Trade Regionalisation vs. Trade Globalisation Misses The Point. We Need To Strike The Right Balance
As companies continue adapting their operations to changing market pressures and geopolitical shifts, I see the ongoing debate surrounding trade regionalisation and trade globalisation as becoming unnecessarily polarised.
The experiences during and since the COVID-19 pandemic have certainly led to broader, potentially long-lasting changes in supply chain management. This emphasises the need for resilience and the implementation of disciplines such as supplier diversification and regionalisation.
While values and trade-offs are associated with each of these approaches, our focus at DP World is on the requirements to adapt supply chains to the evolving trade landscape. Drawing inspiration from the transformative logistics industry, I firmly believe that a balanced approach, incorporating elements of both regionalisation and globalisation, is crucial for driving the best outcomes in today's dynamic trade environment.
The power of regionalisation
The indicators from Trade in Transition 2023, the Economist Impact research programme, sponsored by DP World, reveal a remarkable trend towards regionalisation in the logistics industry. This shift is driven by various factors, including geopolitical events, trade conflicts and global disruptions. The report highlights a significant increase of 8% in nearshoring and regionalisation strategies since the previous survey, underscoring the growing importance of localised supply chains in enhancing resilience and reducing costs.
Recent media reports have provided compelling examples of companies shifting manufacturing operations from China to countries like India and Mexico in a way that will bring about lasting change, and we are seeing similar shifts within our daily business operations. Our Trade in Transition report further reveals that 96% of executives surveyed have already adjusted their supply chains in response to geopolitical events. Embracing regionalisation enables businesses to adapt swiftly to changing market dynamics, foster regional cooperation and capitalise on local market opportunities.
These trends are important for us to understand, as more regionalised and geopolitically friendly strategies are impacting the nature of global trade. In some ways, they are trends that are ensuring the conservative 1% growth in global trade volumes in 2023 predicted by the World Trade Organisation (WTO). In other ways, this slowing growth will be detrimental to the progress we have seen in developing markets around the world.
Developing markets rely on high-value global supply chains to drive their own economic growth. Preserving global trade links remains vital for facilitating specialisation, expanding market access and fostering the exchange of ideas and innovations. Globalisation also empowers businesses to access broader markets, unlock economies of scale and drive innovation through the exchange of ideas.
The interconnectedness facilitated by global trade has been crucial in developing high-value supply chains and elevating economies. The Global South is ready to grow at an extraordinary pace – taking billions out of poverty – while the developed world needs every means of recovery possible. As we adapt to the changing trade landscape, it is vital to preserve and leverage these global trade connections.
Striking the right balance requires an innovation mindset
To navigate the evolving dynamics of global trade, achieving a delicate balance that encompasses the strengths of both regionalisation and globalisation is essential. I advocate for a long-term perspective. While nearshoring may offer immediate advantages, we must carefully assess these decisions' sustainability and long-term implications. Balancing short-term gains with the potential challenges and costs associated with nearshoring is vital for strategic decision-making.
Embracing innovation and technological advancements is pivotal to getting the balance right. By harnessing digitalisation, automation and cutting-edge technologies such as blockchain and artificial intelligence, businesses can enhance supply chain efficiency, visibility and adaptability.
That said, the logistics and global supply chain sector has not advanced at the speed at which the world is changing. Navigating the supply chain crunch of the past three years showed that there has been an over-reliance on the advancements made in previous decades. Additionally, there is a pressing need to address the environmental and climate emergency we face now and tomorrow.
The issues are sometimes practical, such as the manual paperwork that slows down the shipping industry or customs. To that end, merchants in India or Mozambique need to be connected to global logistics quicker to grow the textile or perishables sectors in their respective countries. The challenges are also existential in nature. With 10% of all the global transport sector’s CO2 emissions emanating from international shipping, there needs to be a radical rethinking of how our industry protects the planet and helps us shape lasting change out of opportunities.
Central to reaching those potentials is innovation. Innovation is needed to make supply chains move as fast as the world is turning. At DP World, innovation is a mindset for growth, not just technology. Of course, combining both that mindset and the tools of tomorrow is vital as we have shown with the creation of BOXBAY, our High Bay Storage system that cuts down time, resources and energy by using an automated system that holds 200% more capacity and is fully powered by solar panels.
An active role for governments with support from trade
Whether outsourcing to new markets or near-shoring, public and private entities would be mistaken in believing that trade will always find a way to flow. To ensure trade continues to catalyse foreign direct investment (FDI) and provide opportunities for local companies to export their goods, governments must resist embracing protectionist policies and work collaboratively to liberalise trade, increase international economic cooperation and remove trade barriers.
We also need governments to step in as a catalyst to drive better public-private data-sharing mechanisms that offer better visibility in understanding, evaluating and optimising trade flows. Therefore, strengthening trade governance, led by the WTO, is also imperative. As the WTO is the only international organisation dealing with the global rules of trade, it is critical that it holds a seat at the table. We must support it accordingly, in part, as a way of communicating business needs and advancing multilateral trade negotiations.
A great example of working together towards trade transformation is ‘Single Windows’. Provided by the World Bank Group with funding from the Trade Facilitation Support Program (TFSP), this initiative serves as a path for paperless trade. It is the type of partnership needed to help standardise information, reduce costs and expedite international trade procedures without broad trade agreements.
The debate between trade regionalisation and trade globalisation calls for a harmonious approach that combines the strengths of both strategies. Only by adapting supply chains to the evolving trade landscape, stimulating broader innovative thinking and striking a delicate balance between public and private partnerships, can we address the competing needs of a world in flux.
We at DP World want to grow the services we can provide our customers, create a truly end-to-end supply chain and collaborate with our peers across the global logistics sector to safeguard our collective future. I hope our nuanced approach can spark the dialogue that writes the supply chain sector’s – and the global community’s – next chapter.