Globalization, Regionalization, and Localization

Globalization has been driving the market since 19th century and at present its true dominance has been observed due to advancement in communication and transportation. I could see a rat race among the top organizations across the globe to capitalize their benefits by adopting different globalization strategies to accelerate their business growth. This scenario motivates one to look for the opportunities that are needed to be explored to meet various customer demands.

However, companies entering to deploy globalization strategies should outweigh potential short-term benefits and focus on establishing best-in-class lean supply chain as their top priority.

Long-term benefits certainly are evidenced by applying globalization strategies, no doubt on that. Also, it’s imperative to know that globalization strategies must be flexible to adopt geopolitical environment and other force majeure conditions.

It is a long journey in which effectiveness can be seen by going regionally and then locally but keeping full focus on going globally. In this way globalized supply chain mechanism works to deliver significant results.

I am a strong believer of regional sourcing, if local sourcing does not mature enough to support the business. I always also question what if large-scale multinational companies invested their time to develop regional sourcing instead of spending hefty amount of time and money to develop global sourcing?

I was keen to push hard my team to look for supply base close to business which I believe beneficial in the long term, and this could support businesses during unplanned events such as epidemic or pandemic period.

It’s worth further exploring regionally & locally. Furthermore, business continuity with the view point of developing regional and local supply sources will work economic to stay competitive.

While addressing this topic, procurement professionals should always keep in mind that cost is not the only deciding factor of business, thinking of long-term perspective is also important matter to look during these days.

In the past decade, it had been seen that global sourcing opened big door for new economies to get access to international business. Among many other factors, cost is not only the deciding factor. Overall end-to-end value proposition is weighted before selecting the right suppliers.

Remember, choice of right suppliers will help your business running successfully with less risk.

Some of the positive and negative impacts of globalization are listed for your easy reference:

Globalization

Globalization is the exchange of viable products, technology, idea and talents across national borders and cultures. In economic terms, it describes an interdependence of nations around the globe fostered through free trade.

Positive impacts of globalization

• Free trading opportunities between countries help to avoid business complexity. Also, this initiative supports economic growth in the developing countries by the investment of the developed countries.

• Knowledge sharing and technology transfer between countries become easier due to globalization.

• Indigenization and localizations opportunities are the direct benefits to the developing countries to scale up technology fastly.

• Mix/Match of high-cost country and new economies together control the products/service cost, which brings direct benefit to end customers.

• Helping the developed countries to continue focus and invest on R&D, continuous engineering and innovations let the developing countries share their workload in managing less critical tasks.

• Clearly defined flawless responsibility matrix between the developed and developing countries bring long-term benefits.

• It provides an opportunity to fair competitiveness.

Negative impacts of globalization

• Employment threats for developed counties for skilled and nonskilled resources.

• Manufacturing of products that are harmful to environment e.g., leather, casting, battery, surface treatment etc.)

• The quality level of product and service is always a painful topic to address until the developed countries attain required maturity level.

• Cultural difference between the countries addressing globalization together.

• Forex, country policy and rule changes impact the objectives of globalization.

Localization and regionalization

Localization & regionalization refer to working with companies which are close to our customer location in the same country or continent, with a focus to develop tailored products to meet our customer demands. It is a process of adapting suppliers in the same region and developing them to meet industrial standard set once by global front runners in the same industry.

Positive impacts of localization and regionalization:

1. Geography, simplified logistics flow, speeding up the transportation of products and services.

2. Working capital optimization, free cash flow and better credit line.

3. Being very close to the good and service providers increases collaboration and innovation.

4. Increase in employment opportunities in the region.

Negative impacts of localization and regionalization:

1. Non-readiness of supply base.

2. Sustainable issues of local and regional suppliers.

3. Lack of local skill set and highly time-consuming to bring them up to the international standard.

4. Compromising on service level and product quality.

Role of procurement in localization and regionalization

1. Developing local supply base and making it sustainable.

2. Working capital management (visibility of supplier-managed inventory).

3. Risk management & logistical management.

4. Concentrate on value proposition and differentiating factors.

5. Mix and match the decision to go local/regional vs global and review it very often.

6. Stay close to suppliers in every critical milestone as their performance directly/indirectly impacts yours often.

Type of disruptions

While going through globalization and localization, it’s appropriate to understand the type of disruptions in supply chain management. The COVID-19 crisis was a not part of supply chain disruption plan of many businesses. With its unexpected global impact, it is a good example to illustrate each of the following supply chain disruption types:

• critical suppliers’ failure to meet the buyers’ requirement in terms of quality and delivery,

• logistics failure due to increase in transport cost, port strikes and trade embargos,

• transportation failure and delays,

• force majeure situations (pandemics and natural disasters),

• procurement and supplier strategic failures,

• drops and surges in demand,

• reduction in productivity due to labor and equipment shortage,

• shortage and access restrictions (warehouse shutdown) and

• raw material shortage.

Not all disruptions are necessarily negative for businesses. Yes, it happens so that you make necessary changes to avoid that situations in future. But in the case of a demand surge, it’s possible that this disruption generates more sales.

It has been said that “the best offense is a good defense”, and that’s certainly true when it comes to managing supply chains. You probably won’t get much advance notice about disruptions to your supply chain, so it’s a good idea to make sure that you plan for any eventuality.

Here are a few things to consider while creating a strategy for managing supply chain disruptions:

• Create a supply chain emergency plan.

• Strengthen supplier data base.

• Routine supplier business reviews.

• Build up inventory.

• Conduct a supply chain vulnerability audit.

• Expand local and regional supply base.

• Partner with logistics expert.

• Put risk assessment part in procurement process.

Following survey results from consulting firm Procura help you understand Covid-19 impact in Sourcing.