The relentless spread of globalization may be coming to an end as slow growth in the West allied to faster economic development in other regions encourages more near-sourcing and shorter supply chains, according to a new survey by leading logistics company BDP International.
Arnie Bornstein, BDP’s executive director of marketing and corporate communications, said companies are seeking to reduce costs and transit times by moving production closer to demand in regions where consumers are becoming more affluent, such as Asia, the Middle East and Latin America.
“The survey shows that globalization may be moving toward a tipping point, belying the conventional wisdom that it would allow companies to economically produce anything, anywhere for sale everywhere,” he added.
“Globalization and traditional east-west trade routes aren’t going away any time soon, but trade patterns are being transformed to mirror the realities of low to no growth in the West, and the rise of the rest of the world.”
The survey, conducted by BDP, its Centrx consulting unit and Temple University’s Fox School of Business, gathered responses from more than 200 companies throughout the world with annual revenues ranging from $100 million to more than $10 billion.
Of the supply chain executives surveyed, 87 percent indicated their companies were considering or had already begun to move production closer to end markets, a process driving the growth of shorter inter-regional trade routes.
“There are three principal reasons for this phenomenon,” Bornstein said. “First, emerging nations are starting to trade with one another, shortening world trade flows. Second, Asia, Latin America and the Middle East have growing middle classes driving demand for consumer goods. And third, it makes both operational and economic sense to have shorter supply chains, where goods are produced and consumed within the same part of the world.
“That’s why North American companies are looking to Mexico and Latin America as a manufacturing base; EU companies are looking to eastern Europe and Turkey; and Asian companies want to sell more of their production to Asian consumers as more than a hedge against sluggish export markets in the West.”
The survey found that small and medium-sized companies are more aggressively pursuing inter-regional supply chains than larger companies are, a trend Bornstein attributed to the likelihood that they had less invested in sourcing infrastructure or were new entrants to international trade.
“It is understandable that large companies may be more deliberate to embrace inter-regionalization as they take a long-term strategic approach toward structural changes in their global production platforms,” he added. “This is not to say major companies are any less committed to inter-regionalizing their supply chains. After all, more than 80 percent of the $10 billion-plus revenue companies surveyed agreed they are seeing such a shift.”
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