Re-globalization: Turning conflict into opportunity

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  Quantumrun Foresight
• September 4, 2023

Insight highlights

Re-globalization driven by global conflicts is reshaping production and supply chains. Companies are diversifying their production bases across regions to enhance resilience and maintain access to critical materials. The wider implications of this trend could include governments investing in domestic manufacturing, increased nearshoring or reshoring initiatives, and potential stability and growth of regional economic blocs.

Re-globalization context

Increasing global conflicts have resulted in a new form of globalization, which advocates for diversifying production, manufacturing, and sourcing across stable regions to enhance supply chain resilience. For example, before Russia's invasion of Ukraine, these countries dominated the global export market for various metals, including platinum, aluminum, and palladium, extensively utilized in catalytic converters and semiconductor manufacturing. However, since the outbreak of the war, these raw materials and their finished products have experienced significant price fluctuations. 

The repercussions of this disruption are felt across various sectors, particularly in the manufacturing industry. Coupled with the global recession, as forecasted by the International Monetary Fund, these developments have raised concerns about a potential downturn in consumer demand unless strategies for re-globalization are urgently adopted. The recent free-trade agreement between the US, Australia, Japan, and the Republic of Korea exemplifies this push. 

Furthermore, rising nationalism globally may prompt countries to explore new trade partners, and even the possibility of reshoring production, though the latter remains largely unspoken among leaders. However, reshoring comes with the challenges of managing tariffs, imports, and exports, which some countries are addressing with new customs platform controls, like the UK's transition to the Customs Declaration Service and the Netherlands' adoption of a real-time declaration system. The transition to these systems is a significant regulatory challenge for companies, but the hope is that these changes will support re-globalization and streamline the customs process.

Disruptive impact

Re-globalization compels a rethinking of operational strategies. Many companies are now investing in diversifying their production bases across different regions. A prime example is the tech giant Apple, which previously relied heavily on China for its iPhone assembly. Due to the trade tensions between the US and China, Apple has gradually expanded its production base to other countries like India and Vietnam, seeking stability and resilience. Smaller businesses may look at regionalizing their supply chains or leveraging local resources to achieve similar goals. This diversification will not only minimize disruption risks but can also open new markets, foster local relationships, and spur innovative solutions.

Meanwhile, re-globalization can bring about significant changes in employment landscapes. As companies relocate their production bases, there will be a rise in demand for a diverse range of skills in these new regions. This trend could mean opportunities for high-skill jobs in areas previously focused on low-skill industries. 

Governments need to focus on education and training programs that prepare their citizens for these changes. The increasing reliance on automation and AI solutions to keep supply chains resilient also means workers need to reskill or upskill. Governments might also start forming new alliances to maintain access to critical raw materials regardless of economic and geopolitical disruptions. For example, the US Congress proposed the Taiwan Tax Agreement Act in May 2023, encouraging Taiwan's microchip makers to establish bases in the US.

Implications of re-globalization 

Wider implications of re-globalization may include: 

• Governments investing in robust domestic manufacturing sectors to increase self-sufficiency and resilience to global supply chain disruptions.
• The global emphasis on diversification encouraging industries in developing nations to upgrade their infrastructure.
• Regional economic blocs strengthening as countries start cooperating more closely in trade and production, fostering regional stability and growth.
• Governments prioritizing workforce education, leading to a globally competitive, digitally literate population better prepared for the jobs of the future.
• An increase in competition among nations for attracting global businesses leading to conflicts or worsening regional tensions.
• A risk of 'brain drain' in countries that cannot attract or retain high-tech industries, potentially leading to longer-term demographic challenges.
• More reshoring and nearshoring initiatives, further distributing opportunities and growth to remote or underserved communities.

Questions to consider

• If you own a business, how do you ensure your supply chains are resilient?
• How else can companies prepare for global disruptions?