Supply-side globalization as we know it, with world-spanning supply chains driven by economies of scale and cheap labour, is just a flash in the pan.
Tomorrow’s globalization will be a different beast entirely, and the management approaches we’ve spent the past 30 years cultivating won’t be enough to see us through.
Moving factories overseas meant cheap labour and abundant resources. The savings were so significant that the new costs of bring goods back to domestic markets were easily justified. This shift let us enjoy better-quality mass-produced products at very low prices. It’s been a cost-effective solution, but isn’t going to stay that way for three reasons:
The rising cost of oil. As Jeff Rubin and others have written, as the cost of oil grows the world we do business in will shrink. Overseas shipping won’t be practical, spurring investments in local production.
The rising cost of labour. Globalization has been extremely effective at injecting wealth into developing economies: the average income and quality of life is rising, as is the cost of labour.
The increased role of automation. Robotic labour may have higher initial (but quickly decreasing) costs, but can work faster, longer, and harder than humans. If you’re building a new factory and most of the labour is automated or highly skilled, your choice of location will be based on access to resources and the target market.
Either independently or taken together, these trends point to a future where local production is economically competitive. Even if an alternative fuel source comes in at the eleventh hour, there are other trends at play: specifically personalization and the role of the brand.
Coca-Cola, despite the most recognized and standardized brand in the world, has a flavour that varies considerably by geography. Mexico and most of Latin America sweeten their Coke with cane sugar while the rest of the world uses cost-effective high-fructose corn syrup. The two sweeteners taste very different. This decision was made on a cost basis, but it shows that a brand can be internationally well-respected despite being dissimilar in different places.
With personalization, the brand will be different things to different people. Production logistics will shift into a collection of local challenges. Business as usual is about to change...
Google, Amazon, Facebook, and Netflix are each many things to many people: they personalize the experience to each and every customer. Your facebook experience is unique to you, as are the items Amazon and Netflix chose to recommend you and even your Google search results. This is possible because these companies operate online, but what if we could do the same physical products? With 3D printing, we can.
While automated production pushes us away from globalization as we know it, 3D printing puts us on a whole new playing field altogether. A 3D printer is something right out of science fiction: it allows for physical objects (even complex gear systems) to be built in a single, automated pass. And this technology uses fewer resources and all excess materials can be reused.
The same 3D printer can be used to print toys, car parts, prosthetic limbs, medical implants, and much more—with the level of complexity supported increasing quickly. Remarkably, each and every item produced by a 3D printer can be customized to the exact needs of each individual customer at no additional cost—an economic impossibility at the scale of the current global supply chain.
Why would you have a specifically-tooled factory when you can have a generic one that can make almost anything? How is this going to change the type of products we deliver to customers? Why wait six months for overseas production when you can build locally right away? These are the questions that tomorrow’s executives must answer.
With personalization, the brand will be different things to different people. Production logistics will shift into a collection of local challenges. Business as usual is about to change, and we need to learn how to compete on both scale and differentiation.
Exciting times are ahead.