The forces against globalization and the transformations of the global supply chain

The forces against globalization and the transformations of the global supply chain

Over the last few decades, multinationals have profoundly changed their strategies and configurations to take advantage of globalization opportunities and deal with the complexity of their dynamic international environments. As companies internationalize, they encounter new situations that present opportunities and challenges for learning and value creation. Managing and taking advantage of the complexity of diverse environments across the various countries where it operates has been crucial to the success of the global company.

The COVID-19 crisis, the post-pandemic economic effects, the current conflict in Ukraine, the constant tensions between the United States and China (including Pelosi’s recent visit to Taiwan) and the current global environment of “disorder” bring even more changes. more drastic, with profound consequences for global business, affecting internationalization, strategy, management and international trade and investment patterns, increasingly exposing the vulnerabilities of global supply chains. Multinationals face strategic and operational problems that include: (i) difficulties in international flows of goods, services, technology and information, and in global marketing and branding strategies; (ii) restrictions on immigration, making it difficult for multinational companies to transfer personnel between their subsidiaries and to occupy specialized positions in underdeveloped countries; (iii) the uncertainty of the “rules of law” as a result of the weakening of international institutions, such as the WTO, among others.

Thus, the strategic decisions of multinationals, such as international expansion, global sourcing, offshoring, international mergers and acquisitions, location strategy, risk management, in short, management, coordination and governance of global supply chains are being revisited, vis-à-vis vis-à-vis the political, economic and social transformations that are reshaping the so-called “globalized world”.

It is evident that the global trade order is changing substantially. The 2020s marks an era of new technologies, shifts in global economic power, and massive demographic and geographic shifts. Disruptive technologies are advancing faster than companies’ ability to manage them and even use them to gain competitive advantage. Rapid innovations are affecting work styles and lifestyles, driving companies to look for new business models, but unfortunately creating “winners and losers”. Geopolitical volatility, nationalism, protectionism, populism and market instability cause economic hardship, income inequality and growing risks and uncertainties in a movement that many have called “deglobalization”. Outages spread quickly in an interconnected world.

However, even as these forces against globalization are evident around the world, governments and organizations continue to reap the great benefits of a fully interconnected world. These crises and interruptions show that globalization is not weakening, but transforming. Some features of globalization, such as scientific collaboration and digital connectivity, have increased dramatically since the start of the pandemic. Likewise, automation has shifted comparative advantage from low-cost, low-skill locations to mainstream markets where superior skills and machines are available. It is a transformation from geographical globalization to technological globalization. While politicians bolster the call to bring production back home, this restructuring of reshoring or “near-shoring” service and manufacturing supply chains will not reverse globalization, but transform it.

Ultimately, globalization needs better management and companies have been forced to rethink their global supply chains, which historically have been gradually shaping up, reinforced by lean logic, in order to maximize efficiency and profits at the same time. cost of resilience. While lean manufacturing and supply chains were considered the preferred form of production, the drawbacks of a system that requires integration with large and complex coordination mechanisms with relative stability and synchronization are now under review. A recent McKinsey article suggests that the more complex the supply chain, the greater the risk of disruption – which can cause a loss of up to 45% of annual EBITDA per decade. The need for resilience, made clear by the fragility of global supply chains in response to the pandemic, gained priority on the executives’ agenda.

Companies are having to rethink their supply chains, considering possible interruptions in a certain supplier, distributor, geographic region or changes in the commercial policy of a certain country or trading bloc. Many companies are revising their sourcing and offshoring policies to a “China + 1” or “China + 2” policy to reduce dependence on only one source of supply, in addition to increasing strategic inventories and capacity, at least for components, critical parts and activities. This means building in some level of redundancy, which increases costs and potentially reduces risk. A transition from “just-in-time” (“in time”) to “just-in-case” (“in case you need it”).

This new order of globalization puts today’s global supply chain leaders in an extremely challenging position: pressure from their organizations and the mandate to make the necessary changes effectively. And they can do this by recognizing the three new priorities alongside the traditional supply chain objectives: cost/capital, quality and service, and redesigning them accordingly. These new priorities are: resilience, agility and sustainability.

Resilience should include risk management solutions, such as introducing resilience metrics into the organization’s supply chain KPIs, ensuring that supply chain design and execution decisions are taken in a way that balances efficiency and vulnerability. Agility must equip companies with the ability to meet the needs of rapidly evolving and increasingly volatile customers and consumers, as customer loyalty is no longer a given. A fast-changing, fragmented, consumer-centric global marketplace will require a different kind of supply chain, where traditional stability and cost-reduction strategies give way to dynamism, able to anticipate, prepare and respond to rapidly evolving demand. and a constantly changing mix of products and channels, that is, moving at the same speed as consumers. And finally, sustainability recognizes the critical role that supply chains will play in the transition to a clean and socially just economy.

Beatriz Canamary

Beatriz Canamary is a consultant in Sustainable and Resilient Business, Doctor and Professor in Business, Civil Engineer, specialized in Mergers and Acquisitions from the Harvard Business School, and mom of triplets. Today she is dedicated to the effective application of the UN Sustainable Development Goals in Multinationals.

She is an ESG enthusiast and makes it possible to carry out sustainable projects, such as energy transition and net-zero carbon emissions. She has +15 years of expertise in large infrastructure projects.

Member of the World Economic Forum, Academy of International Business and Academy of Economics and Finance.