The New Rules: Globalization’s Next Wave of Integration

The New Rules: Globalization’s Next Wave of Integration

Thanks to the recent global financial crisis, we've heard much talk about the coming "de-globalization," defined by some as the reversal of the now decades-long push to further integrate trade among national economies by disintegrating production and spreading its means across the planet to the cheapest sources. In the past, all forms of growing supply chain connectivity could be justified on price, buttressed by just-in-time delivery capacity. But the market woes of the last year-and-a-half supposedly threw all that logic into question.

Price risk is one thing, supply risk quite another. Specialization depends on supply: the greater the specialization, the more global firms depend on the reliability of supply. Thus our global economy's growing connectivity and efficiency in production makes us all more dependent on each other, and on the logistical chains that bind us.

The outsourcing of manufacturing over the last three decades has created enormous interdependencies and, as a result, commensurate uncertainties -- which many global corporations now seek to address through strategies of vertical integration. Similarly, we're witnessing a push on the part of emerging economies -- most notably China -- to secure access to key raw materials and energy reserves. Ditto for many vulnerable, but cash-rich states on the question of food supply, what the Economist has dubbed "outsourcing's third wave." Deals no longer seem to suffice: Direct ownership is now desired.

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