Rethinking Globalization

​Globalization has been a powerful force for decades. But are things changing?

"The era of hyperglobalization is over," says Robin Broad, American University professor of international development. "There is widespread consensus—from critics of globalization as well as from groups such as the Council on Foreign Relations—that many global supply chains are moving back home."

Before that happens, employers have some big questions to consider:

• Should they return more manufacturing to the U.S.?
• How can they find workers when the labor market is already tight?
• Is it time to consider more than low costs when choosing suppliers?

A June survey by accounting and advisory firm Sikich suggests business leaders are uneasy, as evidenced by a marked drop in optimism among 100 manufacturing and distribution executives: 58 percent are optimistic this year, compared with 81 percent in June 2021. Inflation is their top concern, followed by supply chain obstacles and talent acquisition struggles.

And with control of the executive and legislation branches toggling between parties in recent years, you can't blame employers for feeling dizzy. "Companies have been a little hesitant to make major changes because of new laws and regulations," says Laura Fischer, managing director of human resources advising services at Sikich. "The past few years, there's been a sense of unknown."

But supply chain snafus and other challenges have hardly ended globalization. In fact, the volume of international merchandise traded in 2021 hit new highs, according to the CPB World Trade Monitor. And by January 2022, foreign direct investments, which reflect companies buying, building or reinvesting in operations abroad, had rebounded to pre-pandemic levels, according to the UNCTAD Investment Trends Monitor. Still, some businesses have decided it makes sense to shift their focus closer to home.

Onshoring?

For the past 30 or 40 years as globalization spread, companies made decisions on sourcing and factory locations based on expenses and reliability. "The decision has gotten a lot more complicated than cost of manufacturing and cost of distribution. Now, political and social factors are playing a bigger role," says Kyle Mayer, professor and chairman of the management department at USC's Marshall School of Law. "Suddenly, locating in my own backyard is a lot more attractive."

Mayer expects to see a regional approach to relocating: Companies will choose production sites that might be outside their own country but are near where goods are consumed—such as plants in Canada and Mexico targeting the U.S. market, he predicts.

"The U.S. is not going to become the manufacturing hub of the world," Mayer says. "But globalization is slowing down, and there will be some onshoring."

The CHIPS and Science Act signed by President Joe Biden in August offers incentives, including federal grants and tax credits, for U.S. companies to produce semiconductors and other advanced technology in the U.S. In October, Boise, Idaho-based Micron Technology Inc. announced plans to build a $20 billion computer chip factory in upstate New York. Micron President and CEO Sanjay Mehrotra says the company "will leverage the diverse, highly educated and skilled talent in New York as we look to build our workforce in the Empire State."

To help prepare employees for jobs of the future, worker training will be essential. The CHIPS Act provides $200 million over five years to boost the semiconductor workforce. The bill includes money for training and scholarships for students in STEM fields.

The Inflation Reduction Act that Biden signed into law in August includes support for green industries. It offers tax incentives for energy produced from clean sources (such as solar and wind) that is made in the U.S. The nonprofit Environmental Working Group called it a "kick-start" for the clean energy economy. The law also provides billions of dollars in tax credits and federal grants to build clean-technology manufacturing facilities and to retool existing auto manufacturing plants to produce clean vehicles.

Talent Troubles

As companies consider focusing more on domestic production, the labor shortage is a big stumbling block.

"We are now in a period where more and more workers, negatively affected during the era of hyperglobalization, are reasserting their power, demanding better benefits and willing to walk away from exploitative jobs," Broad says. "The era of greater labor power has returned."

Workers' newly found leverage is strengthened by the persistent labor shortage, which Fischer expects to extend "likely years into the future." That makes it tough for employers that want to focus on domestic production. Companies have had to increase wages to attract workers and that pressure will only continue, especially with inflation running high.

Many companies that manufacture goods in the U.S. are responding to the tight labor market. At Novipax in Oak Brook, Ill., which makes absorbent pads for meat trays sold in grocery stores, CFO Cara Rogers worked with HR leaders to learn more about what employees want. They conducted listening sessions; raised starting wages; eliminated rules that required waiting for promotions; got creative with benefits, such as by offering a new low-cost health plan; and promoted quarterly bonus incentives for hourly workers.

To attract workers in a talent drought, many employers have had to rethink the nature of work. Companies will benefit from a more flexible talent pool now that the world has figured out how to work remotely and businesses can hire from beyond their geographic area.

"From a talent perspective, there is going to be a lot more competition and a more fluid workforce with workers globally being able to fill seats they were not considered for in the past," Fischer says. But tapping a global talent pool requires training for managers in how to handle cultural differences, and consideration of differences in labor law between countries, she notes.

Globalization has made the world smaller and increased efficiencies in countless ways for businesses and consumers. No one is suggesting it will ever disappear entirely, but these recent events have caused some business leaders to reconsider their reliance on global trade: International trade plummeted during the pandemic, and the ongoing process of catching up to demand has clogged ports and left companies and consumers waiting for materials and goods. China and the U.S. skirmished over trade, leaving some companies to rethink an overreliance on Chinese suppliers. Russia's invasion of Ukraine tangled distribution of items such as fuel and grain. A raft of nationalist leaders born of populism in countries around the world have made international cooperation and free trade more difficult. The unsteady supply chain that resulted from recent upheavals has left businesses wary of global sourcing. U.S. legislation gives companies incentives for the domestic production of semiconductors and development of green industries.

In recent years, the term "supply chain" has been on the lips of people who had never given a thought before to how their goods got to them. Experts believe the shocks from the pandemic, war and trade disputes have changed the economics of how companies manage their sources of supplies and production.

Novipax was insulated from the worst of the supply chain shocks, Rogers says. Few foreign competitors are in the absorbent pad market, and Novipax's products are sold and produced almost entirely in the U.S.

But the company didn't get off scot-free from the supply chain mess. Getting products from the plant to the consumer took 45 days in the past but now takes 60 to 75 days, Rogers says. Sometimes the company waits months just to get products picked up at plants. That adds carrying costs for the inventory that can't be sold yet. And the company had to rent more warehouse space to park all that merchandise.

Efficient supply chains that work during periods of calm aren't reliable enough in this unpredictable era. Although efficient supply chains can save costs, recent years have shown how they snap when just one supplier can't come through. China's ongoing zero-COVID policy to prevent outbreaks has left people all over the world waiting for suspended factories to get back to work.

Part of the solution to supply chain snags may be spreading production out among more suppliers or different continents. Novipax, for instance, is moving from dual sourcing of materials to having three suppliers, Rogers says.

Fischer points out that even moving a supply chain back to North America doesn't insulate companies from unexpected shocks. "There are always going to be risks," she says. The solution, she adds, is for companies to be tuned in to potential risks to head off disruption. "I don't see the global supply chain going away," Fischer says.

But that doesn't mean it will be business as usual.

Tamara Lytle is a freelance writer based in the Washington, D.C., area.

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