During the late 20th century and early 00s it became a truism to observe that globalization – in its various guises – was marching forward apace. However, with offshoring strategies now subject to intense scrutiny and consumers placing considerable emphasis on product provenance, it is now proper to talk of a counter-trend : de-globalization.
For several decades, the strategy of moving work and jobs to countries where labor costs were lower proved fruitful; but this is now changing. In recent times, while wages in China have been rising inexorably, labor costs associated with manufacturing in America have stagnated. The result? Reshoring.
According to a recent publication by McKinsey, the number of firms looking to reshore their manufacturing operation has increased sharply since 2009, whereas offshoring intentions have fallen. Examples of this trend are easy to come by: Peerless Industries, Intertech Plastics and Karen Kane have all taken the decision to relocate their manufacturing bases to America from China.
The effect of rising wages hasn’t been solely to encourage reshoring to the USA, but also to catalyze offshoring to other low-cost countries. As China has become less competitive, so second-tier emerging economies have benefitted. For example, bilateral trade agreements with Mexico, combined with its low labor and transport costs, have made the country an attractive proposition for US manufacturers. And to a lesser extent, this dynamic is also playing out in Thailand, Indonesia, Cambodia et al.
But what of the consumer perspective? Motivated by a willingness to protect and support domestic producers in lean economic times, the consumer’s antenna has become acutely conscious of product origin. According to nVision, a majority of US consumers agree that it is important for the good of the economy to purchase items that are “Made in America”, and nearly 1 in 2 say they are more likely to buy products if they are produced stateside.
So where does this leave globalization as a key global driver? Well, it remains exactly that: according to the DHL Global Connectedness Index, numerous second-tier and emerging economies are (unsurprisingly) becoming progressively more globalized. However, the premium that consumers are placing on product origin in tandem with changing attitudes towards reshoring suggests that de-globalization is a genuine force in the USA. And as sluggish growth at home combines with an increasingly uncompetitive China abroad, so this trend gains momentum.