The Economist - USA (2019-07-13)

TheEconomistJuly 13th 2019 3

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omlinton, chiefprocurementandsupply-chainofficer at
Flex,anAmericancontract-manufacturinggiant,hashisfin-
geronThePulse.Thatisthenameofhisfirm’swhizzycommand
centreinCalifornia,whichisevocativeofa Pentagonwarroom.
ThekitallowshimtomonitorFlex’s16,000suppliersand100-plus
factories, producing everything from automotive systems to
cloud-computingkitforover1,000customersworldwide.MrLin-
tonisoneoftheacknowledgedkingsofthesupplychain—the
mechanismattheheartofglobalisationofthepastfewdecades by
whichrawmaterials,partsandcomponentsareexchangedacross
multiplenationalboundariesbeforebeingincorporatedintofin-
ishedgoods.Askhimaboutthefuture,however,andheanswers
ominously:“We’reheadingintoa post-globalworld.”
Afewyearsagothatwouldhavebeena hereticalthought.The
combinationof theinformation-technology revolution,which
madecommunicationsaffordableandreliable,andtheentryof
Chinaintotheworldeconomy,whichprovidedbountifulcheapla-
bour,hadtransformedmanufacturingintoa globalenterprise.In
hisbook“TheGreatConvergence”,RichardBaldwinarguesthatthe
resultingblendofWesternindustrialknow-howandAsianmanu-
facturingmusclefuelledthehyper-globalisationofsupplychains.
From 1990 to2010,tradeboomedthankstotariffcuts,cheaper
communicationsandlower-costtransport.

Theoecd, a think-tankforadvancedeconomies,reckonsthat

70%ofglobaltradenowinvolvesglobalvaluechains(gvcs).The

increaseintheircomplexityisillustratedbythegrowthinthe

shareofforeignvalueaddedtoa country’sexports.Thisshotup

frombelow20%in 1990 tonearly30%in2011.

Westernretailersdevelopednetworksofinexpensivesuppli-

ers,especiallyinChina,sothattheyinturncoulddeliver“every-

daylowprices”toconsumersbackhome.Multinationalcorpora-

tions (mncs) that once kept manufacturing close to home

stretchedsupplychainsthinastheychasedcheaplabourand

economiesofscaleontheothersideoftheworld.Assumingglo-

balisationtobeirreversible,firmsembracedsuchpracticesaslean

inventorymanagementandjust-in-timedeliverythatpursuedef-

ficiencyandcostcontrolwhilemakinglittleprovisionforrisk.

Butnowtherearesignsthatthegoldenageofglobalisationmay

beover,andthegreatconvergenceisgivingwaytoa slowunravel-

lingofthosesupplychains.Globaltradegrowthhasfallenfrom

5.5%in 2017 to2.1%thisyear,bytheoecd’s reckoning.Globalregu-

latoryharmonisationhasgivenwaytolocalapproaches,suchas

Europe’sdata-privacylaws.Cross-borderinvestmentdroppedbya

fifthlastyear.Soaringwagesandenvironmentalcostsareleading

toa declineinthe“cheapChina”sourcingmodel.

TheimmediatethreatcomesfromPresidentDonaldTrump’s

A slow unravelling

Special report

Supply chains are undergoing their most dramatic transformation in decades.
This will be wrenching for many firms, argues Vijay Vaitheeswaran

Global supply chains

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