In a previous post, I was highlighting the three major trends to watch right now:
1) The fragmentation of the world and the deglobalization happening now
2) The new global value chains likely to emerge
3) The flow and direction of foreign direct investments
Few weeks ago, when asked about the end of globalization, Jerome Powell the head of the Federal Reserve answered that current disruptions would clearly lead to a very different world, where inflation would be higher and productivity lower. But he also added that it would be a world made of much stronger supply chains with a lot more resilience.
We can see that this is a debate gaining a lot more momentum and it has not escaped policy makers’ attention. Some call it the Great Reset, these are the words used by Klaus Schwab to describe the major shifts taking place right now.
Others in the more established circuits of thought leadership like the Financial Times or the New York Times, have already initiated a debate about globalization in their own columns. Such conversations had already started with COVID when many countries woke up to the fact that they had no control over the value chains and supply chain of medical equipments or pharmaceutical products for example. The supply of electronic chips soon followed.
And now the war in Ukraine is bringing the world much closer to the brink of food shortage.
Slowly but surely, there is a new lexicon of expressions emerging to describe the deglobalization we are currently witnessing;
To the word “Offshoring”, we are now opposing “Reshoring/nearshoring”: Offshoring was meant to describe the transfer of jobs from industrialized to emerging countries. It was all about the “Fabless” movement that every economic commentator and analyst was referring to. Fabless manufacturing means that designing and selling devices and semiconductor chips would happen in one location while the manufacturing would be handled by a specialized manufacturer also known as a semiconductor foundry. Typically, such foundries are located in the United States, China, and Taiwan.
Reshoring/nearshoring now refers to making sure that these jobs are returned back home, meaning that the production happens as close as possible to consumers.
There are also new concepts emerging as a result of the current geopolitical tensions and the sanctions on Russia. Indeed, friendshoring or allyshoring refers to the idea of bringing value chains into a network of countries that are partners and considered to be allies.
So as you can see, we are in the process of rebuilding all our concepts regarding globalization. Few years ago, there was a concept called “Glocalization” in reference to products or services that would adapt to local characteristics. Surely, the term “glocalization” appears limited to the challenges we are currently facing. Supply chains and value chains will have to transcend themselves to attain the type of resilience Jerome Powell is referring to.
Let me know if you have questions and I look forward to hearing your thoughts. Feel free to comment.