Globalisation, although considered a relatively recent phenomenon, traces its origins to the peak of the Industrial Revolution in the first half of the 19th Century. This was when mass production of goods started, and modes of transportation and communication became more and more advanced.
During the 1990s, countries like China up-skilled their huge workforces to take advantage of the power of economies of scale to reduce the cost of production. This had three major impacts:
- Certain MNC firms recalibrated their manufacturing blueprint by closing multiple country operations and developing regional hubs across the globe.
- The price advantage of Chinese products forced various industries across the world to shut down.
- Many industries relocated their manufacturing bases from their native countries to China, making them the go-to destinations for manufacturing base relocation.
While Globalization continued to ride on the shoulders of production advantages, it appears that little thought was given to the grave impact this would have on economies worldwide.
Over the last 25-30 years, when world industry was busy transferring many of its manufacturing bases to China, the Asian giant, on the other hand, focused its energies on establishing its manufacturing presence across the globe, including the Indian sub-continent, Africa, Europe and North America. This Chinese strategy curiously appears to have escaped the notice of world leaders of that time.
The question that arises is: How did China manage to successfully set up a manufacturing base in several countries and that too in industries which were closed due to competition from Imported Chinese products?
The answer is simple - Misguided economic policies & short-term vision of the world leaders of that era. And to top it, the strategy of the Chinese Government to incentivise its nationals with tax sops and duty protection for making manufacturing investments in other countries.
Adhering to WTO norms and pressure, many countries earlier failed to formulate action plans to protect their industries. But today, every country with an industrial base has started talking about terms like Brexit, Make in India, America First, Buy British, Buy Uganda Build Uganda etc.
All these slogans point to a regression from the earlier norms of Globalisation and indicate a strong national desire to return to local production. Over the last 20 years or so, advances in technology, especially in automated production processes, has seen the traditional cost of domestic labour fall. Processes that were manually intensive throughout a production line have been replaced by automated systems supported by fewer manual specialists. At the same time, the cost of doing business in China has risen, thus weakening the case for outsourcing production to that destination. The same is true for the other traditional production outsourcing destinations.
The recent outbreak of COVID-19 highlighted the fragility of dependence on outsourced means of production. Several industrialised countries found themselves short of Personal Protective Equipment (PPE) supply. They were heavily reliant on imports, particularly from China. Meanwhile, China was fighting its own COVID-19 battle, and its priority was to serve local demand first before exporting to other counties.
The situation created by the Covid-19 pandemic has made world leaders think that Localisation cannot be replaced with Globalisation. Every country needs to have its manufacturing facilities.
It has become clear to industrialised nations that a certain level of domestic manufacturing is not just desirable but also essential to maintain a healthy economy and population.
Today, when other countries are pressing for Localisation, China is already in those countries with a manufacturing base, as a local investor of that country.
China’s success in establishing manufacturing sector bases in foreign countries demonstrates its strong vision, a lesson we need to take heed.
China has been heavily referenced because it is the single largest recipient of inward global production demand for export and base for foreign manufacturing entities. While this is healthy for China, it is not so for countries that have significant portions of key manufacturing demand dependent on a single country. Rather than have all one’s eggs in one basket, it would be prudent to spread key industrial production over several global hubs that provide the same production values and cost savings.
World governments need to understand this trend of Localisation from Globalization. They need to ensure that the policies which they are making for industries in their countries take into consideration the Localisation aspect of certain Industries.
Each country should think about local manufacturing of products, on individual merit basis of the industry and take the call because no solution is perfect - neither Globalisation nor Localisation. The key lies in striking a balance. The concept of Globalisation, which was earlier applied to maximise profits simply, should now stand more and more for ensuring the wellbeing of the people.
(Rajesh Chaplot is a Uganda-based business leader. A Chartered Accountant by qualification, he is the recipient of the highest civilian award from the President of Uganda and the highest award for overseas Indians (Pravasi Bharatiya Samman) from the President of India.)
