Interdependence: A side-effect of globalization
This is yet another reminder of the interdependence that comes with globalization and our mutual
on one another as participants in the global supply chain. There are 14,745 Tier 1 and 7.6 million Tier 2 supplier relationships with Russian entities globally, according to data from Dun & Bradstreet. As a result, we are witnessing the ripple effects of US, UK, and EU sanctions on Russian businesses, further crippling an already fragile global supply chain.
There are at least 390 businesses globally with critical suppliers in Russia. Critical suppliers, for the purpose of this article, are defined as suppliers that provide goods and services of at least $100,000 and account for not less than 5% of all invoices. The top five countries that have critical suppliers in Russia are the US, China, India, Japan, and the UAE. There are at least 210 businesses globally with critical suppliers in Ukraine. The top five countries with the most exposure are the US, Mexico, China, Brazil, and Canada.
Currently 348 entities are under direct sanctions in response to the invasion of Ukraine, which actually represents 36,082 businesses whom are owned or controlled by them, according to Dun & Bradstreet data. The OFAC 50% rule imposes sanctions on businesses with a combined ownership by sanctioned parties of 50% or more. In addition to causing financial disruptions to the ultimate parent companies in Russia, sanctions would also disrupt entities in other countries who have business relationships with the sanctioned companies. This underscores the need for beneficial ownership data and the importance of having access to corporate family tree data in uncovering hidden compliance risks.
While Russia and Ukraine account for only 1.9% and 0.3% of the total global merchandise export value respectively, they are the leading exporters of specific commodities. Russia and Ukraine, for example, account for 59% of global sunflower oil exports (HS code 1512), 36% of global iron or non-alloy steel exports (HS code 7207), and 26% of global wheat exports (HS 1001). Data from UN Comtrade shows that several countries have a high dependency on Russian and Ukrainian exports. A country is deemed to have high dependence on Russia and Ukraine for the purposes of this article if it imports more than 50% of its total imports of a given item from Russia and Ukraine. By that definition, 25 countries have a high dependency for wheat and meslin, 24 countries for coal, 16 for petroleum gases, and 10 for crude petroleum. Numerous member states of the European Union and Eastern Europe fall within these categories. The invasion of Ukraine and subsequent sanctions on Russia may result in shortages of critical supplies, material cost increases, more erratic demand, and logistical and capacity bottlenecks.
India: Filling the void
Dun & Bradstreet’s analysis suggests that Indian businesses have the potential to fill the void created in the global export market. There are nearly 2,700 Indian exporters spread across the 11 major products exported by Russia and Ukraine. These products include crude petroleum oil, corn, wheat, sunflower oil, iron ore, iron & steel, platinum, gold, copper, turbo-jets & turbo-propellers, and insulated wire & electric conductors. An analysis of the data from the UN Comtrade shows that of these 11 products, India has a Revealed Comparative Advantage (RCA) in the exports of iron ore, iron & steel, and turbo-jets & turbo-propellers.
India is among the top five iron ore producing countries in the world, ahead of Russia. Hence, businesses in this industry have an enormous opportunity to expand exports and diversify revenue streams by entering new markets where Russia was previously the major supplier.
Whilst India is the world’s second largest wheat producer after China, Russia exports 40 times the volume of wheat that India does. India’s wheat exports have been hindered by high pricing and a large domestic consumer base. However, the increase in global wheat prices following the Russia-Ukraine crisis has boosted India’s competitiveness, creating new opportunities for Indian wheat exporters.
While India also has an RCA in copper, it became a net importer of the metal following the closure of a major copper smelter in 2018 due to environmental concerns. Hence it is unlikely that copper exports from India will witness a significant rise.
This situation may also encourage Indian businesses, who up to this point have focused only on the domestic market, to expand internationally. Data from Dun & Bradstreet shows that there are approximately 300,000 such businesses. However, access to new markets has been one of the biggest challenges for small businesses.
Expanding Market Access
By mitigating the problems of information asymmetry and reducing the sunk cost of entering new markets, business information portals can significantly aid in expanding market access for firms. Researchers at the Inter-American Development Bank discovered that each additional day spent on a business information portal enhances the possibility of a firm exporting to new markets by 0.07 percent. Hence, the government and export promotion agencies must incentivize small businesses to leverage business information portals in order to increase their market access.
(The writer is Global Chief Economist, Dun and Bradstreet)
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