Is globalization in retreat? It certainly feels that way sometimes. Whether it’s President Trump threatening to tear up free-trade agreements and castigating US companies for operating overseas, or Britons voting to end their 44-year-old membership of the European Union, the unfettered movement of labor, capital and goods has come under fierce attack across Western democracies in recent years.
Many voters have reacted negatively to mass immigration, the loss of manufacturing and service jobs abroad, and the belief that globalization has not generated universal improvements in living standards. Consumers, meanwhile, worry about the ethical and environmental impact of long-distance supply chains built on cheap labor – some of that labor involving children and workers enduring modern forms of slavery.
For supply chain strategists, uncertainty around taxes, tariffs and regulations, along with other risk factors, such as social and political unrest, adds further complexity to what are already multi-faceted network design decisions.
To gauge the current mood across the supply chain community, and to find out what impact anti-globalization sentiment is having on global footprints, SCM World recently conducted an international cross-industry online survey. The findings provide a much-needed level set.
Practitioners are certainly troubled by the political rhetoric, specifically about how changes to free-trade agreements, such as NAFTA, the Trans-Pacific Partnership and the EU zone, might impact their supply chains. Eight out of 10 of the 200-plus respondents reported some degree of concern, including 23% who say they are “very concerned” and 57% who are “somewhat concerned.” This compares with just 6% who are not concerned.
But these concerns do not necessarily translate into a view that globalization itself is under threat. Indeed, a majority (59%) do not see any evidence in their companies’ strategies and operations of “globalization in retreat.” That’s more than twice the proportion of those who do (26%).
One of the most visible indicators of companies scaling back their global ambitions is when they pull out of countries altogether, as General Motors has done from Russia, India, Europe and South Africa. But the so-called “reshoring” of manufacturing from emerging markets, such as China, to developed economies, such as the US, is another closely-watched trend.
Again, the evidence from our survey doesn’t signal a major shift. Over the past three years a higher proportion report that they have offshored manufacturing (23%) than have reshored or “nearshored” it (20%). Looking ahead to 2020, those expecting to either reshore or nearshore does climb to 29%, against 16% who anticipate the reverse. But in both cases a majority of supply chain professionals don’t expect to see substantive change in their global footprints.
Interestingly, these figures are almost identical among the 100 respondents working for companies headquartered in the US, where the political atmosphere around this issue is most highly charged.
This finding is strongly reinforced when our sample is asked what they expect to happen to product development, sourcing, manufacturing and sales outside their home country (defined as the headquarters location and seat of executive management) in the next three years. In all cases, only around a tenth expect these activities to decrease.
Global supply chains continue to deliver powerful business benefits. Access to world markets is the most significant, according to our survey, followed by economies of scale, access to raw materials and risk mitigation. Despite wage inflation in emerging markets, such as China, low-cost labor is still considered important by almost a third of practitioners, but it’s ranked six points lower than having a choice of best-in-class suppliers.
So while globalization may not be in retreat from a supply chain perspective, it is fair to say that regionalization strategies are in the ascendancy. Whether it’s car makers such as Volvo, Jaguar Land Rover and Tesla expanding their production capacity in China, or contract manufacturers such as Taiwan’s Foxconn announcing its first factory in the US, big companies are steadily moving their operations closer to the markets they sell in.
This also makes good business sense. Our survey reveals that the major benefits of regional supply chains are, overwhelmingly, shorter lead times and better customer service, followed by lower logistics costs.
Alongside greater regionalization, we are also witnessing a rebalancing of business power, as developing country–based companies improve their capabilities, grow their brands and move up the value chain. The latest Fortune Global 500 list, for example, features 109 companies based in China compared with just 29 a decade ago.
Supply chain leaders certainly need to keep a close eye on political and regulatory developments that could restrict their ability to run cost-effective, efficient global networks. The potential loss of millions of manufacturing and skilled white-collar jobs to automation over the next decade could yet fuel a new wave of anti-globalization sentiment.
But, for now, we are living in an increasingly digitally connected world, where the search for competitive advantage demands unconstrained thinking and geographically diverse operations.
There is still time to participate in SCM World’s Globalization & Supply Chain Operations Survey. Click here to share your views.