General Electric says: “We will localise”

maersk contianer (2)

Last year came three reports on the downturn in global trade:

  • From the container industry: Søren Skou, chief executive of the Maersk Line, which carries goods and products between Asia, Europe, the US, Africa and Latin America and is now described as the only profitable freight line.
  • In a report from the Centre for Economic Policy Research: theslowdown in world trade has been much worse than previously reported, with global trade volumes plateauing over the past 18 months amid a rise in protectionism.

A higher proportion of the value of final goods is being added domestically

  • The World Bank: There is some evidence to suggest that part of the explanation may lie in shifts in the structure of value chains, in particular between China and the United States, with a higher proportion of the value of final goods being added domestically—that is, with less border crossing for intermediate goods. In addition, the post-crisis composition of demand has shifted from capital equipment to less import-intensive spending, such as consumption and government services.

china trade graphic

As politicians such as US Republican presidential candidate Donald Trump rail against “globalism” and promise to erect new barriers to commerce, policymakers and economists have also grown increasingly concerned about a slowdown in global trade growth. And according to the latest report by Global Trade Alert, which monitors protectionism around the world, that growth has disappeared altogether with the volume of goods traded around the world stagnant since January 2015.

Economists remain divided on the causes of the slowdown, some seeing long-term trends, including the shortening of global supply chains and the increasing role of digital trade. 

As the West Midlands Producers site notes, the reshoring trend, successes and possible pinch points, has been systematically explored and publicised by Aston Business School’s Professor David Bailey since 2013.

G20: mixed messages 

In their closing communique the G20 ministers last weekend reiterated a post-crisis pledge to avoid any move to protectionism, but ‘discriminatory measures’ such as local content rules and subsidies for local industry introduced by governments was up 50% in 2015 compared with the year before, according to the Global Trade Alert’s database – and G20 countries accounted for 81% of those measures.

The FT sees evidence that such measures are already having an impact on business decisions. In a speech in May at New York University, Jeff Immelt of General Electric said that faced with rising barriers to trade, a decision has been made to shift to a strategy of “localisation” rather than globalisation.

“In the face of a protectionist global environment, companies must navigate the world on their own,” said Mr Immelt. “This requires dramatic transformation. Going forward: We will localise.” 




The comparative security of a localised supply chain

On March 15th in the Financial Times Gillian Tett pointed out the vulnerability of global supply chains: 

“[B]efore 2007, bankers had created numerous convoluted, cross-border financial chains. And while these chains seemed to make the system more efficient and safer in good times, when disaster struck, they produced new risks which took investors by surprise.”

She quoted research on the provenance of one item: 

“Part of the problem is that the supply chains in many key manufacturing spheres increasingly hop across multiple borders. Last year, for example, the Asian Development Bank set about trying to assess how just one item, the iPhone, was made. This revealed a dazzlingly complex pattern, typical of numerous sectors. “Manufacturing iPhones involves nine companies, which are located in . . . the Republic of Korea, Japan, Taipei, China, Germany, and the US,” the ADB observed, adding that “the major producers and suppliers include Toshiba, Samsung, InfineonBroadcom, Numonyx, Murata and Cirrus Logic.” 

Other information 

A few days later, Professor Dan Schiller, an American telecommunications historian, explained that the earthquake damaged undersea cables which carry much of the business-process data needed to run supply chains.

Another research with LWM links is a report drawing on the 2002 research, by co-founder Colin Hines and then MEP Caroline Lucas, on long-distance food ‘swapping’.

One example from the DEFRA website:

“In the UK in 2008, 126 million litres of liquid milk was imported into the UK and at the same time 270 million litres of liquid milk was exported out of the UK.

Researcher Rianne ten Veen also highlighted the adverse economic and environmental implications of such practice.

A search of this website will produce news of Localise West Midlands’ work on procurement/supply chain issues, for example: