The world economy is undergoing significant changes as we shift from a global approach to one focused on regional and national production, reports Industry Week (Feb. 21, 2023). Demographic, geographic and political factors are reshaping our world and driving the change. Going forward, companies will need to continue to navigate supply chain disruptions, China risk, and concerns about capital outlays. The new model will not be defined by the globalization that dominated the last half-century. Here are four of the challenges the article presents:
The American China Crisis The post-COVID world has escalated tensions between the U.S. and China, with allies involved on both sides. Consumers still want the low-cost products they can get through the Chinese manufacturing value chain. But companies that ignore the post-China supply chain plan are putting their companies’ futures at risk with a clear and quantifiable situation.
Regional Industrial Labor and Skill Shortage Companies are looking to low-cost manufacturing zones in North America and Europe in an effort to move higher-value production to the region. Much of the shift to date has been items where a logistics penalty supported a more rapid move. Challenges exist for smaller commodity components with low margins, which are currently manufactured in China. These parts, mostly taken for granted, will likely stress supply chains in the near future. Purchasing teams need to regionalize their value chains. Mexico continues to shine as the heart of the North American low-cost manufacturing engine.
Shifts in the Semiconductor Industry The semiconductor life cycle has historically been cyclical, and this time is no exception. COVID drove a rapid expansion in consumer electronics, pulling this cycle ahead. Automotive companies suffered, but availability is temporarily increasing. However, with the shift to EVs requiring a growing number of semiconductors per vehicle, constraints will re-emerge. The U.S. has taken steps to engage allies and block further development of a Chinese semiconductor industry.
The War in Ukraine The Russian war in Ukraine continues to be a serious crisis with disruptions across Europe. Neon gas supplies remain tight, impacting semiconductor production. Companies should be evaluating a shift to military and government production if the Ukraine war breaks out to a larger conflict in Europe. There is a short window for companies to re-engineer value chains for risk mitigation.
The Industry Week article concludes that “2023 is an opportunity for companies to work together to restructure and regionalize their manufacturing value chains.”
Classroom discussion questions:
- Why is Mexico a popular regional option?
- What factors are impacting the China supply chain?