BUSINESS VIEW

Trends in globalisation: fact or fiction?

Is a dynamic mix of reshoring, intra-regional trade and hubonomics the global business model of today? Adam Burns asked ten multinational business leaders for the truth behind today’s trade trends.

By Adam Burns

In 22 years, Google, Apple, Facebook and Amazon became as big as Denmark (1) , generating the same revenue with 10x less people. They surpassed geography and culture, surfed and directed the technology wave, and became the next evolution of the industrial revolution. They also created a new competitive landscape.

Today – perhaps playing catch up, perhaps playing leapfrog – this modern, globalised trading environment is being changed again.

According to analysts and trend watchers (2) , three overarching developments are having an impact: the reshoring of production to developed markets, the growth of intra-regional trade, and hubonomics, defined by The Economist as “leveraging global assets and hub strengths to deliver local value” (3) .

Of course, to paraphrase Mike Tyson, everything is theory until it gets punched in the mouth. Is this stuff actually working for business?

Reshoring and intra-regional trade
Let’s take the first two first. Theory says: reshoring of production to developed markets is happening because of diminishing labour cost differences. Intra-regional trade growth is happening because of emerging city-states.

Emmanuel Amory is VP Operations for healthcare giant GlaxoSmithKline. He sees “more and more” investment staying west rather than heading east, saying “you can find ways to be extremely competitive remaining in Europe, and government is supporting that”.

Frederic Villain, CFO with Campofrio Food Group, agrees – but for a different reason. “For certain people, the fact that our food is made locally, here, specifically in France, is a stamp of quality.” And he’s not alone. “Sometimes it’s about the marketing side of things and being able to say this is a product from a particular place,” says Sue McGeorge, Global Supply Chain and Operations Director for Diageo. “Guinness, for example, can be made anywhere, but all Guinness originates from Dublin. We never want to move production away from Dublin because we would completely destroy the brand image.”

Tupperware’s Group CFO, Franky De Smedt also faces our first two trends, but for yet another reason. He sees a demand for reshoring because “from a customer and a client perspective, there is more customisation needed”. That customisation must be done close to the market or the benefits are outweighed by slow delivery times and extra cost.

It was, perhaps, best and most pragmatically put by Declan Guerin, former CFO for maritime transporter, MacGregor Group: yes, reshoring is happening, yes intra-regional trade is growing in importance, but as to why, “there’s no real one size fits all”.

Hubonomics: “the new face of globalisation”?
Regional trade hubs, creativity hubs, innovation hubs, and manufacturing hubs all capitalise on the power of specialised, clustered knowledge and talent. More than simply supply and demand, experts claim, hubonomics are the new face of globalisation. But what does business say?

Diageo, the world’s largest producer of spirits, has logistics hubs, “where it makes sense to service a region out of a particular location,” says McGeorge. “Where we do customisation, we can centralise our inventories and reduce our stock holding.” It also has “a couple” of product development hubs, where teams may be “localising a global design, or coming up with new products locally”.

For Kevin Whitehead, Director of Supply Chain Strategy for pharmaceutical company AstraZeneca, hubs are a logical evolution from centres of excellence. “Now we have three types of manufacturing facilities. We have global sites that launch products all over the world. When a particular scale is reached, or it makes sense to do so, we move to our regional hubs in China, in America, and in Europe. And then we have a third category, which we call market access sites, for when legislation prevents importing certain products, or governments put rules in place to encourage manufacturing in their country.”

How to hub
In fact, every business I spoke with told much the same story: they either have hubs, or they are moving towards them. How to get there? Tibor Bodor is Head of Corporate Clients, Europe for ING. He says: “you have to have harmonisation first. Then standardisation. And then you can move to a hub. Because if you don't have this process, this evolution, and you simply want to ‘hubify’ everything immediately, then the frustration level in the country can be huge.”

Truth or lie?
For major multinational companies trading today – at least, for the ten senior executives I spoke with – these trends in globalisation are fact. They may not be doing the same things for the same reasons, but good economic sense is good economic sense, no matter what colour the box it comes in.

(1) Fabernovel/Gafanomics: new economy, new rules
(2) Global Trends/10 key trends to watch for 2014
(3) The Economist/Cassandra: the world in 2014

 

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