They say it’s a small world. And while the 25,000 or so miles that define the earth’s circumference have remained constant since time immemorial, modern communication methods, affordable travel, and ease of access to shared knowledge all contribute to a sense that our planet is shrinking.
Nowhere is this notion more encapsulated than in the rise of global supply chains. Author Tom Friedman summarized it well in his international best-seller, The World is Flat, when he said, “It is now possible for more people than ever to collaborate and compete in real time with more people on more different kinds of work from more corners of the planet and on a more equal footing than at any previous time in the history of the world.” The interconnected nature of business today sees goods and services being traded across continents in a way that was unimaginable not so long ago, with the rise of emerging markets playing a pivotal role in transforming the global economy.
Today, Asia now makes close to 50% of the planet’s goods—with 70% of all mobile phones and 60% of the shoes the world wears manufactured in China. Back in 1960, around 75% of global exports originated in developed markets. But a little more than 40 years later, emerging markets have overhauled that statistic, and are now responsible for over 50% of worldwide exports. Among the key factors contributing to this turnaround are the foundation of the World Trade Organization in 1995, and the opening up of huge markets like China and India. In total, global supply chains now account for almost 80% of global trade according to a report from Standard Chartered.
In the same report, Standard Chartered predicts that global supply chains will continue to expand, although not at the dramatic rate seen from 1990-2007, when world trade grew almost twice as fast as GDP. This slowing down leads different commentators to different conclusions, especially where the role of China is concerned. One recent Forbes piece suggests, “Companies would be well advised to start doing contingency planning assuming that China is in recession,” while an article in The Economist from earlier this year states, “China is increasingly a linchpin of demand” with “formidable advantages” that mean its grip on global manufacturing “is tightening.”
While the subject has almost infinite intricacies, one prediction is that rising salary demands in China will see manufacturing increasingly move west to lower-wage countries in the ASEAN economic community, which includes the Philippines, Indonesia, Vietnam, and others.
Beyond China-specific issues, more trends are afoot that will significantly shape global supply chains in the future.
Among them is the expectation that “horizontal” trade will increase between emerging countries, with territories traditionally exporting primarily to developed markets starting to do more business with one another as their wealth increases and new trade pacts flourish.
Another factor destined to affect global supply chains down the line is the positive impact of ever-improving communications technology worldwide, with cloud computing, cheaper broadband, and big data all playing relevant roles. This area is particularly pertinent with the B2B market in mind, as companies turn to technology in their quest to unlock value across the supply chain. In the United States, B2B revenue slipped from $66.7 billion in 2011 to $17.9 billion in 2014. And while that decline may represent a “return to normalcy” after the 2008 recession, it also supports the idea that businesses will have to explore alternative methods to enhance global supply chain efficiencies and profits. As a report from The Economist’s Intelligence Unit puts it, “By making the best use of cloud, mobile, enterprise applications, social media and communities, supply-chain organisations can become more connected and operate in a more predictive way, thus improving their productivity and, ultimately, the value that they deliver.”
The topic of global supply chains is too vast to be easily dissected, and everything from political tensions to natural disasters can have an influence on how they function. One thing that is clear, however, is that they represent a world of new possibilities for businesses—especially those who understand that getting ahead in a small world is dependent on the ability to successfully adapt to the changing tides of the bigger picture.
In a follow-up blog on the subject of global supply chains, we’ll take a closer look at some of the specific tech innovations predicted to transform the way global supply chains connect, collaborate, and transact.