. The reference period is the first quarter of 2017. 

 are time dummies, 

𝐷𝐷𝑡𝑡

𝛾𝛾𝑖𝑖𝑗𝑗

𝜖𝜖𝑖𝑖𝑗𝑗𝑡𝑡

+ 𝛾𝛾𝑖𝑖𝑗𝑗 + 𝜖𝜖𝑖𝑖𝑗𝑗𝑡𝑡 
 represents fixed effects for each firm-product combination, and 

𝑌𝑌𝑖𝑖𝑗𝑗𝑡𝑡 = � 𝛽𝛽𝑡𝑡𝐷𝐷𝑡𝑡
𝑡𝑡=2017𝑞𝑞1

 is the error 

8A Chow test for structural breaks in the time series shows that the downward shift in GRD is statistically 
significant, meaning that the trend after 2022Q2 is different from the one preceding it. 

 
 
 
 
 
 
 
Global Supply Risks and Resilience 

26/36 

6.2  No rise in friendshoring 
Do Swedish firms increase their share of imports from allied countries in response to 
geopolitical concerns? Figures 9-11 show the average sourcing from allies, non-aligned, 
and rivals at the product-firm level as a share of total sourcing.  

Figure 9 shows the share of imports from allied countries. As can be seen, there is a 
significant decline in most periods starting as early as mid-2018. In other words, the share 
of imports from allied countries is lower compared to the first quarter of 2017, drops 
further in mid-2021, and then stabilizes around this lower level. The downward pattern is 
probably part of a trend in a longer time series where European countries, including 
Sweden, increasingly source from markets further away from Europe. On the other hand, 
the halt in the downward trend and stabilization around a new level could be due to the 
current geopolitical situation and political calls for increased friendshoring. 

It is also important to keep in mind that less friendshoring, if detected, could be a 
mechanical effect of firms diversifying. Given that the firm’s main supplier is already 
located in an allied country, adding one or more additional supplier as a diversification 
strategy may lead to less friendshoring if the additional supplier is located in a non-
aligned or rival country. 

Turning to the share of imports from non-aligned countries in Figure 10, we find that it 
has increased in most periods after the reference period. Interestingly, the same is true for 
imports from rivals in Figure 11, where the share is higher relative to the reference period 
in most periods, and significantly so in all periods but the final one after 2021.  

Figure 9. Friendshoring: Share of imports from Allies with 95% CI:s. 

 
 
 
 
 
 
 
Global Supply Risks and Resilience 

27/36 

Figure 10. Friendshoring: Share of imports from Non-aligned with 95% CI:s. 

Figure 11. Friendshoring: Share of imports from Rivals with 95% CI:s. 

Many large sourcing countries are included in rivals, for example China and Russia. We 
find that increased sourcing from China is driving the pattern for rivals. China is also by 
far the largest source country in the rival group, accounting for about 85 percent of total 
rival-shoring. However, given the policy calls for decoupling and friendshoring, and 
threats of higher import tariffs on Chinese goods, it seems more likely that the average 
share of imports from China will start to decline, or at least not increase, in the near 
future. 

Shoring inputs from Russia has indeed declined right after Russia's invasion of Ukraine 
in the first quarter of 2022. Economic sanctions, including import bans, have caused the 
average import share from Russia to gradually decline and almost reach zero by the end 
of 2023.  

 
 
 
 
 
 
Global Supply Risks and Resilience 

28/36 

6.3 

Increased stockpiling to hedge against future 
supply shocks   

For inventory stocks, our data are at the firm level. We measure stock intensity as 
detrended inputs or finished goods stock divided by reported turnover or number of 
employees. All stockholding data is deflated with the same PPI-deflator as for turnover.  

Figure 12 shows the detrended inventory-to-sales ratio for inputs (blue dots) and finished 
goods (red dots). Here we find evidence of an upward trend in the data, followed by an 
abrupt drop in both input and finished goods inventory stock intensity after the Covid-19 
pandemic - a result that could be due to rapidly decreasing inputs and/or rapidly 
increasing turnover. However, from the second quarter of 2022 and onwards, the input 
inventory stock intensity returns to the baseline level and then starts to increase again. 
Similar observations are made for finished goods, although only the drop in early 2021 is 
statistically significant. After the downturn, finished goods stock intensity seems to 
immediately return to levels comparable to the reference point.  

Dividing stocks with number of employees yields a clear upward trend for both inputs 
and finished goods stock intensities right after the downturn in the aftermath of the 
Covid-19 pandemic. These results are displayed in Figure 13. Again, the patterns for 
inventory-to-employees for inputs and finished goods stocks are comparable, although 
the magnitude is larger for inputs. The number of employees can be seen as more slow 
moving compared to turnover, and thus changes in this figure are more likely due to 
actual changes in stockholding. 

Overall, the input and finished goods stock intensities seem to follow similar patterns 
over the period studied. From a resilience perspective, one interpretation of the findings 
when we divide stocks with number of employees is that firms may have started to hold 
more stocks in recent periods to hedge against future supply chain disruptions. 

Figure 12. Detrended stockholding: inventory-to-sales ratio with 95% CI:s. 

 
 
 
 
 
 
Global Supply Risks and Resilience 

29/36 

Figure 13. Detrended stockholding: inventory-to-employees ratio with 95% CI:s. 

 
 
 
 
 
 
Global Supply Risks and Resilience 

30/36 

7.  Resilience strategies by industry 

and size  

In this final section of the paper, we document resilience strategies by industry and firm 
size. We show that smaller firms primarily rely on stockpiling as their key resilience tool, 
whereas larger firms allocate more resources to diversifying their supply base, likely due 
to differing opportunity costs. 

7.1  Diversification across sizes and industry 
First, consider the geographical risk diversification (GRD), broken down by sector and 
size class in Table 4. The table uses color-coding for clarity: blue shades represent below-
average GRD, while red shades indicate above-average GRD. On average, micro firms 
have a GRD of 0.06, compared to 0.14 for small firms, 0.20 for medium-sized firms, and 
0.25 for large firms. This pattern is consistent across sectors. These findings suggest that 
the scope for diversification depends on import volumes, administrative capacity, and 
other size-related factors.  

Table 4. Geographical Risk Diversification by industry and size (average 2017Q1-2023Q4) 

Sector (ISIC) 

10. Food 

11. Beverages 

12. Tobacco 

13. Textiles 

14. Apparel 

15. Leather 

16. Wood 

17. Paper 

18. Printing and reproduction 

20. Chemicals 

21. Pharmaceuticals 

22. Rubber and plastics 

23. Mineral products 

24. Basic metals 

25. Fabricated metal 

26. Computers and electronics 

27. Electrical equipment 

28. Other machinery 

29. Motor vehicles 

30. Other transport equipment 

31. Furniture 

32. Other manufacturing 

33. Repair and installation. 

Total 

Micro 

Small 

Medium 

Large 

Total 

0,06 

0,08 

0,09 

0,04 

0,07 

0,08 

0,04 

0,12 

0,03 

0,06 

0,05 

0,08 

0,04 

0,09 

0,11 

0,06 

0,00 

0,03 

0,07 

0,06 

0,15 

0,05 

0,09 

0,12 

0,17 

0,15 

0,14 

0,08 

0,19 

0,17 

0,19 

0,11 

0,16 

0,13 

0,20 

0,17 

0,20 

0,14 

0,10 

0,15 

0,14 

0,14 

0,19 

0,18 

0,23 

0,02 

0,07 

0,19 

0,23 

0,25 

0,09 

0,26 

0,25 

0,22 

0,19 

0,29 

0,21 

0,34 

0,22 

0,32 

0,25 

0,18 

0,20 

0,20 

0,18 

0,22 

0,09 

0,18 

0,21 

0,22 

0,32 

0,21 

0,18 

0,25 

0,45 

0,35 

0,42 

0,36 

0,32 

0,15 

0,30 

0,25 

0,11 

0,15 

0,15 

0,16 

0,03 

0,04 

0,08 

0,16 

0,15 

0,16 

0,13 

0,22 

0,17 

0,16 

0,15 

0,25 

0,18 

0,26 

0,22 

0,23 

0,13 

0,15 

0,18 

0,16 

Note: Dashed fields contain less than three units and are not shown separately for reasons of confidentiality.  

 
 
 
  
 
  
  
 
 
 
 
  
 
  
  
  
 
Global Supply Risks and Resilience 

31/36 

Diversification across industries is more nuanced. Specifically, blue shades are more 
common in the primary industries listed at the top of the table, while red shades are more 
prevalent in the manufacturing industries at the bottom. This finding indicates that the 
incentive to diversify risk is stronger for producers of heterogeneous products requiring 
customized parts and components. In contrast, primary producers face less risk, as many 
raw materials are traded on organized markets and are therefore less reliant on 
individual suppliers. 

Stockpiling across sizes and industry 

7.2 
A breakdown of the stockpiling data is presented in Table 5. The distribution across 
industries closely resembles that of GRD, reinforcing the hypothesis that industries 
dependent on customized parts and components have the strongest incentives to invest 
in resilience. The main difference is rather between size classes of firms, where smaller 
firms hold relative more inventories than larger firms. 

Table 5. Inventory-to sales ratio of inputs (average 2017Q1-2023Q4) 

Sector (ISIC) 

10. Food 

11. Beverages 

12. Tobacco 

13. Textiles 

14. Apparel 

15. Leather 

16. Wood 

17. Paper 

18. Printing and reproduction 

20. Chemicals 

21. Pharmaceuticals 

22. Rubber and plastics 

23. Mineral products 

24. Basic metals 

25. Fabricated metal 

26. Computers and electronics 

27. Electrical equipment 

28. Other machinery 

29. Motor vehicles 

30. Other transport equipment 

31. Furniture 

32. Other manufacturing 

33. Repair and installation. 

Total 

Micro 

Small 

Medium 

Large 

Total 

52,7 

47,3 

52,4 

50,5 

84,6 

54,4 

26,3 

38,0 

42,4 

44,8 

71,4 

48,0 

76,7 

72,9 

76,0 

129,2 

73,9 

34,1 

85,1 

23,9 

58,6 

29,5 

29,0 

41,5 

46,7 

52,1 

26,5 

25,3 

6,4 

30,9 

1,2 

26,8 

23,2 

41,1 

41,9 

60,0 

48,2 

50,2 

29,3 

70,6 

35,1 

141,9 

39,8 

42,3 

8,3 

96,9 

106,3 

0,0 

128,8 

79,1 

30,8 

0,0 

75,5 

41,2 

72,5 

11,6 

8,0 

11,2 

13,1 

22,6 

26,4 

15,5 

16,2 

45,0 

45,9 

58,4 

32,7 

35,2 

20,6 

52,0 

13,6 

34,5 

31,2 

26,8 

30,9 

16,7 

30,2 

41,9 

81,7 

48,8 

35,6 

21,6 

18,5 

33,3 

21,3 

30,5 

27,1 

45,6 

46,6 

64,3 

52,0 

52,1 

36,7 

65,7 

30,9 

95,1 

34,1 

44,0 

Note: Dashed fields contain less than three units and are not shown separately for reasons of confidentiality.  

 
 
 
  
  
  
  
  
 
 
 
 
  
 
  
  
  
  
  
  
  
  
  
  
  
 
 
Global Supply Risks and Resilience 

32/36 

Small firms stockpile, large firms diversify 

7.3 
The choice of resilience strategy varies by firm size. Smaller firms favor stockpiling, while 
larger firms prefer supply chain diversification. Medium-sized firms, however, often 
blend both approaches, as shown in Figure 14. These differences likely stem from varying 
opportunity costs. Small firms, with lower trade volumes, have fewer opportunities to 
diversify due to higher administrative costs and the risk of losing valuable volume 
discounts, making stockpiling a more practical option for them.  

Figure 14. Stockpiling (IRS) versus geographical risk diversification (GRD)  

The key takeaway is that there is no one-size-fits-all resilience strategy for firms. This 
underscores the importance of policymakers adopting a nuanced and flexible approach 
when designing a national resilience strategy, ensuring it caters to the diverse needs and 
capacities of firms across various sectors and sizes. 

 
 
 
 
 
 
 
Global Supply Risks and Resilience 

33/36 

8.  Policy implications 

Summary 
This report provides new insights into firms' sourcing patterns and risk management 
strategies, highlighting differences across industries and company sizes. Our findings 
indicate that while businesses consider supplier risks, they adopt different mitigation 
strategies. Small businesses primarily rely on stockpiling critical inputs, whereas larger 
companies focus on diversifying their supplier base. Both approaches help reduce 
vulnerability to global supply disruptions, but a combination of the two may be the most 
effective. 

In response to rising global market risks, companies have slightly shifted their focus from 
just-in-time supply management to a just-in-case approach with higher inventories of 
inputs. By contrast, friendshoring remains uncommon despite political attention, likely 
due to limited availability or higher costs.  

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. 9 

9 In the next report in this series, we will take a closer look at the issue of critical raw materials for the green 

transition and the measures the EU has taken to strengthen strategic autonomy. 

 
 
 
 
 
 
 
 
Global Supply Risks and Resilience 

34/36 

9.  References 

Bartik, T. J. (1991). Who Benefits from State and Local Economic Development Policies? 
W.E. Upjohn Institute. http://www.jstor.org/stable/j.ctvh4zh1q  

de Lucio, J, C Díaz-Mora, R Mínguez and F Requena (2023). Do firms react to supply 
chain disruptions? Economic Analysis and Policy, vol. 79: 902-916. 

Lafrogne-Joussier, R, J Martin and I Mejean (2023). Supply Shocks in Supply Chains: 
Evidence from the Early Lockdown in China. IMF Economic Review, vol. 71(1): 170-215. 

Tillväxtanalys (2023). Does risk diversification work? Report 2023:15.  

Tillväxtanalys (2025). Global Supply Risks and Resilience - Lessons from Swedish Firms. 
WP 2025:01.  

 
 
 
 
 
GETTING IN TOUCH WITH THE EU 

In person 

All over the European Union there are hundreds of Europe Direct centres. You can find the address of 
the centre nearest you online (european-union.europa.eu/contact-eu/meet-us_en) 

On the phone or in writing 

Europe Direct is a service that answers your questions about the European Union. You can 
contact this service:  

—  by freephone: 00 800 6 7 8 9 10 11 (certain operators may charge for these calls), 

—  at the following standard number: +32 22999696,  

—  via the following form: european-union.europa.eu/contact-eu/write-us_en 

FINDING INFORMATION ABOUT THE EU 

Online 

Information about the European Union in all the official languages of the EU is available on the Europa 
website (european-union.europa.eu) 

EU publications 

You can view or order EU publications at op.europa.eu/en/publications. Multiple copies of free 
publications can be obtained by contacting Europe Direct or your local documentation centre 
(european-union.europa.eu/contact-eu/meet-us_en). 

EU law and related documents 

For access to legal information from the EU, including all EU law since 1951 in all the official language 
versions, go to EUR-Lex (eur-lex.europa.eu) 

EU open data 

The portal data.europa.eu provides access to open datasets from the EU institutions, bodies and 
agencies. These can be downloaded and reused for free, for both commercial and non-commercial 
purposes. The portal also provides access to a wealth of datasets from European countries. 

 
 
 
 
 
 
 
 
 
E
T
-
0
1
-
2
5
-
0
1
5
-
E
N
N

-

DOI: 10.2873/3147489 
ISBN 978-92-68-25779-1