The global economy is under stress. After several years of strong growth world trade is slowing. Much of this lower growth is due to the accumulation of problems in Europe and the US. There may well be similar problems that appear in the emerging economies in the near future. However, these short-term dynamics should not obscure the longer –term structural changes in the world trading system.
A recent article in the Economist magazine highlighted the ideas of a number of academics on the relationship between supply chain management, world trade and the long term nature of economic growth. Whilst many within the global logistics sector would support the sentiment that supply chains are the dominant driver of economic growth, some of this work points out that the nature of this growth has changed fundamentally over the past 20 years.
For example, Richard Baldwin of the Graduate Institute in Geneva draws a distinction between the sort of industrialisation experienced by countries such as South Korea in the middle of the twentieth century and that experienced by economies such as Thailand or China towards the end of the century. The latter were able to tap into an economy where communication – both through IT and transport- were far cheaper and more capable, enabling the manufacturing companies of developed nations to utilise the cheap labour of such emerging economies. This process, which Baldwin describes as the “second unbundling” might also crudely be described as outsourcing. It is this trend which has driven much of world trade since the 1990’s.
What Baldwin concludes is that this “second unbundling” has made economic growth far easier for poorer nations to access. However, unsurprisingly perhaps, Baldwin pays less attention to the power of logistics to deliver such change. The ability of logistics infrastructure companies – such as container terminal operators – and logistics service providers to reach into emerging economies and connect them to the global trading system is of seminal importance.
However, this trend has its drawbacks. For as logistics infrastructure spreads around the world, competition for the lower added-value processes of supply chains increases. The effect is a tendency to create a middle income trap for many of the economies who rely too heavily on outsourced operations for their economic growth.