Monday 3rd Aug 2020 - Logistics & Supply Chain

Global slowdown

It is almost a cliché in business these days to talk about globalisation. It’s taken as something that has started and is going to continue. Globalisation has also become the hot new protest topic and the banner- wavers are ever-ready with statistics to support their cause.

For example, the sales of the world’s largest 200 companies are equivalent to 30 per cent of global GDP according to the Worldwide Association Against Globalisation. (Sneakily deceptive this comparison, incidentally; the actual money figures may be the same but sales are a measure of a company’s revenues whereas GDP is a measure of the value added by – rather than total revenues of – all the economic units within an economy.)

But quibbles over statistics are essentially a side issue. What is really important here is how far logistics has gone global.

Behind the global icons
Take Boeing for example, the very epitome of a global business, its planes are operated by most airlines flying the globe. But most of the subcontractors who supply the mighty plane-maker are in the US. Not very global that supply chain. Or consider Coca Cola, another global icon. Its brand may be everywhere but the supply structure is still not global. In fact, of nine major international companies in a recent analysis, only two, IBM and Unilever, have supply chains that could be classed as truly global. The paper was by Ian Godden, UK managing partner at Roland Berger Strategy Consultants.

Godden argues: ‘Many companies sell their product worldwide but remain essentially parochial in their supply chain and head office culture, served by hundreds of sales offices worldwide which provide an aura of global reach.’ Godden says that many companies are more advanced in positioning their brands as a global player than they are at building global supply chains. He cites the automotive industry: ‘The presence of over 15 vehicle manufacturers, continuation of domestic brands such as Mercury, and regional production over-capacities are three symptoms of the long journey still ahead despite 90 years of globalisation.’

So the long march to globalisation continues. Or will it? In one sense, there is no reason to doubt that large numbers of companies will be looking to develop more global sourcing. The number of firms in the UK that source from the Far and Middle East, for example, is growing steadily.

On the other hand, there are some reasons to think that logistics professionals might be more circumspect about attempting to develop global supply chains than they have in the past. Sports-shoe maker Nike is not the only company to have suffered reputational damage through unwise subcontracting operations in the Third World – it is just the best (or should that be the worst) known of them. Of course, reputational risk in supply chains can be controlled through good management and careful judgement but there will always be more residual risks in sourcing from some economies that others, no matter how tight the management control.

And the fact is that global risks of many kinds seem to be increasing; perhaps these might act as a brake on the globalisation of the supply chain.

Then there is the issue of transport. It is probable that in the long-term, the cost of transport of all kinds will rise due to a variety of factors too numerous to list here. At the margin, that could reduce the benefit of sourcing from economies with lower costs. It’s not the only reason why transport might be seen as another brake on globalisation. Increasingly, transport is a green issue seen as a cost on the environment.

What may start to emerge more are regional clusters of suppliers to global companies, in the way that Japanese car-makers moving into Europe have developed their own European supply chains. If this happens, quite a bit of decision-making will need to be devolved to far-flung regions of the world.

None of this is to suggest that globalisation is going to stop but it does mean that the move towards dominating global corporations – especially in their logistics and supply chain operations – is not necessarily going to be quite the fait accompli that some gurus have suggested. What this means is that the business case for globalising an operation might be more complex than it looks on the surface.

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