During the pandemic, it was thought that the localization of manufacturing bases was progressing in each country that was plagued by supply chain problems.
Foxconn plans to make EV batteries in Wisconsin, and Intel plans to make semiconductor chips in Ohio. Mexican warehouses are overflowing with goods destined for the United States, and Tesla has also announced plans to build a factory in Mexico. From these headlines, it’s natural to assume that there’s a supply chain shift closer to American consumers.
BlackRock CEO Larry Fink believes so too. “The supply chain has changed dramatically over the last few years,” Fink said in a noteworthy annual letter to shareholders.
Fink cites geopolitical tensions, including the Ukraine war, as companies aim to de-risk their supply chains and “source essentials closer to home, even if prices rise.” pointed out.
In view of the situation over the past few years, it is not only Fink but also other managers and intellectuals who see the shift to a more local supply chain as inevitable.
“These changing conditions are making the global economy less integrated and more fragmented. Public and private leaders have essentially traded efficiency and lower costs for increased resilience and national security. I have it.” (Fink)
But supply chain data, at least so far, suggests otherwise.
The distance traveled by goods is actually increasing
Three years into the pandemic, we are now closer to the end consumer, according to the latest DHL Global Connectedness Index, jointly published by DHL and New York University Stern School of Business. On the contrary, they are further away.
After digging deep into trade, travel, telecommunications and foreign direct investment, Steven Altman, an adjunct assistant professor at New York University, describes globalization as “remarkably resilient.”
To see if globalization is really going backwards, researchers looked not only at the countries and regions where goods move, but also the distances traveled.
As a result, the average It was found that the migration distance was gradually increasing.
“When we look at the latest data on actual flows between nations, the reality is very different from the notion that globalization is a big step backward,” the researchers wrote.
It was predicted that the tariffs would reduce the volume of trade with China, and that the negative impact of the pandemic would force supply chain managers to avoid long-distance transport, which was unreliable and expensive at the time.
However, according to McKinsey’s 2021 reshoring index, the reshoring that has taken place over the past five years has defied expectations and has led to an increase in demand for manufacturing in Asia. , with China accounting for the largest share.
Although the amount of trade between China and the United States has decreased somewhat, this does not mean that the volume of local trade has increased significantly.
“Supply chains that involve long haul shipments are recovering, and in fact, in many cases, it’s more efficient to simply continue long haul shipments,” Altman said in a recent webinar. ing.
Easier said than done
Survey data is often cited as evidence that near-shoring (moving production bases closer to consumption areas) is becoming more widespread. A recent survey by online software marketplace Capterra found that 88% of small business respondents said they plan to move their supply chains closer to the United States.
Altman tracks both the sentiment around reshoring and the actual actions that follow. A rule of thumb, he explains, is that this is “easier said than done.”
In their November 2022 report, researchers at Lazard wrote of what they described as a “turning point” for companies: “Interest in reshoring is still more than just a curiosity. No,” he said.
Before the pandemic, cost was the primary focus when building supply chains. Reliability and manufacturing technology were also prioritized, but keeping costs down while maintaining a stable supply was the top priority.
Experts argue that a little more “normal” is needed before supply chains return to their pre-pandemic state, but outside of a few industries there have yet to be any major visible shifts in trade flows. not awake
For example, the Wall Street Journal reported on Apple’s intention to withdraw from China in late 2022, just as Chinese leaders eased restrictions on the coronavirus. Shipping costs from China to America have plummeted.
According to the DHL report, there are a small number of products and materials that have been triggered by government pressures and conditions in certain industries such as high-tech and life sciences manufacturing. , CEO Fink is right about these things.
“This means that capital may not necessarily be allocated to the business that produces the best market return, wherever it is located,” Fink wrote in the letter.
Semiconductors, EV components, and batteries have been a big focus for the Biden administration and industries that need a steady supply. So, according to DHL’s report and Fink, it’s up to these industries to see whether nearshoring takes off at any meaningful speed.
Is a “massive” redesign of the supply chain possible? Of course it is possible. Even more so when the government gets involved. However, it cannot be said that it has already been realized.
[original text]
(Edited by Ayuko Tokiwa)
Source: BusinessInsider
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