To compete in a volatile world, leaders need to reevaluate their capability stack – and rebuild their supply chains
Writing: Kevin O’Marah
For three decades, global business strategy has rested on a seemingly immutable assumption: trade rules might evolve, but the system itself was fundamentally stable. Comparative advantage, open markets and a predictable free trade regime formed the backdrop against which companies optimized for cost, scale and efficiency.
That assumption no longer holds. We’ve seen export controls on advanced AI chips, escalating tariff threats, the rise of India and Vietnam as manufacturing hubs, and the continued growth of China’s global trade surplus despite a decade of US pressure. Together, these developments signal a deeper structural shift. Global trade is moving from a rules-based system to a capability-based one.
Resilience demands more than just rapid response
For companies operating globally, this changes the nature of supply chain risk. Exposure is no longer limited to cost volatility or supply disruption; it now includes the possibility of losing access to entire classes of capability. Strategy must therefore start with a new question: where are we dependent on capabilities – whether in production, engineering, science or technology – that we do not control, and what happens if access is constrained?
Nowhere is this clearer than in artificial intelligence. Advanced AI is far more than just a productivity tool. It is a strategic asset. The concentration of cutting-edge compute capacity, technical talent and data center infrastructure in the US and China points toward an emerging duopoly. Operational strategies that assume free-market movement of AI capabilities are headed for disappointment. Agility is not enough.
Capability beats agility in volatile systems
The dominant response to trade volatility has been diversification, reflected in strategies such as China-plus-one sourcing, near-shoring and tariff arbitrage. While these agility-oriented approaches may mitigate short-term exposure, they do not, on their own, constitute resilience. Resilience is a function of depth built through sustained investment in capabilities, institutional relationships, and operational control across the value chain.
India’s growing role in global manufacturing illustrates this distinction. India is often framed as a hedge against China – a low-cost alternative for sourcing. Yet that framing misses the point. What makes India strategically important is its ability to learn at scale. Companies that have stayed the course in India are building operational muscle: supplier ecosystems, workforce skills, process maturity and digital infrastructure. These capabilities compound over time.
The lesson for leaders is uncomfortable but clear. In volatile systems, agility is overrated. Capability – especially the kind that improves with repetition – is the only durable defense. You cannot diversify your way out of structural uncertainty. You have to build for it.
China’s trade surplus is not an anomaly
China’s expanding trade surplus, now surpassing one trillion dollars annually, reinforces this point. Despite years of tariffs, export controls and industrial counter-policies, China’s share of global goods exports continues to rise.
The country has invested relentlessly in automation, robotics and digitally integrated manufacturing. It operates atop a multitiered industrial base that spans basic chemical inputs through advanced materials, enabling speed and scale that are extremely difficult to replicate. The result is persistent deflationary pressure exported to the rest of the world – a short-term benefit to consumers, but a long-term challenge to competitors.
Supply availability may look stable today, and China-plus-one strategies may appear sufficient. But without rapid domestic advances in automation, skills and digital manufacturing, European and American businesses are negotiating from a position of weakness. Cost advantages built on policy bets will not survive a shock. Capabilities built on learning curves just might.
The capability stack: a strategic lens for leaders
To operate effectively in this environment, leaders require a practical framework for assessing competitive viability under conditions of uncertainty. One such framework is the capability stack, which evaluates whether a firm possesses the underlying capacities needed to sustain performance when external conditions change.
A resilient capability stack is composed of four interdependent dimensions.
1. Physical capacity Manufacturing footprints, logistics networks and communications infrastructure that can handle disruptions
2. Digital capacity Automation, AI integration, proprietary data platforms and software controls that provide speed, visibility and adaptive decision-making
3. Human capacity Skills, training and other mechanisms for institutional learning that support rapid reconfiguration
4. Governance capacity Decision speed, cross-functional alignment, and the ability to act in the absence of complete information
Weakness in any of these layers amplifies exposure in the others. Strength across the stack institutionalizes capability-building for growth.
Strategy for a new era of supply chain
The defining mistake leaders can make now is treating today’s volatility as temporary. This is not a rough patch before normality resumes; the system has forever changed. The next era of global competition will favor organizations that design for instability, rather than efficiency alone. This means investing where learning compounds fastest, and treating policy as weather, not terrain.
Kevin O’Marah is co-founder and chief research officer of supply chain intelligence firm Zero100
