Many experts believe the era of “hyper-globalization” is coming to an end — writing has been on the wall for years. What’s replacing hyper-globalization? Some call the new era “localization” or “glocalization.” Some people, including me, prefer the term “regionalization.” I started writing about the movement towards regionalization back in 2008. In one of those early articles, I wrote, “Globalization integrates trade by disintegrating production chains and dispersing them across economies. But as the costs of transportation increase, the length of supply lines is beginning to decrease. As a result, globalization is beginning to look more like regionalization.”[1] In the ensuing years, the movement towards regionalization has only accelerated. The causes are myriad, including rising labor costs, geopolitical considerations, rising transportation costs, and increased risks of supply chain disruptions. A year ago, Ambrose Conroy, founder and CEO of Seraph, observed, “The world economy is undergoing significant changes as we shift from a global approach to one focused on regional and national production. Demographic, geographic and political factors are reshaping our world and driving the change. Going forward, companies will need to continue to navigate supply chain disruptions, China risk, and concerns about capital outlays in a rising interest-rate environment.”[2]
Globalization is Not Dead
Although hyper-globalization may be coming to an end, globalization is not dead. Award-winning economics journalist Martin Wolf insists that integration still characterizes the global economy, even if hyper-globalization is ending. He explains why hyper-globalization finally lost its momentum. He writes, “All the main drivers weakened or went into reverse. The opportunity for further trade increases through exploitation of differences in labor costs diminished, as those costs converged. As China’s economy grew, its dependence on trade naturally declined. Shocks caused by the pandemic and wars also underlined the risks associated with extensive reliance on trade for essential supplies. At least as important have been ideological changes, among them the rise in protectionism and nationalism, notably in the US, triggered by the economic rise of China and the ‘China shock’ to industrial employment. Parallel changes have occurred in Xi Jinping’s China. There, too, policy has shifted from reliance on the free market and private business towards greater government control.”[3]
As hyper-globalization ends, trade journalist Alan Beattie reminds us that, despite angry repercussions in the developed world, hyper-globalization was actually a success. It reduced poverty, increased the global middle class, and grew the economy. He writes, “It’s true that the era of ‘hyper-globalization’ from roughly 1992 to 2008, where trade grew markedly faster than global gross domestic product, is over. … The remarkable development isn’t that goods trade is slowing but that it’s remained as strong as it has. … Globalization has certainly not failed. Nor, for the moment, has it hit a wall. It is evolving, partly in response to the changes wrought by its own success. The much-hyped era of hyper-globalization has faded, but solid gains are still being made.”[4] Economics journalist Daniel Moss agrees that there’s no need to compose a eulogy for globalization just yet. He writes, “Don’t shed too many tears for globalization. The steady flow of goods, services, capital and know-how across national boundaries hasn’t come to a screeching halt. Nor has the global economy splintered beyond repair. … US-China trade surged to a record last year, in defiance of all the learned writings about decoupling. Another flaw is that catchy expressions don’t do nuance well; the dispatch of merchandise may have peaked, but services are doing splendidly.”[5]
Glocalization versus Homeland Economics
An article out of Australia notes, “Expanding a business internationally is a promising endeavor, but it comes with its fair share of hurdles.”[6] Those hurdles include:
• Cultural and Regulatory Differences: “Every country has its unique culture, regulations, and business practices. Navigating these differences can be daunting for businesses, as they need to adapt their supply chain processes to comply with local laws and respect cultural nuances. Failure to do so can lead to legal issues, reputational damage, and operational inefficiencies.”
• Supply Chain Complexity: “Expanding globally often means dealing with longer and more complex supply chains. Managing multiple suppliers, transportation networks, and distribution channels across different countries can be overwhelming. Ensuring a seamless flow of goods from one end of the world to another requires meticulous planning and execution.”
• Communication and Coordination: “Effective communication and coordination become paramount when operating in a global supply chain. Language barriers, time zone differences, and varying communication styles can hinder collaboration between teams spread across the globe. Miscommunications can result in delays, costly errors, and customer dissatisfaction.”
• Risk Management: “Expanding internationally exposes businesses to new risks, such as currency fluctuations, political instability, and natural disasters. These uncertainties can disrupt supply chain operations and impact the bottom line. Developing robust risk management strategies is essential to mitigate these potential threats.”
• Cost Considerations: “Globalization can be expensive. Businesses must weigh the costs of shipping, customs, tariffs, and taxes when expanding internationally. Finding cost-effective solutions while maintaining product quality and customer satisfaction is a constant challenge.”
Those hurdles are among the reasons some companies have decided to regionalize their supply chains (i.e., have decided to glocalize). The Economist staff argues that the decision to glocalize should be left to individual companies rather than having them forced to make that decision by national trade policy. The staff explains, “A radical alternative [to globalization] is taking shape. Some call it ‘global resilience’ or ‘economic statecraft’. We call it ‘homeland economics’. The crucial idea is to reduce risks to a country’s economy — those presented by the vagaries of markets, an unpredictable shock such as a pandemic, or the actions of a geopolitical opponent. Supporters say this will produce a world that is safer, fairer and greener. [We] argue that it will, in large part, create the opposite.”[7] They admit, “A lot about homeland economics sounds reasonable. Who could be opposed to making supply chains resilient, helping left-behind regions, rebuilding energy structures and standing up to China?” Who indeed? However, the staff insists, “Beneath the apparent reasonableness, there is a deep incoherence. It is based on an overly pessimistic reading of neoliberal globalization, which in fact held great benefits for most of the world. The benefits of the new approach are at best uncertain. Meanwhile, attempts to break free economically from China are likely to be partial, at best.” The Economist staff’s main argument is that splitting the world into economic blocs (e.g., pro-US and pro-China blocs) would end up reducing global GDP by up to 5 percent. “It is as if the entire world decided to Brexit.”
Concluding Thoughts
As noted above, there are myriad reasons that glocalization is gaining strength. At a supply chain event held last year in Cleveland, global business journalist Rana Foroohar told participants that “companies are taking to heart the lesson from the pandemic about redesigning supply chains for resiliency instead of simply for efficiency, but that transformation will play out differently by industry and region.”[8] She also told participants, “Supply chain resiliency involves more than shifting from ‘just-in-time’ to ‘just-in-case’ inventory levels. Geopolitical risks, such as the Russo-Ukrainian War and U.S.-China tensions over Taiwan and trade, combined with the higher landed cost of producing goods in far-flung locations, are pushing companies to take less risk and operate regionally. … The political backlash against globalization, which has exacerbated social inequality in many places, has dovetailed with corporations and governments realizing that outsourcing hasn’t been an unadulterated panacea and that more transparency is needed.” Foroohar is so convinced that future involves increased glocalization that she wrote a book entitled Homecoming: The Path to Prosperity in a Post-Global World, which concludes “the world is going to become more local and regional.” At the same time, Wolf cautions we must not let the benefits of globalization be lost. He concludes, “The integrated world economy is surviving. But great power nationalist rivalry can cause huge disruption. Will this era prove to be an exception? We must work to ensure it does.”
Footnotes
[1] Stephen DeAngelis, “Changing Supply Lines,” 12 August 2008.
[2] Ambrose Conroy, “Shifting Supply Chain Winds Favor Regionalism, Restructuring,” IndustryWeek, 21 February 2023.
[3] Martin Wolf, “World economy — the story remains one of integration,” Financial Times, 18 January 2024.
[4] Alan Beattie, “The fading era of hyperglobalisation is a study in success,” Financial Times, 30 November 2023.
[5] Daniel Moss, “Globalization’s Demise Has Been Greatly Exaggerated,” Bloomberg, 10 October 2023.
[6] MediaWize, “Globalisation vs. Localization: Striking the Right Balance in Supply Chain Strategies,” OCNJ Daily, 18 January 2024.
[7] Staff, “Governments across the world are discovering ‘homeland economics’,” The Economist, 2 October 2023.
[8] Staff, “Reduced risk, regionalization become supply chain priorities, economics expert says,” Freight Waves, 22 June 2023.
