Deglobalization is the order of the day

When it comes to procurement, production and logistics, the economy should avoid all concepts based on the large-scale intercontinental exchange of goods as far as possible, recommends Jane Enny van Lambalgen, CEO of the consulting and management company Planet Industrial Excellence. She cites "geopolitical tensions that can interrupt supply chains uncontrollably at any time, as well as rising transportation costs." It is "the order of the day to say goodbye to excessive global distribution of work and goods across continents."

Return to the principle of regionality 

"In a global economy designed for globality, it is difficult to return to the principle of regionality," admits Jane Enny van Lambalgen. But she points out: "If the entire production in Europe and America is dependent on certain parts or sub-steps in Asia, then this also means that any conflict in Asia or in the relevant Asian countries or on the transport routes could potentially paralyze the entire company." 

The CEO of Planet Industrial Excellence admits that the cost advantage of 30 to 70 percent often cited for production in Asia, depending on the industry and products, cannot be ignored. But "in view of the risk of a complete halt to production, sticking to cost categories does not do justice to the current global situation," she says.

Two-stage approach: first procurement, then production

Jane Enny van Lambalgen advises companies to adopt a two-stage approach in order to achieve greater independence from the increasing geopolitical tensions. In the first step, the procurement side should be organized in such a way that there are at least two suppliers for each primary product, spread across different continents. 

"This poses enormous challenges for medium-sized manufacturing companies," the CEO knows from numerous projects. "Nevertheless, companies are well advised to take this first step quickly before things explode again somewhere in the world," she says casually. Jane Enny van Lambalgen explains: "In addition to the obvious conflicts in the triad of the great powers USA, China and Russia, which in turn harbour numerous proxy conflicts, there are many other dangers lurking around the globe, for example from terrorist organizations, the effects of which no business leader can foresee. Smart CEOs therefore put deglobalization at the top of their agenda in the sense of producing where the company's customers are located."

Warning of the supply chain trap

Jane Enny van Lambalgen warns of the "supply chain trap" in the struggle for greater independence: "It's no use relying on a supplier in Europe for a European plant, which in turn is dependent on Asian primary products," she gives a concrete example. 

She advises companies to use the time and effort already required in connection with the current EU supply chain regulations to not only provide the proof of sustainability required by law, but also to examine the resilience of the supply chain in the face of geopolitical tensions. "The same applies to the supply chain as to any chain: it is only as durable as its weakest link," the CEO points out, "a truism that often receives too little attention in management."

Positive examples from Bosch to Hugo Boss

In the second step, the reduction of global dependencies should be extended beyond procurement to the production facilities. "What is sold in America should be produced in America. What is sold in Europe should be sold in Europe," is how Jane Enny van Lambalgen sums it up. She sees the increasing relocation of production from Germany to Poland or other Eastern European countries as "economically uncritical and often sensible". She cites Bosch, Miele, Viessmann "and many other SMEs and corporations" as examples of companies that have successfully relocated to neighboring countries.

"However, setting up a production facility in Asia only makes sense at present and probably only for the foreseeable future if the products manufactured there are also primarily sold in Asia," she says, providing clear guidelines for deglobalization. On the contrary, she advises bringing production lines from Asia back to Europe as far as possible. "This does not necessarily have to be done by setting up our own European production facilities. Outsourcing to contract manufacturers with European production is a viable alternative," she clarifies, "as long as it is ensured that the contract manufacturer is not caught in the supply chain trap." She cites the approach taken by fashion group Hugo Boss as a good example of this model.

Main hurdle: caste thinking in cost categories

Jane Enny van Lambalgen describes "caste thinking in cost categories" in large parts of the economy as a major obstacle to strengthening resilience through deglobalization. She admits to the "cost riders in management": "Of course it is cheaper here and now to source primary products from Asia or operate a production facility there than in Europe, for example. But the risk associated with this dependency is constantly increasing and is becoming more and more incalculable." This applies all the more to the protection of specific know-how such as software, she points out.

The next corona could be Taiwan

Jane Enny von Lambalgen is surprised: "The lessons learned from coronavirus seem to have faded in many management circles. But you have to be clear: Corona can come back at any time, only this time it might be called Taiwan." She praises the move by German medium-sized company Stihl to Switzerland as a "clever measure". "A good example of a successful escape from the excessive regulation in the EU and the escalating operating costs for production in Germany," says Jane Enny van Lambalgen.

More information: www.planetie.ch and www.diplomatic-council.org/vanlambalgen