By Gene Lin
In six months, COVID-19 has laid bare the vulnerability of the global economy. With international trade coming to a halt, countries going into lockdown, and global supply chain unravelling in real-time, experts are raising concerns over what some are calling the onset of deglobalisation.
The deglobalisation phenomenon is manifesting itself as protectionist trade policies, restrictions on human movement and capital, and rising tensions among nation states which are increasingly distrustful of one another. The question that hangs over this exceptional period seems to be whether the pre-COVID globalised economy would ever return, and if not, how should one navigate a deglobalised world.
How We Got Here?
“[Globalisation] started as early as 1870 when we saw colonisation, industrialisation, advances in technology, transportation, and open-borders,” said Lynn Reaser, chief economist at the Fermanian Business and Economic Institute at Point Loma Nazarene University in a recent Lynk Speaker Session.
The four dimensions of globalisation – trade in goods and services, people, capital, and ideas – accelerated rapidly after the 1990s. During this period, the United States saw a steady rise in consumption and reliance on global trade. Meanwhile, China joined the World Trade Organisation and later became the world’s manufacturing powerhouse.
“It did not take long before companies realised there are shortcomings. Outsourced customer service was inefficient as there are problems with adapting to market changes. It was hard to control the quality of products when you’re not close to suppliers,” said Reaser.
Lessons from the Past
These shortcomings of a globalised economy led to several painful lessons in the past decades. One of the most significant events that exposed the drawbacks of globalisation was the financial crisis between 2008 and 2009, an event which arguably triggered early signs of deglobalisation that still linger today.
In 2011, the earthquake and subsequent tsunami in Japan made many businesses realise the importance of diversifying their supply chains across different regions. In 2018, the trade war between the US and China demonstrated the degree to which protectionism and international conflicts can threaten the stability of the global economy.
Key Decisions for Businesses
According to Reaser, the question that lies at the heart of a deglobalised economy is whether companies should prioritise resilience or efficiency. Companies that plan to localise their supply chains might become more resilient against the pandemic, but they also become less efficient by foregoing the talents, labours and capital in a globalised economy.
“A very simplistic view of this would be to say the solution is to have all your supplies in your home country,” said Reaser, “if your home country is vulnerable to an earthquake or a flood, that will not protect you. What you need to be is diversified”.
According to Reaser, businesses may assess their post-pandemic strategies based on several factors. First, how much they should understand their own supply chains. Second, how much they should simplify their supply chains. Lastly, whether they plan to retain diversification without relying on China.
“I don’t think globalisation is over, though I think it has received a blow,” said Reaser. “The major impact will be on the demand, and that will be significantly relieved once we find a vaccine and get back to normal”.
The conversation took place in a recent Lynk Speaker Session. Lynk clients will be able to watch webinars on-demand and access transcripts on Lynk Enterprise.
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