Globalization and the Supply Chain
October 23, 2013
Although globalization isn’t quite the hot topic it used to be, the subject is still a vital one. Historically, discussions about globalization involved the movement of three things: capital, people, and resources. Nowadays, some pundits like to add a fourth item to that list: ideas. Recently, an article in The Economist stated, “‘Globalisation’ has become the buzzword of the last two decades. The sudden increase in the exchange of knowledge, trade and capital around the world, driven by technological innovation, from the internet to shipping containers, thrust the term into the limelight.” I suspect that the article left out the movement of people either because so many countries have become xenophobic or because jobs now move to people rather than people moving to jobs (i.e., outsourcing) – or maybe the article omitted the movement of people for both reasons. [“When did globalisation start?” 23 September 2013] Globalization has both supporters and critics. The article explains:
“Some see globalisation as a good thing. According to Amartya Sen, a Nobel-Prize winning economist, globalisation ‘has enriched the world scientifically and culturally, and benefited many people economically as well’. The United Nations has even predicted that the forces of globalisation may have the power to eradicate poverty in the 21st century. Others disagree. Globalisation has been attacked by critics of free market economics, like the economists Joseph Stiglitz and Ha-Joon Chang, for perpetuating inequality in the world rather than reducing it. Some agree that they may have a point. The International Monetary Fund admitted in 2007 that inequality levels may have been increased by the introduction of new technology and the investment of foreign capital in developing countries.”
As with most debates, there is truth on both sides; but, there is no denying that the billions of new middle class consumers are better off thanks to globalization. The article, however, insists, “It is impossible to say how much of a ‘good thing’ a process is in history without first defining for how long it has been going on.” So the staff at The Economist asks, “When did globalisation start?” Taking the long view, the article argues, globalization began when labor became divided between hunters and shepherds, which led to further labor specialization (e.g., merchants, armorers, etc.). Of course, the “world” in which these specialized laborers lived and interacted was fairly limited in size. It was traders and merchants who really spawned what we now think of globalization. The article concludes:
“It is clear that globalisation is not simply a process that started in the last two decades or even the last two centuries. It has a history that stretches thousands of years, starting with … primitive hunter-gatherers trading with the next village, and eventually developing into the globally interconnected societies of today. Whether you think globalisation is a ‘good thing’ or not, it appears to be an essential element of the economic history of mankind.”
Throughout most of history, the primary movements of goods, people, and capital have been fairly regionalized. I have argued in previous posts, that regionalization within the broader framework of globalization, is going to characterize much of the trading and other supply chain activities in the future. There is growing evidence of this. For example, Jonathan Webb reports, “The preliminary data from [Procurement Leaders’] CPO planning survey currently finds relatively little evidence for globalisation. In this study, we asked procurement leaders from where the goods and services for each region were sourced. As it turns out, most of the goods for each region were sourced internally.” [“The world isn’t globalising – it’s regionalising,” Procurement Leaders, 9 July 2013] There’s nothing sinister about regionalization. It simply makes economic sense to reduce the length of supply chains.
Regionalization, however, isn’t sounding the death knell for globalization. Most multi-national corporations understand that their best opportunities for growth are going to be found in emerging markets among new global middle class consumers. Robert J. Bowman, Managing Editor of SupplyChainBrain, cites an Ernst & Young study that concludes “the biggest opportunity for merchandisers in years to come is the emerging consumer in China, India, Brazil, Eastern Europe and other places far from U.S. shores.” [“Forging the 21st-Century Supply Chain,” 23 January 2013] Bowman also quotes Josh Green, Co-Founder and Chief Executive Officer of Panjiva, who stated: “To me, the defining economic event of the 20th Century was the rise of the American middle class. For the 21st Century, it’s the rise of the global middle class.” In other words, what regionalization means is that global corporations are going to have to learn to think globally but find a way to act locally (or regionally). Bowman states, “Manufacturers will still need to be in China – but to serve the Chinese market. The same goes for growing demand in those other emerging economies.”
Let me state the obvious: Globalization and regionalization both depend on good supply chains. Getting products to new members of the global middle class or do those still struggling to get out of poverty (the so-called “bottom billion”), is a challenge with which all manufacturers and retailers are struggling. An organization called D-Prize, which “is dedicated toward expanding access to poverty-alleviation solutions in the developing world,” also believes that “distribution equals development.” Its website explains: “Many solutions to poverty already exist; the challenge is distributing these solutions to the people who need [them] most. We tackle this by challenging social entrepreneurs to develop better ways to distribute proven life-enhancing technologies, and funding early-stage startups that deliver the best results.” The distribution challenges faced in getting poverty-reducing solutions to the bottom billion are the same challenges that manufacturers face in getting their products to the same group. Nicolas Fusso writes:
“A massive global toolbox, filled with highly effective tools for solving poverty, continues to expand. Inside you’ll find relatively recent additions, such as portable solar lanterns. Other tools, like childhood immunizations, have been dependable for generations. Unfortunately, this toolbox is not open to everyone; it seems someone forgot to unlock it for those most in need of access. In fact there are many proven paths toward development. The past decades have observed a wide range of advancements – including new health and medical interventions, development-focused technologies, and proven financial services. Yet millions in the developing world still lack access to basic poverty solutions. Why is that? Today’s greatest need is not for scientists and engineers to create new tools. The real need is for better distribution of solutions that already work.” [“Distribution, the Key to Unlocking the Development Toolbox,” Next Billion, 25 April 2013]
Fusso notes that D-Prize is offering a prize of up to $20,000 for good ideas about how best to distribute poverty-reducing solutions to those who need them. To large multi-national corporations, that sum is a pittance, but the solutions that could emerge from offering that sum could help everyone. Solving the distribution of goods and services challenge to poverty-stricken areas should be a win-win for both humanitarian and commercial ventures. One would assume that humanitarian efforts could piggy-back on commercial distribution systems serving the bottom billion. Certainly multi-national corporations could use the good public relations that would be created by such a venture. As I wrote in a previous post, “For years, people made the bad assumption that impoverished populations wanted nothing more than the very basics — food, housing, and water. Yet business people clever enough to package goods in sizes that the poor could afford (like single-wash packages of detergent or a minute of cellphone time) found that the poor could be consumers and profits could be made. We shouldn’t be surprised; ‘Apple Marys’ in the U.S. survived the great depression using this economic model.”
The future of globalization and supply chains may very well be characterized by how well companies learn to overcome the “last mile” challenges associated with the bottom billion consumers. Solve that problem and other distribution problems will naturally be solved as well. For more about how globalization and supply chains can help solve poverty, see my post entitled Can Supply Chains Save the World?