The World is Not Flat – Now What?
With rising fuel costs and inflation continuing to run in double digits in countries like India and China, the falling dollar, and rising oil prices pushing up transportation costs, is the world really flat as Thomas L. Friedman claimed in 2005?
With the cost of shipping a container from China to the USA nearly tripling by some reports from $3,000 to $8,000 and cargo ships dropping their top speeds by 20% during the crossing to save fuel (decreasing speed to market and just-in-time capabilities), will companies continue to globalize their supply chains?
Will some companies reverse the globalization of their supply chains?
And, of course, the most obvious question for readers of this blog…
Does this introduce new innovation opportunities for companies and advisors who can envision ways to profit from these new market characteristics?
Of course it will. Entire methods of production for different manufactured goods may be completely revised, only to be revised again if the price of oil and the dollar suddenly move in the opposite direction in a big way.
So maybe the opportunity here (if it has not already been implemented), is the transformation not from a global manufacturing process to one with fewer shipping points, but from a more rigid process to one that can be more flexible. Creating the ability for a manufacturer to switch between multiple manufacturing scenarios depending on what is most cost-effective. For example:
USA (raw materials) -> Vietnam (raw material processing) -> China (bulk assembly) -> Mexico (final assembly) -> USA (retail)
USA (raw materials) -> China (all processing and assembly) -> USA (retail)
USA (raw materials) -> Mexico (raw material processing) -> China (all assembly) -> USA (retail)
USA (raw materials) -> Mexico (all processing and assembly) -> USA (retail)
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