From Globalisation to Glocalisation
A report from PwC and the Global Manufacturing and Industrialisation Summit (GMIS) discusses the glocalisation of manufacturing in 2021.
Entitled, 'The journey from globalisation to glocalisation, how COVID-19 has accelerated the shift to more local and flexible operations', the document highlights an emerging requirement for companies to regionalise their footprint, increase the use of robotics for manufacturing and logistics, and change the cost model for production and sourcing.
The report states that amid these emerging themes, COVID-19 has ensured that the case for moving from global to ‘glocal’ operations has gained significant momentum. The opportunities and related risks of glocalisation vary in importance between regions and sectors. With a focus on the Middle East, Germany, India, the United States, Greater China, and the United Kingdom, the report reflects various global perspectives where the pandemic has accelerated efforts by industrial companies to make inflexible global footprints more agile and responsive to demand.
Launching the report, Anil Khurana, Global Industrial Manufacturing & Automotive Leader, and Principal at PwC in the United States, commented: "In a post-pandemic world where reliable, real-time data is essential for both business and health and safety reasons, we anticipate an emerging trend for greater supply chain and operational collaboration between companies – whether through sharing automation technology to devise innovative, rapid solutions to bottlenecks, or joint sourcing of protective equipment to shield employees from the virus.
"A global economic disruption is unfolding in front of our eyes. The COVID-19 crisis hit when global supply chains were already under pressure from new tariffs and restrictions resulting from trade disputes. We now realise that designing operations and supply chains on the basis of cost optimisation alone can create risks, as the recent shortages in medical supplies, personal protective equipment (PPE), semiconductors, and others has shown us. How can future value chains deliver flexibility and resiliency, while enhancing the customer experience, in the midst of a number of geopolitical concerns? This “glocalisation” balancing act may mean different things for different countries, but at its core, it relies upon agile and multi-location global operations, and use of technology and digitalisation to ensure data-driven insights and decisions, greater transparency and resiliency, and improved efficiencies even at less-than-global scale.
"This creates an imperative for countries and companies to upskill their workforce and enhance digital capabilities to stay competitive and relevant. We anticipate an emerging trend for greater supply chain and other forms of collaboration among groups of countries and companies, by both sharing lessons learned as well as co-developing new innovative solutions, as the recent experience with vaccine development and distribution has shown."
The report highlights how digitalisation and automation enable companies to go more local by taking labour out of the supply chain and manufacturing equation. Furthermore, traditional supply chain approaches that focus narrowly on cost efficiency need to be broadened. Factoring in flexibility, resiliency, and customer experience can create differentiation in the marketplace and drive improved revenue growth. The report also focuses on how COVID-19 encourages supply chain and wider operational collaboration between companies, with automation helping to solve bottlenecks with innovative, rapid solutions.
Badr Al-Olama, Head of the Organising Committee for the Global Manufacturing and Industrialisation Summit, comments: "Digitalisation is critical to rolling out and implementing successful glocalisation strategies. Companies that have used advanced supply chain technologies have achieved greater transparency, flexibility, and local asset utilisation, in addition to seeing operational savings. However, if manufacturers fail to recognise the power of digitalisation, they will likely see their competitive edge erode. Across the Middle East, countries are prioritising the potential of the digital revolution, constantly seeking ways to support organisations - from the manufacturing sector and beyond – to develop their digital knowledge and capabilities."
Providing a Middle East perspective, Dr. Bashar El-Jawhari, Partner and Leader of Industry 4.0, procurement and supply chain, PwC Middle East, adds: "Despite challenges posed by the pandemic, we believe that the region is well-prepared for a successful ‘glocalisation’ journey in two respects. Firstly, major public and private sector companies have experience at building sustainable, flexible operations in a region afflicted by continuous challenges. Secondly, in recent years Middle Eastern countries led by the United Arab Emirates (UAE), Saudi Arabia and Qatar have made massive investments in information and communications technology (ICT) in order to reduce their dependence on oil revenues by creating dynamic, digitalised 'knowledge economies'. As a result, manufacturers in the Middle East now have access to world-class technology to modernise and localise supply chains and production."
Publication of the report follows a virtual panel session at the Global Manufacturing and Industrialisation Summit’s Digital Series which discussed the increasing shift to glocalisation on a national scale brought on by COVID-19, and its impact on operations and supply chains.
The panel offered detailed views on different regional approaches and drivers used to forge a path to success amid this shift. The panel included Dr. Bashar El-Jawhari from PwC Middle East; Cara Haffey, Partner and Leader of Manufacturing and Automotive, PwC UK; Brett Cayot, Partner, Strategy & Operations, PwC USA; Jan Nicholas, Partner and Leader of Operations Consulting team, PwC Hong Kong; Shashank Tripathi, Partner, Government Strategy & Transformation Leader and Leader of Aerospace & Defence practice, PwC India; and Dr. Michael Wagner, Partner and Leader of PwC’s Fit for Growth transformation platform in EMEA, Strategy& Germany.
Additional Insights - Country Perspectives
The report forecasts German industrial organisations will not roll back to globalisation. Instead, there will be a shift to a far more flexible global manufacturing footprint, with more localised physical value chains within a regional set-up. The report also emphasises that even before the pandemic, many German companies were adjusting their footprint to adapt capacities and networks to meet future demand, and the COVID-19 crisis has simply accelerated the execution of these strategic footprint decisions.
Michael Wagner, a partner in PwC Strategy&’s Industrials team in Germany, explains: "COVID-19 has disrupted supply chains and exposed an insufficient resiliency. Now is the time to bring efficiency and scale into balance with flexibility and robustness.
"Going forward, the report highlights that a growing number of companies will move to multi-sourcing strategies and a more flexible range of suppliers, while investing further in digital technologies, especially automation and robotics."
The report highlights that while India is not yet a major manufacturing power, it is a leading exporter of digital technologies and skills that are now increasingly being applied by companies to develop robust, digitalised supply chains that can meet domestic and international demand. Due to India’s size, a critical challenge will be bringing hyper-local supply chains into the digital age through robotics and other advanced technologies. The investment is worth the potential prise of greater participation by Indian companies in global trade, even as an increase of “inward” home-based manufacturing reduces India’s import dependency.
Shashank Tripathi, PwC India’s Government Strategy and Transformation leader, says: "COVID-19 is both a crisis that has to be tackled and an opportunity to make bold, transformative decisions about operational models and supply chains."
The United States
Focusing on how COVID-19 has significantly accelerated US companies to diversify manufacturing and supply chains and develop more agile, flexible operations, the report points to efficiencies which have been achieved and closer integration with end-user needs.
Brett Cayot, a partner in PwC’s US Strategy and Operations practice, suggests: "US manufacturers were starting to consider factors that were not in the total cost model, such as resiliency, flexibility and customer experience.
"We expect to see more post-COVID-19 dual strategies where US manufacturers have operations in both the US and Mexico or in Mexico and another LCC in Asia."
Based on analysis for PwC’s 2020 Supply Chain Resiliency Report, it is estimated US manufacturers that shift production from China could cut operating costs by an average of 23 per cent if they 'near-shore' to Mexico, and by 24 per cent if they transfer to another Asian low-cost country (LCC). However, some long-standing US companies in China may prefer to adopt a 'China + 1' model to avoid forfeiting well-developed supply and production networks or direct access to mainland customers.
The report focuses on how manufacturers in China face challenges in satisfying both Chinese and international demand while balancing the geopolitical and economic tensions between the US and China without offending either country. This balancing act will require sensitive handling and is likely to influence footprint choices. The report highlights that while executives have so far been reluctant to commit to large-scale footprint change, the escalating tensions will force many companies to decide; those with clear mitigation strategies will come out ahead of those that defer until a decision is forced on them.
"US-China trade tensions mean companies are worrying about geopolitical risk first, and cost has become a boundary condition rather than the primary objective. They are aware that they cannot create a cost problem while addressing geopolitical risk, but cost no longer comes first," says Jan Nicholas, leader of PwC’s operations consulting and supply chains team in Hong Kong.
The United Kingdom
The report highlights that the potential impact of Brexit on supply chains has prompted a wider political debate about the UK’s need to build onshore manufacturing capacity that is resilient and flexible. Yet this pressure to “go local” has been accompanied by warnings from UK business groups and manufacturing associations that it takes a long time – and careful planning – to change supply chains.
Cara Haffey, PwC’s UK leader of Manufacturing and Automotive, comments: "Some companies have discovered that if they have more agile, flexible operations in multiple locations that are closer to the market they can sell more."