Has Globalization Led to Problems in the Supply Chain?

Globalization refers to the free movement of information, goods, services, and people worldwide. Within the context of supply chain management, globalization pertains to the process wherein businesses operate on a global scale.

The Cases for (and Against) the Globalized Supply Chain

Globalization has made it possible to link seemingly disparate markets and regions to global economies at a lower barrier to entry and lower risk exposure. The phenomenon is helping progress technological development by creating standards that bring together the best that countries and economies have to offer. It also lays the groundwork for us to negotiate free trade agreements that seek to reduce economic restraints that prevent free movement of information, people, and goods.

Here are the main benefits of globalization:

  • Expand global reach to new customers. Globalization has simplified the entire communication process among supply chain participants, making it easier for them to tap into new market segments and keep in touch with their customers no matter where they are.
  • Opening up sourcing possibilities. Globalization makes it easy for businesses to harness a wide array of goods, services, labor, and resources from different parts of the world, many of which were previously inaccessible.
  • Expand product and service lines. As globalization boosts broader sourcing possibilities, it also increases the range of goods and services you can offer to your potential customers.
  • Scale up the business. Globalization opens up communication to everyone and makes it effortless, which plays a vital role in helping companies to expand their businesses.
  • Save more while increasing profits. Opening up more diverse sourcing options to peruse and profit from means more opportunities to save on spending and improve the possibility of turning a profit.

Undoubtedly, globalization has transformed the way manufacturers work, ultimately providing them with a chance to reach the vast, untapped potential of customers in new markets while opening the doors to greater competition.

On the downside, globalization bloats supply chains and increases their complexity. Globalization’s impact on trade cannot be understated. Considering how everything is now linked, any disruption can be a serious concern.

We don’t need to look any further than how the ongoing Coronavirus pandemic has derailed entire supply chains. It’s a stark reminder of how crucial efficient risk management is to get back to business as usual as fast as possible. The globalization of supply chains has also asked a new set of pressing questions to business owners regarding managing their supply chains. Here are some of globalization’s negatives:

  • Increased complexity. As companies move towards globalized supply chain models, the more critical it is to scale their businesses to meet demands.

Increased supply chain risk exposure. Having your production line spread out across the globe means your business is at the mercy of global events, such as natural disasters, geopolitical changes, artificial upheaval, or in more recent times, pandemics.

  • Increased pressure from competition. Breaking into a new market means that you aren’t the only company in your field. There will be a handful of companies similar to yours with the exact same access to the same supply as you do. The competition is tough, and staying as lean and efficient as can be is a requirement of staying relevant in the global market supply chain.
  • More challenging data collection and processing requirements. Data processing is subject to increasing oversight and regulation, adding another layer of complexity.
  • Legal concerns. Operating across borders means working in countries with different legal systems, which can quickly get complicated and expensive.

Closing Thoughts

As globalization mints new fortunes, it also creates problems. All parties within the supply chain need to take precautions to minimize downtime, such as employing backup suppliers to avoid disruptions at any stage of the process.

Globalization is a reality today’s businesses need to face, and therefore safeguards must be maintained to reduce risk exposure. This is where business continuity planning is critical, as this tests the capabilities of stakeholders to determine a successful or an inefficient supply chain.

For better or worse, globalization is a net positive for the supply chain, the economy, and the world in general. Granted, it also exposes businesses to risk — but only if you don’t take steps to protect against it. The key is to reduce the harm of its worst effects on your supply chain. One thing’s for sure: the benefits of globalization far outpunch the risks in this battle.

Regardless, as the pandemic drags on, disruption will become a common word we’ll all encounter in the coming months, and it will only be worsened by the gloomy outlook and the challenges of reopening up the economy and firing up dormant supply chains. It’s critical, therefore, for business owners to take stock of what actions they can take right now to improve their resilience in the event of another disruption.