A panel of supply chain and trade experts has offered an optimistic assessment of global trade’s trajectory at an Asia House international trade conference last week.
The think-tank, in collaboration with McKinsey, hosted business leaders and government representatives at Forging Resilience: Reimagining Global Trade Flows for a New Era, for discussions exploring how geopolitical tensions and technological developments are affecting global supply chains.
Against ongoing concerns about the rise of protectionism and geopolitical factionalism, as raised at the recent World Trade Organization (WTO) public forum, experts suggested we’re entering a new era of globalisation, distinct from those preceding it.
McKinsey Global Institute partner, Jeongmin Seong, suggested that, rather than entering a period of deglobalisation, “the fabric of global connection is evolving” in unprecedented ways, away from goods and towards “intangibles”.
He cited data that found the movement of data, services, knowledge and people has grown twice as quickly as that of goods in the past forty years, representing a break from what he characterised as the first two waves of globalisation.
The first, in the 1990s, was a period of value chain ‘unbundling,’ as unprecedented growth of international trade saw physical supply chains extend worldwide.
A second wave followed in which emerging economies like China and India matured, propelling goods trade in the wake of the financial crisis.
Seong said the current shift should be seen as a chance to “reimagine” globalisation, rather than assume a return to more localised trade.
Challenges of change
Back in the world of tangibles, Boeing’s Craig Abler and Penrod Ricard’s Darya Galperina discussed difficulties arising from their organisation’s supply chains.
Abler recounted an experience common to many businesses amid restrictions imposed by Covid or conflict: a need to diversify supply chains that overdependent on one country in order to avoid production grinding to a halt when circumstances change.
He said Boeing’s strategy moving forward would be to “leverage more regionalisation, so that we can continue to tap into the broader global supply chain as necessary and operate in our key markets more locally and independently”.
Conversely, Galperina noted that diversifying is itself a challenge, and there are “limitations” on what changes can be made. For example, she said, geographically specific products like Scottish whisky can’t be relocated.
She also highlighted how “social and environmental commitments” place restrictions on supply chain changes. For example, many overlook that the much-touted nearshoring trend, which sees production relocated nearer to consumers, may be more environmentally damaging long term.
Elaborating on the pressures of environmental, social and governance (ESG) concerns, Vivek Ramachandran, HSBC’s head of global trade and receivables finance, said that regulation increasingly demands that companies demonstrate full awareness of issues at every step in the supply chain.
Noting Galperina’s comments on the challenges of restructuring supply chains, he suggested that those companies with fewer dependencies would be in a stronger position.
He also warned that costs associated with compliance are likely to take a toll, and that “not everyone’s going to make it”.
Sami Naffakh, chief supply officer at consumer goods multinational Reckitt, positioned technology as vital to overcoming problems posed by ESG, listing improving “visibility” as its foremost function. He said:
“When you go beyond tier one suppliers, to the materials of the materials, this is where things become even more complex and even more fragmented.
“A lot of the leveraging of technology is to understand what is going on, to understand where the risks are.”
Nusrat Ghani, minister of state for investment and economic security, delivered the conference’s keynote address.
She offered a survey of the current challenges facing international trade, such as the supply chain ramifications of the Covid-19 pandemic and Russia’s invasion of Ukraine, and touted the value of international collaboration to ensure supply chain resilience.
She also promoted the work of the UK government to support businesses in mitigating supply chain risks. It has set up funds to support key industries, with a particular focus on critical minerals.
These minerals, such as lithium, cobalt, nickel and silicon, have been identified as integral to the UK’s green transition, supporting clean energy sources, such as wind turbines and solar power, and the manufacture of electric vehicles and digital devices.