“Demondialization”? Coronavirus crisis reveals underlying trend

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The notion of “De-globalization” has been widely debated for years. But what is it exactly? Is this a cyclical phenomenon linked to the uncertainties of a geopolitical environment regularly electrified by the tweets of Donald Trump and today accentuated by the coronavirus crisis, or are we in the presence of a fundamental trend and, in this case , Why ? What hypotheses can we draw from it about the evolution of the world economy, the strategies of companies and territories?

“Demondialization” or “relocation”?

Alert at Bercy: “The epidemic of [coronavirus] changes the deal of globalization and shows that in certain sectors, supply difficulties can pose a strategic problem ”, recognizes the Minister of Economy Bruno Le Maire. It therefore becomes “Imperative to relocate a certain number of activities”.

If with the current crisis, the relocation of the manufacturing of the active ingredients of drugs and other products becomes an “imperative” for our public authorities,study carried out by the consulting company specialized in operational purchasing Agilebuyer and the National Purchasing Council (CNA) with 682 purchasing professionals at the end of 2019 shows that, for the purchasing departments of French companies, as explained by Olivier Wajnsztok, founder of Agilebuyer :

“Buying French no longer seems to be an anecdote or a simple question of image. It is a fundamental trend which is essential; for 54% of purchasing departments, it is even a criterion for attributing business. “

O. Wajnsztok believes that this is “a defensive relocation because it is necessary to secure its supplies in a more uncertain geopolitical environment”. Other factors come into play: the increase in labor costs in emerging countries; transport costs and carbon impact; the costs linked to the quality defects of products and services … But 45% of buyers say they come up against two obstacles: French production capacities and prices.

The phenomenon described here for France – and which the coronavirus crisis illustrated with the shortage of protective masks – only partially explains the development of world trade observed for several years. El Mouhoub Mouhoud, professor of economics at Paris Dauphine, we remember indeed, before 2010, world trade increased twice as fast as world production. Today, production and world trade are evolving at the same rate. The main explanation lies in the drop in exports of assembled products in China.

“Demondialization” or “recomposition of value chains”?

The phenomenon is particularly significant in the electronics industry where these last 30 years of trade have made China “the workshop of the world”. But in its “Made in China 2025” plan launched in 2015, the Chinese government has made it a priority to hold 80% of its domestic market, which is highly coveted by Westerners. He also wants to “de-Americanize” Internet technologies.

“The United States is afraid of losing its technological leadership”, ExplainBenoît Flamant, from Corraterie Gestion. We are thus witnessing a “decoupling” of Chinese and American industries. He is today US component manufacturers banned from supplying Huawei and ZTE, who have moved ahead in 5G. The manufacture of electronic components is Chinas weak point. This is why it invests massively in this field, as in that of software and operating systems.

Apple is also embarking on a reorganization of its value chain, particularly with the countries of Southeast Asia and India. According to a study of the Boston Consulting Group (BCG) on the manufacture of an iPhone, China mainly deals with assembly and already represents only around 20% of the added value. However, according to El M. Mouhoud, today there is no “de-globalization” but “a recomposition of value chains” with very different issues from one sector of activity to another.

“Demondialization” or “multi-location”?

El M. Mouhoud also notes that “when the transaction costs of trade (customs duties, transport, etc.) increase, multinational firms tend to jump these barriers to produce locally”. Huawei’s promise ofinvest in France to produce 4G and 5G equipment fits into this logic. Multinationals are all the more encouraged to get closer to the customer as the latter is increasingly waiting for availability, quality and traceability, while respecting the environment.

Michael Mc Adoo, associate director of the Montreal office of the BCG, suggests in this regard that “in this new age of globalization, the multilocal is the new multinational. You have to produce in China to sell in China, and produce elsewhere to sell elsewhere. ” The question is then to know where we are going to produce on the territory. This problem is illustrated by the production strategies of car manufacturers in Europe. Toyota invests 400 million euros in Valenciennes rather than in its Czech factory to produce the new Yaris and a new SUV. In Spain, Renault is investing in Valladolid for the new Captur and Peugeot in Vigo for the 2008: French preference is exceeded by the logic of competitiveness.

Conclusions

The concept of “de-globalization” refers to other phenomena observed in international business strategies: the recomposition of the value chains developed by El M. Mouhoud; the multi-location proposed by Michael Mc Adoo; see the relocation that Arnaud Montebourg has been calling for since 2011.

What is certain is that a fundamental phenomenon is underway. It was revealed by the policy of the United States faced with the questioning by China of its technological and economic leadership. It will be accelerated with the coronavirus crisis, especially in industries with close ties to Wuhan, such as automotive and electronics, as well as in the health field – this under pressure from the states which are going to return. in global economic governance. It is urgent that Europe finds its place in these new power struggles where the countries producing raw materials and fossil fuels – Russia, countries of the Middle East, Africa and Latin America – are also seeking to move forward. their pawns.

The phenomena described here raise questions about how multinationals will adapt. One hypothesis is based on a reorganization into “multi-local” companies with value chains dedicated to geographic markets. It is reinforced by the observations made by El M. Mouhoud on the increase in direct investment abroad (FDI) since 2012, the objective being to innovate and produce where we sell.

Finally, is “de-globalization” good news for our territories? Our factories would be less in competition with those of Asian countries. But competition is already intensifying with those of European countries and the Mediterranean basin, Morocco in particular … At the local level, around factories, suppliers and service providers are becoming more “expected” partners on innovation ( price, quality, responsiveness) and the challenges of sustainable development ”(according to J.-L. Darras, the president of the CNA). Better consideration of environmental protection in the regions would thus be another fallout from “de-globalization”.

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Through Thierry Gonard, Teacher Methodology, Entrepreneurship and Innovation, National Conservatory of Arts and Crafts (CNAM)

The original version of this article was posted on The Conversation.

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