Reverse Globalization and Recent Meltdown
Posted : November 14, 2008 at 11:42 pm [IST]
According to Thomas Friedman, in the “new era of globalization” people have the tools to “compete, connect and collaborate from anywhere.” Friedman further asserts: “What can be done will be done by someone, somewhere. The only question is whether it will be done by you or to you.” Outsourcing of manufacturing, low tech service work and now R&D to Chinaa and India has been the popular trick of many MNCs to cut down the cost.
While globalization and innovations that too disruptive had become the buzzwords in daily management communications, recent oil crisis and financial turmoil have made the industry and academia to rethink over the advantages of globalization. Some of the changes in the strategies may look like the reverse of the concept of globalization. Some major enterprises are reconfiguring operations to cut fuel costs basically in the transportation. Some changes are as simple as more efficient routing of delivery drivers or redesigning packages so that a single pallet can carry more. Others businesses are undertaking the complex task of moving manufacturing resources from Asia to sites closer to domestic markets in the United States and Europe. As predicted, some manufacturing will move closer to end markets. Countries like Mexico and those in Eastern Europe will be the beneficiaries.
For example, as mentioned in a report in the New York Times, Tesla Motors, a maker of electric cars, had planned to build batteries in Thailand, ship the 1,000-pound units to the United Kingdom for installation and then ship the cars to the United States. But with shipping costs increasing and going out of control, the company has decided to make the batteries and assemble the cars in California. It makes one think over the future trends.
Will the years of globalization get reversed and will Americans see a massive return of industry to the United States? In a mixed strategy, a company builds a bare bones or base product in one location close to existing suppliers, and then ships it to a second location for final assembly. For example, in the garment industry, dyeing and weaving are expensive, but cutting and sewing garments together is relatively cheap. So the low-cost steps in the process will move closer to the markets.
EMC is a $13 billion seller of network storage equipment and related software. EMC’s contract manufacturing in China has been scaled back, with some of that work now performed at plants in Mexico, Hungary, and the Czech Republic.
Computer maker Dell also has added plants in Poland, Brazil, and North Carolina to be closer to customers.
Even in low-tech manufacturing, some firms are reversing the policy. A sleeping-bag firm is adding jobs in US plant rather than expanding in China. With costs in Alabama running 3 percent below those in China, Exxel is cutting production at a joint venture in Shanghai while hiring workers, adding machines and increasing output at Haleyville, USA.
The recent meltdown will further bring about some major change in management thinking. The people at large may face it better with latest technologies and the global awareness about the necessity of integrated solutions for the benefits of all instead the one suiting few.
Even the service providers such as the IT companies and auto components prefer to acquire companies in developed countries to serve the customers from nearer quarters using the local people.
Reverse globalization may make many politicians in developed countries happy, but will it be beneficial in long term?
- Indra
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