(EnergyAsia, January 31 2013, Thursday) — Global trade flows are becoming more inter-regional as companies move production closer to end markets, suggesting that globalisation could be at a turning point, according to a survey by an international logistics firm.
“Global trade flows from manufacturers in the East to consumers in the West are undergoing a gradual shift toward shorter inter-regional routes as companies seek to reduce the distance between the production and consumption of their goods,” said BDP International.
“This shift in global trade flows confirms the growing economic parity between Western nations and emerging economies.”
This is a key finding of an international supply chain survey conducted by BDP International, its Centrx consulting unit and Temple University’s Fox School of Business.
BDP said it surveyed more than 200 companies throughout the world with annual revenues ranging from US$100 million to over US$10 billion.
Of the supply chain executives surveyed, 87% indicated their companies are considering or have already begun to move production closer to end markets, sourcing and selling their goods within the same hemisphere.
“There are three principal reasons for this phenomenon,” said Arnie Bornstein, BDP’s executive director of marketing and corporate communications.
“First, emerging nations are starting to trade with one another, shortening world trade flows. Second, Asia, Latin America and the Middle East have growing middle classes driving demand for consumer goods. Third, it makes both operational and economic sense to have shorter supply chains, where goods are produced and consumed within the same part of the world.
“That’s why North American companies are looking to Mexico and Latin America as a manufacturing base; EU companies are looking to Eastern Europe and Turkey.
“Asian companies want to sell more of their production to Asian consumers as more than a hedge against sluggish export markets in the West.”
According to BDP, small and medium-sized enterprises appear to have greater flexibility to pursue an inter-regional approach, according to the survey. While the overall trend is toward shorter, hemispheric trade flows, nearly one in five (18.9%) survey respondents representing companies with revenues of more than US$10 billion do not see this shift occurring.
“The survey suggests small to mid-size enterprises are more aggressively pursuing inter-regional supply chains because they have far less invested in sourcing infrastructure and are newer entrants to the world of international trade,” said Mr Bornstein.
“It is understandable that large companies may be more deliberate to embrace inter-regionalization as they take a long-term strategic approach toward structural changes in their global production platforms.
“This is not to say major companies are any less committed to inter-regionalising their supply chains. After all, 81.08% of the US$10-billion-plus revenue companies surveyed agreed they are seeing such a shift.
“Companies are seeking to reduce costs and transit times in meeting demand from countries where consumers are becoming more affluent.
“The survey shows that globalisation may be moving toward a tipping point, belying the conventional wisdom that it would allow companies to economically produce anything, anywhere for sale everywhere.
“Globalisation and traditional East-West trade routes aren’t going away any time soon, but trade patterns are being transformed to mirror the realities of low to no growth in the West and the rise of the rest of the world.”
Focus on Asia
When queried regarding which regions show the greatest potential for inter-regional trade flows, 56% of the respondents cited the Asia-Pacific, followed by 28% for the Americas and just 6.7% for Europe.
Mr Bornstein said: “The bias toward Asia is further evidence of the growing economic importance of the region. The Americas have been attractive largely due to NAFTA and Mexico’s proximity to U.S. markets, improving cross-border infrastructure, and more recently with the emergence of consumer economies in South America.
“The low response for Europe is somewhat surprising given the Eurozone’s more than 600 million inhabitants and lower trade barriers, but likely reflects the continent’s continuing economic woes.”