Deglobalization is a topic that has been discussed for some years and has intensified more recently with the arrival of the covid-19 pandemic and the outbreak of the War in Ukraine. Due to the consequences of the interruptions in the global supply chain generated by the pandemic, and more recently by the war, the discussion about protectionism and internalization of productive processes to reduce supply risks inherent in a globalized supply chain came to the fore.
During the pandemic, we have witnessed a reduction in the supply of certain types of products, mainly driven by component and raw material shortages and supply chain disruptions. The main example of this was the reduction in the supply of electronic products, mainly impacted by the insufficient supply of semiconductors, whose main world producers are in China, the epicenter of the pandemic. More recently, the sanctions imposed on Russia as a response to the invasion of Ukrainian territory meant that the supply of oil and natural gas to European neighbors, which are highly dependent on Russian exports, was substantially impacted.
This scenario highlighted a possible fragility of a globalized supply chain: the impact on worldwide supply when an incident jeopardizes the continuity of supply of a relevant link in the chain. When this occurs, there may be a shortage of raw materials, delays in supply, a reduction in supply, and consequently, disruption and price increases. In addition to economic impacts, there are also important social impacts, such as reduced access to essential products and reduced purchasing power of the population. With this in mind, the question arises: will governments and companies resort to deglobalization in order to internalize links in the supply chain in order to mitigate these risks?
If, on the one hand, globalization brings risks, on the other, it brings advantages. Having access to resources that are not available in your territory is only possible through globalization. State-of-the-art technology products whose components are manufactured in countries where the production cost is lower enable them to be sold in other countries with greater supply and more affordable prices. Internalizing the supply chain and taking protectionist measures can also have advantages and disadvantages. One advantage would be to become less susceptible to supply risks due to external factors, avoiding ruptures and shortages, for example. A disadvantage would be the lack of access to products that are not produced internally, whether due to lack of natural resources or lack of productive infrastructure.
Although the term “globalization” is historically recent, it has actually been going on for centuries. The great navigations that began in the 100th century made it possible for trade routes to interconnect all continents. It is also historically observed that the emergence of pandemics occurs at an interval of approximately every 100 years, the last being the Spanish flu pandemic in the early XNUMXth century. Geopolitical tensions between countries have always occurred, resulting in wars or not. Past financial crises have impacted the level of imports from countries in relation to world GDP, as observed in the 2008 crisis. Even so, despite the frequency of global incidents, since globalization began, it has never regressed to the point where nations are completely isolated, which is evidence that globalization is an inevitable process.
However, the current global scenario shows that companies are taking into account not only the cost factor, but also the risk factor in their strategic decisions in the supply chain. The departure of multinational companies in Russia due to the war and the search for alternative links in the supply chain to overcome shortages of certain items during the pandemic illustrate this. Therefore, it is likely that the process of deglobalization is also inevitable, but not in its pure state. Globalization and deglobalization will occur simultaneously. In today's world, it is impossible for a country to produce everything it needs internally while companies and governments are realizing that being in a global supply chain carries inherent risks. Therefore, deglobalization is a trend that is here to stay, as is globalization, which has been going on for centuries.
References:
– ILOS – Are we on the path of deglobalization?
– Correio Braziliense – Analysis: The era of corporate deglobalization?
– Definition.net – What is globalization? Consequences, advantages, disadvantages
- That is - Deglobalization: is the new global wave good or bad for Brazil?
– DW – Is the world moving towards “deglobalization”?
