Over the past several decades, the globalisation of the manufacturing ecosystem has driven more change and impacted the prosperity of more companies, nations and people than at any time since the dawn of the Industrial Revolution.
Nations around the world have taken part in and benefited from the rapid globalisation of industry and expansion of manufacturing. Globalisation of manufacturing has been a key driver of higher-value job creation and a rising standard of living for the growing middle class in emerging nation economies. This has dramatically changed the nature of competition between emerging and developed nations as well as between companies. Recent research confirms manufacturing has been immensely important to the prosperity of nations, with over 70% of the income variations of 128 nations explained by differences in manufactured product export data alone.
A number of factors have enabled this rapid globalisation, including a significant change in geopolitical relations between East and West, the widespread growth of digital information, physical and financial infrastructure, computerised manufacturing technologies, and the proliferation of bilateral and multilateral trade agreements. These factors, along with others, have permitted the disaggregation of supply chains into complex global networks allowing a company to interact in the design, sourcing of materials and components, and manufacturing of products from virtually anywhere – while satisfying customers almost anywhere.
While digital technology and free trade proliferation will continue to enable the flattening of the world and the globalisation of manufacturing supply chains, the dominant factors that shaped the disaggregated supply chains we find today will not be the same as those that carry us through the next several decades. The global environment is changing. Many emerging economies used by multinationals as locations of low-cost labour, have developed significant manufacturing and innovation capabilities permitting them to produce increasingly advanced manufactured products. At the same time, these economies have begun to experience a corresponding escalation in wages and costs, following in the footsteps of their developed nation counterparts. Greater prosperity and higher wages are helping drive an increased ability, and desire, to consume by these growing middle classes, making them much more an exciting market of new consumers and much less a source for low-cost labour.
With the seeds planted by these multinationals, and the opportunity to serve these new markets, powerful new competitors are growing every day. This will profoundly reshape manufacturing supply chains over the coming several decades. But this reshaping will also be influenced by complex macroeconomic and geopolitical challenges, including exposure to currency volatility, sovereign debt pressures and emerging protectionist policies of many countries to gain access to emerging and prosperous new markets. All of these factors are driving more localised manufacturing supply chains.
World Economic Forum Report