Globalization vs. Protectionism – A Need for Supply Chain Resiliency

Editor's Note: Dave Kipe is Senior-Vice-President of Global Operations for Scholastic.

The last decade has been a march towards globalization, but recent political and economic events have created a backlash and stirred the debate; globalization vs. protectionism. The protectionists would argue that the world’s current financial and economic woes can be attributed to globalization, particularly to the proliferation of free trade agreements and countries de-valuing their currencies to gain export advantages.

Domestically in the US, the movement towards protectionism has been rooted in survival. In the early 1990s the United States accounted for 30% of manufacturing output, retaining the position as the world's leading industrial producer that it had held for almost a hundred years. At that time China produced only 5% of global manufacturing output.

Today that position has completely reversed. China produces 25% of manufacturing output and the US only 15%. These changes are just part of the reason protectionism is gaining speed, but regardless of your political or socio-economic opinion; we as supply chain leaders need to remain resilient and prepared for abrupt change.

Here are a few steps supply chain leaders and manufacturers can take in preparing for this change:

• Evaluate your existing and future customer footprint and map it against your existing manufacturing and supply chain capabilities. You might be surprised at the disconnect.
• Re-calibrate operational costs and capital costs and completely reshape existing assumptions.
• Research and examine advanced manufacturing technologies, including AI, robotics, and automation, and interpret the impact on your infrastructure and customer service model.
• Proactively try to rebuild your declining supply-chain ecosystems, but collaborate with your customers and peers to optimize ideas and technologies.
• Engineer your supply chains to be resilient to future inevitable changes and instabilities in government regulations, trade policies, and exchange rates.

Additionally, it's important that we don't paint the global supply chain with broad strokes. When we talk about complex supply chains, we must remember how varied they can be; relative on what they produce, how they produce, and where they produce. The variety adds complexity, and needs to be taken fully into account in analytical terms. But supply chains also have much in common, especially when we try to understand how they are affected by rapid change, and in this context; the movement from globalization to protectionism.

The one constant is uncertainty. Connected international supply chains mean an end to the old assumptions. It has been taken for granted almost since the first intellectual stirrings of economics as a science that cutting the value of your currency makes your exports cheaper so you can sell more. But not anymore as the last British pound devaluation has shown. In many exports, the import content is so high it pushes up the price of the assembled final product almost as much as the currency depreciation is supposed to cut it.

It also hints at a greater truth which is that in the modern sophisticated just-in-time world, price is often less important than quality, design, after-sales service, speed and reliability of delivery. Socio economic and political pressure may alter how we manage and sustain our supply chains, but in a ferociously competitive world where over-capacity exists in most industries, it is unlikely to overcome the law of economics.

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