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Procurement In 2025: Globalization.

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In this latest in a series of posts, Procurement Leaders once again invites Ernst & Young's Carlos Alvarenga to evaluate what might be some of the key levers for the function, a decade in the future.

The rise of Brazil, Russia, India and China (a group sometimes referred to as BRICs) as global economic powers has been well-documented and is under constant scrutiny by procurement professionals. The emergence of China, especially, as the world's largest consumer market has unknown implications for all product and services companies and therefore for the procurement organizations that support them.

By 2025, it is highly likely that many procurement leaders of Western companies will be physically located in China and will base a much larger share of their sourcing and supplier selection decisions on the needs and tastes of Chinese consumers. Furthermore, the strongest Chinese brands will wield extensive leverage in specific domestic and even international markets, causing Western firms to base many procurement strategies on standards, designs and strategies set by Chinese market leaders.

In addition to the Chinese dynamic, a second significant factor is the rise of sub-Saharan Africa as a manufacturing hub and emerging market. For a variety of social and demographic reasons, this part of Africa is attracting an increasing amount of foreign investment in 2014, and, if favorable social conditions continue, this trend will only increase.

This means that an area relatively ignored by most global sourcing organizations will receive increasing focus and investment. As one CPO at a major high-tech firm put it: “You have to put aside old ideas and look at Africa as a high-growth region for global business in the future.”

The third dynamic is the rebalancing of economic power in the American continent with the rise of Brazil, a country that has shown much promise in the preceding decades but is only now coming into its own as a global economic powerhouse. It is difficult to make definitive predictions about Latin American economies, but Brazil seems to have finally stepped off the economic roller coaster that continues to define economic cycles in countries such as Argentina and Venezuela. Should Brazil finally take its place as a solid economic counterpart to the US and Canada, it will have major implications for immigration and investment flows in the Americas.

For procurement organizations in the Americas, this means that a market largely unknown to North Americans will become increasingly important as a source of both demand and supply. Brazil has a well-established local and regional manufacturing base that could scale to support all of the Americas. Consequently, procurement organizations will have to shift their focus to the South as well as East in the decade to come.

Moreover, as bilateral trade arrangements between these new powers are signed and go into effect, economic trade dynamics will also change, shifting tax, logistics and sourcing strategies in ways that are just beginning to be studied by the most far-sighted procurement organizations.

Also interesting is the return from Asia of many manufacturing activities to the US, Mexico and Eastern Europe. This trend is already underway, and though many analysts downplay the impact of this phenomenon, a serious political disruption in China, Russia or India could significantly increase the scale and impact of this global shift.
 

Carlos Alvarenga is a principal in Ernst & Young LLP's Advisory practice, a senior research fellow at the Robert H. Smith School of Business at the University of Maryland, and the author of a blog on economics and risk (reconnomics.com). He is based in Washington, DC.

The views expressed herein are those of the author and do not necessarily reflect the views of 
Ernst & Young LLP.

Carlos Alvarenga
Posted by Carlos Alvarenga

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