Is There Still a Place for the Global Supply Chain?

A new report by Standard Chartered Bank is forecasting that the advent of automation, moves towards sustainability and efforts to enhance risk management strategies may push companies in the direction of more regional supply chains, following years of high margin growth in global supply chains.

The report is called Global Supply Chains: New Directions, and one of it’s major features is an acknowledgement that a number of trends in the macroeconomic situations such as the increase in urbanization, the sophistication of modern communications technology and the fall in oil prices are causing a bubble in the growth of global supply chains. The adverse factors acting against growth, such as improvements in robotics and automation, mean that companies are no longer in a position where they need to source cheap labor abroad, and can re-localize their manufacturing to nearby markets. The increase in skepticism about the sustainability of global supply chains, combined with their high carbon output may also be weighing them down. A few companies are even happy with the idea that their supply chain will not be disrupted by political unrest or natural disasters in other parts of the world.

With all this to consider, Standard Chartered is saying that the continuing expansion of global supply chains will be slowed to rates well inside the levels of the nineties, when global trade was growing at twice GDP. In addition to this, any growth that does take place will be of a different nature than previously. Here are three key new directions for the global supply chain:

1) Cheap Manufacturing is Coming West
Wages in the costal area of China are on the rise—this means low cost manufacturing will be moving towards the west, through the rest of Asia and eventually towards Africa. The authors of the report say that as this takes place, China will become a “megatrader,” guiding the expansion of the international supply chain network.

2) An Increase in Service Supply Chains
Recently, the growth of global supply chains has been attributable to offshore manufacturing, with services remaining local. However, new types of services are now being traded globally, and according to the report already constitute over half the value of the global supply chain.

3)”Horizontal Trade” Will Grow
During the early days of expansion, “vertical trade” was the key phrase. This is now to be supplanted with “vertical trade”, meaning countries of similar economic standing will do more trade with one another, as opposed to up the economic ladder.

Register for EF5