Global Supply Chain and Logistics Focus: Our Weekly Feature Article on Topics Related to the Global Supply Chain and related Logistics News and Issues  
 
 
  - April 30, 2008 -  

Global Supply Chain: Is the World Going Unflat?

  
 

Supply Chain Professionals should Remember All Things Go in Cycles; Right Now, Barriers and Nationalism are Returning

  
 

 

SCDigest Editorial Staff

SCDigest Says:
According to a recent poll by the BBC World Service, substantial pluralities in 21 of 34 nations recently said the "pace of economic globalization" is moving too quickly – perhaps presaging erection of more barriers to trade.

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If there was a book that defined the profound changes in both the economics and supply chain as we entered the 21st century, it was “The World is Flat,” the best selling book by Thomas Friedman of the New York Times.

The book brilliantly articulated the forces and profound changes of massive globalization, and probably helped further expand those changes by crystallizing the opportunity and risk as barriers to trade fell and competitors and partners emerged from around the globe.

Key to those changes, Friedman said, was what he called “supply chaining” – the ability of supply chain and logistics processes to rapidly and cost effectively move materials and information around the globe.

And a key underpinning of the Flat World movement was the reduction in trade barriers and in some respects the role of nations themselves. “Markets” were trumping nations.     

But now, there is evidence that due to a variety of factors, the world of late is becoming a lot less flat. Regulation and barriers to trade are coming back. Many nations, especially those with energy or commodity riches, are flexing muscles in what might be termed non-flat ways. The general benefits of globalization are in some ways being rethought. The bottom line is that in planning supply chain strategies, companies would do well to remember that there are cycles in most things, and globalization may be one of them.

According to a recent poll by the BBC World Service, substantial pluralities in 21 of 34 nations recently said the "pace of economic globalization" is moving too quickly – perhaps presaging erection of more barriers to trade.

An article in the Wall Street Journal, for example, noted that many countries have recently been increasing barriers to foreign investment. In the face of rising food costs and food shortages in many countries, some governments are responding by blaming globalization and banning food exports.

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Russia at times uses it energy muscle in an attempt to coerce European countries dependent on oil or natural gas from the country. Venezuela has nationalized a number of foreign-owned oil assets.

Democratic president candidates in the US are calling for substantial changes in the North American Free Trade Agreement (NAFTA), and the Democratic congress recently scuttled a proposed trade agreement with Columbia. There has also been growing concern here about the potential role of so-called “sovereign wealth funds” – huge pools of funds being accumulated by oil rich nations and China through its positive trade imbalance – and the potential or attempts by those funds to take stakes or ownership of Western companies.

Temporary Reversal – or Something More Serious?

Will these and other changes represent a true reversal of the globalization movement, or simply turn out to be a minor blip in the continued flattening megatrend?

Friedman himself thinks it’s the latter, telling the Wall Street Journal that “the reassertion of state power may turn out to be an "episode" rather than a trend, and that technologies will continue to empower individuals across boundaries.”

The World Trade Organization has also become a powerful enough force that full blown protectionism flouting WTO rules can simply be too costly for a nation to bear, limiting moves reversing globalization.

Still, on the margin, 2008 feels a lot different than 2004.

Office systems manufacturer Pitney-Bowes is one company sensing a bit of change. After moving lots of production to China, it is rethinking its reliance on supply lines there.

"We're always concerned that the nationalists there will come and take over" our suppliers in China, the Wall Street Journal quotes says Cynthia Schmitt, the company's vice president for enterprise risk management, as saying. The company has increased its inventories for machine components as a hedge against these risks, she said.

Some companies perceive less risk in Mexico. Foreign investment there was up 21% last year, driven by lower risk in supply (length, politics, etc), as well as rising labor costs in China.

Michael Klein, chief economist at the World Bank's private-sector arm, the International Finance Corp., is one who believes the trend away from globalization is here to stay for awhile.

“New nationalism could play out over a lengthy span,” he tells the Wall Street Journal.

Do you see evidence of some retreat in globalization forces? Is the world becoming a bit less flat, and if so, how long will it last? What is the impact for supply chain decision-making? Let us know at the Feedback button below.

  
 
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