By Pedro Palandrani | September 11, 2020
Over the past few decades, many corporations in advanced economies took advantage of low trade barriers and globally integrated supply chains to outsource manual tasks to workers in countries with lower labor costs. But recently, exogenous risks such as trade conflicts, geopolitical tensions and, now, the COVID-19 crisis have companies rethinking their supply chain strategies. Reshoring manufacturing to their home countries and diversifying supply chains are now priorities as firms look to maintain greater control and avoid costly interruptions. While some may expect these efforts to increase labor costs, we at Global X believe companies will rely heavily on the latest robotics and automaton technologies to help control expenses.
Offshoring Transformed Supply Chains Historically, offshoring manufacturing offered companies an attractive alternative to domestic production. Featuring lower labor costs, attractive exchange rates, relaxed regulatory environments and strong support from local governments, many firms enthusiastically outsourced or offshored much of their manufacturing operations to developing economies. China in particular became the world’s factory, accounting for approximately 13% of total global exports and 11% of total global imports(1). Other emerging markets followed suit, with countries like India, Vietnam and Thailand courting companies to establish factories within their borders.
Today, the world trades approximately $20 trillion worth of physical merchandise (2). Emerging economies represent almost half of that volume, totaling $8.2 trillion in exports, as much of these goods are assembled in emerging markets and consumed by richer countries (3). Since China entered the World Trade Organization (WTO) in 2001, the US lost over 4 million manufacturing jobs (4). […]