The supposed rush to reshore global supply chains may end up going nowhere. Those expecting large-scale deglobalization and the return of domestic production for many goods might be disappointed, writes The Wall Street Journal (April 23. 2020), with reports suggesting that global sourcing remains in full force.
Bringing some manufacturing home for medical or security purposes might make sense. Amid the U.S.-China trade war, reshoring was already a major issue of discussion before the coronavirus arrived. American imports of Asian-made goods (as a percentage of domestic manufacturing output) dropped in 2019, falling from a record high to the lowest level in 5 years. But that decline was due to a sharp fall in Chinese imports. Imports from the rest of low-income Asia actually rose, and U.S. manufacturing output was roughly flat.
This isn’t exactly deglobalization. Manufacturing shifting from one country to another as countries grow richer and pivot to higher-value manufacturing isn’t new. Just as China took a greater share of manufacturing once done in S. Korea and Japan, Bangladesh and Vietnam are well placed to take a portion of manufacturing that, for now, is done in China. It is inefficient for wealthy countries to attempt to resume much low-value production currently done abroad, as we point out in Ch. 2’s discussion of the theory of comparative advantage (see p.46).
Even in high-value sectors, a lack of knowledge, experience and competitiveness in niche areas are difficult to surmount. For example, Japan last year restricted exports of smartphone screen components to S. Korea. (Despite Korea’s dominant position in electronics, screens are largely produced in Japan). Manufacturers such as Samsung and LG were left hanging. Korea managed to reduce its Japanese components modestly (from 92% of the total to 85%) by massively expanding imported parts from the U.S., Belgium and Germany.
Ideological commitment to globalization didn’t drive the growth of major value chains in the first place, and its decreased popularity is unlikely to unwind them even with the current pandemic.
Classroom discussion questions:
- What risks have operations managers come to discover with outsourcing?
- What steps has the U.S. just taken to increase its supply of medical goods which are predominately manufactured in China?