SMITH BRAIN TRUST — President-elect Donald Trump’s tough talk on trade and outsourcing might never fully translate to policy, but it might help accelerate a shift that's already begun in global manufacturing, says research professor Sandor Boyson at the University of Maryland’s Robert H. Smith School of Business.
Already, Boyson says, enterprise globalization is beginning to be redefined by localized, end-to-end production and distribution in a single region where a product is in high demand. The emerging trend is beginning to replace an era of ferrying goods around the world from a single far-flung place.
On Sunday, Trump appeared to launch a warning shot to American companies in a series of Tweets. "Any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the U.S. without retribution or consequence, is wrong!” he wrote on Twitter. “There will be a tax on our soon to be strong border of 35 percent for these companies wanting to sell their product, cars, AC units, etc., back across the border."
The tweets came as The New York Times warned that Trump’s pledge to protect U.S. jobs “risks making successful American manufacturers more vulnerable by raising their costs. It would unleash havoc on the global supply chain, prompting some multinationals to leave the United States and shift manufacturing to countries where they can be assured of buying components at the lowest prices.”
Volatility Already the Norm
The threat of supply chain havoc isn’t altogether new for multinationals, Boyson says. Supply chain managers have been addressing “deep structural challenges represented by the financial crisis and shifting patterns of global demand to places like Southeast Asia,” he says. “And, more recently, regionalized, end-to-end supply chains have become extremely important tools to localize companies and brands and overcome rising trade barriers.”
He notes that recently, Nike partnered with Apollo Global Management to build a regional apparel supply chain to help the Oregon-based sports apparel company bring its manufacturing closer to home. Apple’s China-based supplier FoxConn, more recently, announced plans to manufacture iPhones and other Apple products in the United States.
“Large-scale volatility is the norm for supply chain executives,” Boyson says. “Building and maintaining global supply chains requires continuous network adjustments based on internal, operational factors, such as supplier risks in particular geographies, as well as external factors,” which he says include the kind of political risks the coming Trump administration appears to present.
Boyson says three historical eras, each with a distinctive style of corporate organization, frame enterprise globalization: The “Fordist” period, which began in the 1900s, was characterized by corporations owning “whole asset chains, from raw materials to factory to distribution,” he says.
At the close of the 1970s, virtualization of operations and flexible outsourcing took hold as the dominant management paradigm in the “Internet” era. “This model disaggregated value chains and outsourced a broad spectrum of business activities to contractors across the globe,” he says. “Internet technology then bound together these highly distributed workers and processes in real time.”
The current, third "Era of Revitalized Command" was prompted by traumas and uncertainties of Y2K; the Sept. 11, 2001, attacks; global warming and accelerating natural disasters such as the Japanese earthquake and tsunami; and rising political volatility following the 2008 great recession, including protectionism. Amid the turmoil, CEOs have placed a higher premium on business continuity and “are now intent on strengthening the global command-and-control function of the corporation through intensive risk management programs, in-sourcing and reclaiming value chain asset ownership.”
The Smith School’s Supply Chain Management Center has been researching and writing about possibilities for regionalizing and reintegrating supply chains since 2006, says Boyson, who co-directs the center and serves on the U.S. Department of Commerce's Advisory Committee on Supply Chain Competitiveness. “And now, the election of Trump will accelerate these trends.”
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About the University of Maryland's Robert H. Smith School of Business
The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and part-time MBA, executive MBA, online MBA, specialty master's, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.