The retreat of globalisation

I’ve written about this before. Risked making myself look a little silly by arguing that the era of globalisation on which today’s business world is based has seen its day. That we are in the midst of a retreat to more local times, when insourcing is the trend of note and goods are traded over hundreds of miles and not thousands of miles.

Of course, I exaggerate. Goods will always be traded over thousands of miles, but looking at current trends I still believe that we are in the midst of a reversal. And what lies behind the reversal is pure economics and a liberal dose of risk management.

Recent official statistics showed that Chinese manufacturing output slowed for the first time in almost three years. True, the west is at the beginnings of a probable double-dip recession, but other trends suggest that the dip is more fundamental than a temporary reduction in demand.

China as a low-cost destination is simply not sustainable. The rising middle class, leading to wage inflation, and increasing logistics costs means significant long-term inflation. (Hitachi workers have been striking for five days now over their wage demands - a situation unheard of in the early days of China’s reemergence).

US unemployment fell in November. Now, statistics can be used to back up any argument, but the fact that Chinese manufacturing output is slowing while US employment is increasing does point to an interesting conclusion; that the US is carrying out more volume of work within its own borders.

An increase in protectionism in Europe and globally has also returned to the agenda, driving further wedges between many international trading partners.

Whether it can be argued to be a form of protectionism or not is open to debate, but a announcement this week by the UK government illustrates current thinking well. On the launch of a £150m subsidy to encourage UK manufacturing, business secretary Vince Cable said, "Recent economic and natural shocks such as the ash clouds, tsunami and Japanese earthquake have shown the fragility of long distance and single source supply chains."

As we know, it’s not only the risks of natural disaster that are forcing a rethink.

Naturally, all of this has a significant impact on procurement. CPOs of large businesses have been pursuing centralisation and low-cost country sourcing for many years. Thankfully, some are now seeing what lies ahead and adjusting their strategies accordingly. Some are splintering their supply chains, others, like Anglo American, are pursuing local-sourcing strategies to help stimulate local economies, de-risk the supply chain and - increasingly - cut costs.

Moving into 2012, it’s a trend I’m certain will continue.

David Rae is editor of Procurement Leaders. Subscribe to the magazine here.