Globalisation is described as the growing interdependence of the world’s economies, cultures, and populations. It is generated by regular cross-border trade in goods and services. Due to the disruption and economic unsettlement of recent world events, globalisation could be in trouble.
In this article, we explore 7 reasons why globalisation is under threat from world events and how it could affect your business.
World events disrupting global supply chains
In recent years, the international trade market has taken a big hit. Supply chains have been disrupted throughout the covid-19 pandemic, following further disruptions by Brexit, with the latest difficulties coming as a result of Russia’s invasion of Ukraine.
These events are contributing to the re-shaping of global supply chains. Here are 7 reasons why they are threatening globalisation –
- The war between Russia and Ukraine poses a threat to essential oil, gas, and grains. Although the proportion of imports and exports to/from Ukraine is relatively low, each amounting to only 0.3% of global goods, the goods traded are crucial and will have a big impact on supply chains across the world.
- Talent gaps and staff shortages in certain industries are affecting production, logistics, and all levels of the supply chain. The changing global job market after the pandemic is the cause of this disruption. Haulage, transport, farming, and hospitality sectors are amongst the worst-hit in the UK, with reduced staff numbers putting pressure on their ability to operate as normal.
- Manufacturing is changing due to global disruption. There have been manufacturing delays in the production of both finished products and components resulting in out-of-stock situations and lost sales across the world. In the UK, there are shortages of everyday products from tampons to 99 flakes. Delays in the production of new cars – especially EVs- have resulted in a shortage of second-hand cars and have increased costs and prices across the board. Many companies are now trying to bring their manufacturing closer to home or to make their own goods to reduce risk. One example that caused a huge strain on the global trade market was the shortage in medical supplies during covid-19. It’s been found that supply chain shocks could cost the average medtech company 38% of one year’s earnings, so companies are adapting to avoid further disruption. Resolving these issues locally is reducing the need for world trade.
- Brexit has caused red tape and unreliable delivery schedules. One in five small businesses in the UK is classed as an exporter, so they must now deal with extra regulations and costs. Many companies are changing their business model to reduce exports to survive.
- Reduced commercial travel has affected global supply chains. Whilst 90% of the world’s global trade makes at least part of its journey by ship, air freight is usually carried on commercial airline flights to reduce the cost. The reduction in commercial flights has resulted in reduced trade opportunities and increased freight costs.
- New restrictive FDI policies have been implemented worldwide. Foreign direct investment (FDI) rules apply when a business takes control of another business entity in another country. This will make investments overseas more challenging and may encourage investors to remain in their own country.
- The covid-19 pandemic exposed the weakness of concentrating production in one location. For example, China’s share of global trade exceeds 50% in some industries, posing a huge threat when the production centre is disrupted.
Prevent threats to your supply chain
At the beginning of the covid-19 pandemic, many companies realised the need to improve their supply chain resilience. With the added stress of Brexit and the Russia-Ukraine war making globalisation even more fragile, this has never been more important.
There is a shift in supply chain and logistics towards “near sourcing” and “just in case” inventory management to help overcome these issues.
EC Group can help your business hold and manage stock efficiently, thereby reducing threats to your supply chain. Speak to a logistics specialist to overcome supply chain disruption and many other challenges to your eCommerce business.