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Will the post-COVID-19 world be less global?
The 2008 financial crisis, concerns over inequality and the rise in populism are among the factors that have driven the anti-globalization and anti-immigration movement in recent years. Some fear the coronavirus pandemic will accelerate that mindset shift.
“The reaction of developed economies to the coronavirus will only strengthen this consensus, as all things international will be viewed as incurring unnecessary and dangerous risks,” wrote Geoffrey Garrett, dean of Wharton School, on Knowledge@Wharton.
“We are being told this de-globalization will make us all more resilient,” he added. “But it will also make us less prosperous — with less choice and higher prices. It may also make us less secure, as international cooperation will decrease and the potential for international conflict will increase.”
In an article, “Has COVID-19 killed globalisation?,” The Economist wrote, “The pandemic will politicize travel and migration and entrench a bias towards self-reliance. This inward-looking lurch will enfeeble the recovery, leave the economy vulnerable and spread geopolitical instability.”
Trade growth had already slowed significantly in 2019, due in large part to the U.S.-China trade dispute. According to the World Trade Organization, world merchandise trade is set to tumble between 13 and 32 percent this year, depending on how quickly the coronavirus is contained.
“These numbers are ugly — there is no getting around that. But a rapid, vigorous rebound is possible,” WTO Director-General Roberto Azevêdo said in a press release. He emphasized the benefits of free trade and international cooperation in a recovery. “Keeping markets open and predictable, as well as fostering a more generally favorable business environment, will be critical to spur the renewed investment we will need. And if countries work together, we will see a much faster recovery than if each country acts alone.”
In a column for Harvard Business Review, Steven Altman, senior research scholar at the NYU Stern School of Business, wrote that he believes globalization and shifts away from globalization will offer opportunities and challenges for businesses. He wrote, “A volatile world of partially connected national economies expands possibilities for global strategy even as it complicates the management of multinational firms.”
- The Post-COVID-19 World Will Be Less Global and Less Urban – Knowledge@Wharton
- Has covid-19 killed globalisation? – The Economist
- The Coronavirus Is Killing Globalization as We Know It – Foreign Policy
- Trade set to plunge as COVID-19 pandemic upends global economy – World Trade Organization
- Will Covid-19 Have a Lasting Impact on Globalization? – Harvard Business Review
Discussion Questions
DISCUSSION QUESTIONS: Do you think the coronavirus pandemic will make the world less global beyond just the near-term? If yes, will it be a negative or positive development for businesses in the retailing and consumer brand industries?
Poll
BrainTrust
Bob Phibbs
President/CEO, The Retail Doctor
Cynthia Holcomb
Founder | CEO, Female Brain Ai & Prefeye - Preference Science Technologies Inc.
While the COVID-19 pandemic disrupted many global supply chains, it was temporary and it shouldn’t stop companies from sourcing products globally. There were many disruptions in local product sources as well. Instead of limiting global sourcing, companies should redesign their supply chain strategies to be more agile. Having multiple global sources for products provides supply chain resilience and improves the strength and agility of your supply chain. Supply chain agility is a new retail imperative.
From my perspective, I think it’s hard to have a single answer for this. For things like produce and food, I think that local movements will get stronger based on a shortage of labor and regional issues with COVID-19. (I think this is a good thing.)
Trade with China is tricky – politics aside, companies will probably seek to find other places to manufacture goods but moving factories/manufacturing plants really isn’t that easy and takes time to do. There are some things that I wonder if they’re really moveable away from China, i.e. electronics.
I think that the one global truth is, everything is going to get more expensive. First world countries have been living on cheap products for a long time, and that’s about to change.
I think it is easy to assume products made domestically will have fewer disruptions but even on a fast track that would be 18-24 months to get new factories up and running. Everyone should be looking at multiple areas of the world to ensure against supply chain interruptions. But yes, the days of unlimited cheap products from China seem to be at an end. Will the consumer care? That’s the big question.
The world will return to global commerce, but with some differences. Companies are evaluating their global supply chains and realizing that having one supplier of an important widget in their production is a bad thing. Companies will start to diversify where they get their widgets and this will spread out suppliers domestically and internationally. Some costs will go up, but diversity of suppliers can also create prosperity. I believe and hope the majority of the world’s population awakes to the perspective that we are all global citizens and we are all in this together whether it is commerce, the environment or our health.
Even before the pandemic, rising costs, tariffs and trade wars made more retail companies like Apple and Nike reconsider nearshoring and reshoring.
COVID-19 has accelerated the trend toward local production. Due to retail’s globally-enmeshed supply chain, the pandemic’s effects went worldwide. To boost resilience and agility, more companies want to diversify production beyond markets like China.
Among consumers, the “buy local” movement has gained momentum in recent years. In 2020, consumers show even stronger demand for local products, especially in Italy, Spain, China and South Korea.
This trend can fuel demand for locally-sourced and artisanal products, and increase prosperity in local communities. However, consumers could face less variety and higher prices, as business costs rise due to insufficient economies of scale.
I believe this will accelerate the return of manufacturing to the U.S. However, this will take time. On the other hand, I see global sourcing will continue post COVID-19, but with new rules of engagement. Short term, international travel and tourism will take a big hit. Americans are staying close to home for now.
I don’t think the pandemic will make the world less global. I believe the trend of “global citizens” is here to stay – technology has connected us already and will continue to make it easier to communicate on a global stage. International travel may slow in the interim, but it will pick up with young people leading the way. From a manufacturing perspective, any company that doesn’t have an “on-shore, near-shore, off-shore” strategy will not be optimizing their supply chain and will most likely not succeed.
There will be many companies reviewing their strategy towards source of supply and carrying out revised risk assessments based on the recent events. There is also likely to be an increase in the “Green Agenda” putting pressure on companies to reduce their carbon footprint and reduce harmful emissions. The lock down has made so many more people aware of how clean their air quality has been with less transport. These factors will play a part in how globalization develops and many companies will at least have a split strategy of local and International supply if not totally local. Will this slow down the economic recovery? Probably not in the short term, as many western economies will get a boost from growth in their domestic production. Longer term, it will have an impact because it will make for smaller markets as countries become more protective and we have been there in the past, with the U.S. and China relations this is already causing a slowdown in international trade.
One serious implication of this is the world stability. If there is less cooperation across borders, this is scarier than the economic consequences. It needs strong leadership from world organizations to protect the hard won settled situation we all enjoy today.
To a degree, many industries simply can’t “de-globalize” without a major re-tooling of every piece of their product’s life. Like apparel. The ability to produce quality garments en masse at low prices (operative term) in-country for most large retailers would require years of set up and labor negotiations, to put it mildly.
In short, sure, globalization is going to slow down a bit but, in fact, so is everything for that matter.
The more sophisticated the products, the more difficult it will be to de-globalize.. A Boeing airliner is made up of 80% non-U.S. components. Apple products assembled in China use components that are sourced in over 40 countries. The trend will just continue. There is no business reason for it not to.
The right answer is, “Who knows?” Clearly it will set globalization back in the short term and, if we keep facing wave after wave of new infections the short term could go on forever. As to whether it will be positive or not, business always finds a way to profit, no matter what the conditions.
Agility and diversity are the two supply chain lessons coming out of the COVID-19 pandemic, not anti-globalization or localization to the extreme. Consumers today, whether realizing it or not, have been fully benefiting from globalization and global supply chains for years. Just ask any iPhone or other smartphone user. Expecting retailers and brands to suddenly shift away from globalization and restore all of their operations for shorter, local supply chains is unrealistic. We saw plenty of evidence of local supply chains being disrupted (look at the meat supply in supermarkets) during the pandemic to disprove that theory. The real lesson supply chain managers are learning is that they need to be more agile in adjusting their sourcing during a crisis, and they need built-in diversity in their supply chain so that if one source, say, China, is suddenly disrupted and shutdown, they can shift to another source around the world. Globalization in supply chains is about choice, and removing that choice would only make things worse in the long term. Will retailers look more carefully at their sourcing in the future? Yes, they will, it would be foolish not to, but the end goal will be more choices not fewer. Not to mention that during the pandemic the dramatically increased use of video-based communication tools (everyone knows what you mean now when you say “I have a Zoom call”) has compensated to make the world feel closer rather than further away.
I predict the consumption of cheap products will be replaced by generations of consumers seeking experiences. Human experiences of food, travel, shelter, love, and sharing will resonate with individual humans bringing greater joy to life, replacing buying multiples of new things. Cheap will be replaced with special. Food will be savored. Travel will enhance family experiences. Home is and will continue to be a safe haven for work, life, and family connection. Methods of manufacturing, product creation, and the marketing of products to consumers will require both brands and retailers to craft a new reinvention of purpose, aligned with consumer sentiment, founded internally and made viable by a climate of self-efficacy led by leadership and management to enable and execute the future viability of each brand and each retailer.
Trade may be less global, but it may become more global. Reliance on one country or location for sourcing all of a product or part may change because we now see how trade can come to a standstill if there is a major problem in that location. So companies may create more diverse sourcing and manufacturing practices. While practices may stay local for a time, branching out could result in more global trade as protection.
Global travel will take some time to come back, but it will, both for business and leisure. What the world has to offer is too compelling to ignore.
With regard to trade, even in today’s environment, in the end there are only two countries that will suffer from the diminution of globalization, the U.S. and U.K. Both for political reason and having nothing to do with COVID-19 or any other factors. For companies that make all types of products, it is not just a whim that someone says “let’s be global,” it is because it makes excellent business sense.
It’s a complicated question with two main themes: products/supply chain and interconnections. Brands are well served to diversify sourcing, curate products to account for consumer preferences for local, sustainable, artisan and meaningful good. Regarding global influences, that genie is permanently out of the bottle, as technology and travel will continue to connect people around the world.
Less, but I think in terms of tourism rather than trade. The reason is simple: people transmit things, goods do not (at least not this).
The caveat is that if a depression is in the offing, we will see reduced activity at all levels, so retail may not be less global in the relative sense, but still less by absolute measures.
It is very clear that global procurement will continue. Even within the pandemic, the US could not secure masks, drugs, and gloves on its own without importing the stuff. A pathetic situation really. The US production infrastructure would need to be seriously rebuilt in order to even just a little bit shift global procurement. I do not see that happening as corporation’s quest for cheap labor will not go away.
I do agree that the travel industry is in for a very serious reckoning.