The Evolution of the Global Supply Chain
Are you a fresh entrant to the global trade arena? Perhaps your business is expanding beyond national borders for the first time, and you’re a little overwhelmed by the prospect of transforming from a local logistics network to one that spans oceans. Or maybe you’re involved in an ecommerce startup that will enter the global online retail market.
In any case, if you’re not already familiar and comfortable with global business and its dependency on complex supply chains, it can be helpful to delve a little into the history of its development, and to understand the benefits and challenges that your enterprise can expect to encounter.
This article offers you a quick and convenient way to do just that. After a few minutes of reading, you might not be an expert on the topic, but you’ll certainly be clued into the background and basics of globalization and supply chain management.
Supply Chain Globalization: A Coming Together of Terms
The past several decades have seen continuous changes and disruptions in the way that supply chains operate. Once relatively simple—and short—today’s supply chains are often complex and involve the movement of raw materials, components, and finished goods across the world by road, rail, air, and ocean.
These complicated supply chains would implode were it not for the rapid advances in technology that help sustain their systems.
**Furthermore, the global trade environment that societies everywhere have become accustomed to, would quickly deteriorate without the backing of these sophisticated supply chains. To better understand the impact of globalization on the supply chain, a definition of the two terms would surely be helpful.
In simple terms, globalization refers to the free movement of services, goods, and people across the world.
A supply chain can be said to be the network of buyers, sellers, organizations, resources, and technology involved in the production, sale, and distribution of goods and services.
A Very Brief History of Globalization
Although some wily merchants have engaged in cross-border trade since time immemorial, the typical way of doing business in the world—at least, until fairly recent times—was to produce and sell goods locally.
Sending goods abroad, e.g. via the Silk Road network, was slow, costly, and fraught with phenomenal levels of risk. Until, that is, the industrial revolution in the 19th Century transformed the landscape of trade.
With the invention of the steam train, the cargo ship, telegraphic communications, and the internal combustion engine, international markets opened up and the world became a smaller place.
The supply chain had no choice but to adapt to this globalization. From the mid-1990s onwards, manufacturing moved to countries blessed with natural resources and cheaper labor. The practice of producing every component in a single factory became outmoded. Today, for example, it is common to find a completed motor vehicle made up of parts manufactured in ten or more different countries.
Boosted by speedy and efficient air and ocean transport, and aided significantly by the Internet, the world has become a globalized trade market, making supply chain management extraordinarily complex.
The Pros and Cons of Taking the Supply Chain Global
The global supply chain carries several benefits but also a raft of disadvantages. Crossing borders will not suit every business model.
The Benefits of Global Supply Chain operations
New markets: Globalized ecommerce brings opportunities for tapping into international markets—and the potential to reach thousands of new consumers.
Extra sourcing opportunities: Globalization allows you to secure skilled workers, raw materials, and products from regions that would otherwise be out of reach.
Cost reductions: If you are linked to global supply chains, you are very likely to find ways to cut your shipping expenses and labor costs, especially when it comes to materials procurement and outsourced manufacturing.
Expanded offerings: By exploring global sourcing opportunities, you can increase the range of products and/or services you can offer your customers.
Incentive to do better: Once you are competing in the international arena, you have little choice but to institute better business practices to compete with best-in-class operations. While that might seem, on the face of it, to be a drawback, the necessity to compete effectively will bring advantageous results to your enterprise.
Greater chance of survival: If you are operating only in one market, an economic jolt in that region could wipe out your business. However, if your operations extend to several regions in multiple countries, you may better be able to absorb the shock.
The Challenges of the Global Supply Chain
Globalization and supply chain management face some tough challenges. Here are five of them:
Increased competition: If you are offering a particular product in a foreign market, you can be sure that hundreds of other companies will be offering the same product to the same pool of consumers. Your supply chain will need to be as lean and as efficient as possible.
- Greater pressure to deliver: If you fail to deliver—even once—in a global mass market, there are plenty of other businesses ready to step in. If you don’t do it right the first time and every time after that, your business will be viewed negatively and all your hard work, in-depth research, and logistics learning will be for nought.
- Greater supply chain complexity: It is tough enough meeting supply chain challenges in your country or region, but when you enter the international arena there’s a host of additional issues to address. These include:
Hard-to-understand trade rules and regulations
Time zone differences
Work ethic differences
When entering new markets, it could well pay you to partner with a local 3PL company that will take care of all these issues for you.
- Increased Supply Chain Risk: Shifting goods across borders carries a greater risk than transporting them to local markets. Events such as port stoppages, border closures, strikes, natural disasters, political strife, wars, and pandemics could result in your goods being marooned for weeks, if not months.
- Data collection difficulties: The more your supply chain is scattered across the world, the greater will be the challenge of data collection and oversight.
How Covid-19 Impacted Globalization
At the height of the Covid-19 pandemic in 2020, many economists predicted that the end of globalization was nigh. Borders were closed, lockdowns were declared, travel was restricted, and the international movement of goods and services slowed to a trickle.
A study by the Harvard Business Review showed that while the world trade in goods did plummet at the onset of the pandemic, by the end of 2020 it had bounced back to above pre-pandemic levels. The rebound is attributed to a surge in demand for traded goods.
The report concludes that a wide retreat from international trade is unlikely. However, the supply chain disruptions experienced during the pandemic, and concerns about the post-COVID future, have led multinationals to institute some of the following interventions:
Transitioning from sole to multiple supplier/vendor strategies to mitigate supply risks
Bringing manufacturing back onshore
Engaging 3PL companies to handle the logistics in the various regions in which they operate
Overhauling supply chains to make them more resilient
Turning to technology to find solutions.
The Future of Globalization
Economists typically agree with the hypothesis that the flow of goods, services, people, and capital will continue across borders for the foreseeable future, despite pandemics and regional conflicts. The reason for this comes down to pure economics.
International supply chain strategies can significantly reduce business costs. That is expected to remain the case despite the environmental pressure on companies to source locally.
Despite the shocks of the COVID crisis, for example, a business management team’s tendency is still to look after its bottom line first and foremost. And bottom lines are still best served by acquiring goods, services, and labor from the most affordable sources—wherever in the world they may be.