Multinational companies are adjusting to shorter supply chains

IN THE BOOM years of globalisation from 1990, one of the ideas that became gospel, spread by authors such as Thomas Friedman, was that the world had become flat. National boundaries mattered very little in terms of sourcing and manufacturing, went the argument.

The idea was so pervasive, says Hau Lee of Stanford University, that “companies just built anywhere”. Now, as the outlook for globalisation grows cloudy, companies are starting to question the wisdom of the hyper-globalised supply chains thus created. Mr Lee reckons that managers at MNCs must now build new skills as they reconfigure supply chains for a “bumpy” new world.

A survey conducted in April of 600 MNCs around Asia by Baker McKenzie, an American law firm, found that nearly half of them are considering “major” changes to their supply chains, and over a tenth a complete overhaul. In many sectors this will mean a rethink of the role that China plays in sourcing. There are two main reasons to expect that, after several decades of hyperextension, some supply chains will get shorter. First, it is now clear that stretching supply chains thin to make goods ever cheaper carries risks. And second, global trade now includes not just things you can drop on your foot, but a large amount of services.

In terms of the risks, most MNCs do not know who supplies the...

Read More