Supply chains shift from global to local

Remember when New York Times columnist Thomas L. Friedman came out with his internationally best-selling book The World Is Flat: A Brief History of the Twenty-first Century in 2005? Friedman's book, which won the Financial Times and McKinsey Business Book of the Year Award, outlined how globalization had transformed commerce, saying that historical and geographical divisions were becoming increasingly irrelevant.

Fifteen years later, much has changed, and a new report from A.T. Kearney now argues that "focusing on achieving growth through economies of scale, efficiency enhancements, globally integrated value chains, and the sale of mass-market products is no longer a viable strategy for many companies." The future is no longer global, but local.

To be clear, the paper, "Competing in an Age of Multi-Localism," does not recommend that companies stop competing in international markets. Instead it argues that having the same management structure, supply chain, production processes, and marketing for all operations globally no longer makes sense. Instead global companies will still be operating across the globe in multiple locations, but practices, processes, and products will be customized to fit the local community—this is what Kearney means by "multi-localism." Sometimes this customization will occur at a national level, and sometimes—for example in extremely diverse and complex countries such as India, it will occur at a subnational level.

As a byproduct of this trend, supply chain complexity will increase because companies will have to give up the economies of scale and internal simplicity associated with global operations. While there will still be some centralized core divisions or centers of excellence, operational subunits will be given more autonomy to engage with local communities.

This change is being driven not only by nationalistic and protectionist governmental policies but also by shifting consumer preferences and advancements in technology. There's a growing consumer preference for goods that are made or grown locally with a greater amount of personalization. At the same time, developing technologies such as 3D printing are making it more affordable to locate production closer to the point of consumption.

According to the report, this trend is especially strong in consumer goods and government-back strategic sectors like advanced technologies, and it has the potential to hit big in the service industry in the future.

To compete in this new world order, companies will need to reassess what they believe to be their core markets, according to the report. The authors—A.T. Kearney's Courtney Rickert McCaffrey, Erik R. Peterson, and Paul A. Laudicina—argue that it is no longer a given that a global presence is necessary for success. Instead companies will need to be very careful about what markets they enter. Once they have committed to a market, companies will need to make it a priority to stay attuned to shifting local conditions and remain actively engaged in the local community.