Does Covid-19 Mark the End of Globalization?
Updated: Dec 28, 2020
Are we witnessing the end of globalization? The simple answer is no. But, there is a more nuanced answer that I'd like to suggest: globalization will survive, but it will be different from what we've known.
If the coronavirus outbreak has shown us anything, it's that global supply chains are inherently prone to disruption, and, more so, are extraordinarily fragile. What's more, in retrospect, it's apparent that vast swaths of our industry became too reliant on one or two supplier countries. Avoiding diversified sourcing while favoring more established sourcing programs.
Indeed, our industry neglected risk management as many saw the system as an efficient means of delivering large quantities of products to consuming country markets. And we were lax in implementing sensible risk management procedures. For others, it came down to cost: it was cheaper to just stay with what worked.
Now, it's easy for me to look back on history and say the industry screwed up. But to do so would be taking the easy way out and merely assigning blame, which doesn't accomplish anything. After all, no one thought that global supply chains were so vulnerable to disruption. In fact, such traditional sourcing techniques were long-established.
Even so, our industry is now faced with a double dilemma of diminished global production in exporting countries and anemic demand in importing countries. In short: the system has ceased up.
A More Constructive Way Forward
As with any stalled piece of machinery, finding the oil necessary to unfreeze the cogs and gears of the machine is paramount to get it working again.
For sure, waiting out the run of coronavirus (Covid-19) around the world is the obvious first step. It will run its course. Perhaps government actions to keep people isolated at home and away from public places will slow the trajectory of the virus's path of destruction throughout the world. And there's always the chance that a vaccine will be developed in time to stem the tide of sickness and death.
Unfortunately, all we know for sure is that we'll have to wait out this bug. It will be costly in terms of blood and treasure. But once the virus has moved through society, then we will have to come to grips with what's been left in its wake.
I think it's fair to say that the world will be weakened initially, as so many people will be scared by the virus. Some will be inclined to play the blame game — anger aimed at governments, countries, and peoples. But to succumb to such tawdry displays of emotion will only prolong the effects of the virus after its medical impact has long passed. We have to think bigger.
As a global society, a collective community of nations made up of individual people, we will need to focus on constructive ways of assessing the damage wrought by the outbreak. We'll need to figure out how to rebuild and how to avoid or cope with a repeat should another contagion strike our society. In this context, I don't see the end of globalization per se, but a new version of global trade will take its place.
Implications for Our Industry
Let's get back to our industry. To be sure, once the worst of the Covid-19 outbreak is behind us, and consumer and business psychology improve, there are many lessons to be learned from the contagion. But nothing more critical than discovering that the farther the source of production in a supply chain is from the buying market, the riskier the business activity. In this sense, chasing cheap sources of supply from places farther and farther away from consuming countries comes with unforeseen costs.
Moreover, the unpredictability of a pandemic underscores other lessons to be learned. A single virus has disrupted the global economy in a way not seen since World War II. Beyond the medical effects of the illness lies the psychological impact. It's terrible and getting worse. Weak political leadership and slow response to the threat posed by the virus has also exacerbated the situation.
Yet, ironically it was leadership from the political class that also led us into a globalized world in the first place with the founding of the WTO. As a result, we enjoyed lower import tariffs, the end of quotas, and the implementation of rules designed to ensure the free flow of goods and services around the world.
And, make no mistake, our industry has directly benefited from the WTO system. Without this system, it would have been very hard for brands and retailers to offer the range of products at reasonable prices for consumers everywhere. Further, millions of people making these goods were pulled out of poverty. These are the positive aspects of globalization, facilitated by WTO rules and guidance, and established a world of international supply chains.
However, it came with hidden costs. Beyond the trade of goods and services, another aspect of globalization is that countries now tend to import each other problems, whether social, economic, or, in the case of Covid-19, medical. By doing so, weaknesses in the global system have become more apparent.
Allow me to provide an example. The U.S. government just put out a call for medical supplies, necessary products such as scrubs, masks, and so forth. Guess what? They couldn't find the volumes required to meet the medical demands of combating the Covid-19 outbreak. And I'm not just talking about domestically-made products, but products that under normal circumstances in a globalized world would have been imported from manufacturers overseas.
Still, because of the insidious efficiency of the Covid-19, such imports are nearly impossible to obtain, and the countries where such production exists need that production for their own citizens.
Globalization was predicated on smooth running supply chains, crisscrossing the world. These, in turn, provided products at reasonable prices for consumers anxious to fill their closets with the latest fashions. But, now, a gaping hole in the globalization model has been exposed for all to see. And the medical supplies problem adds a degree of seriousness to the issue as a practical, real-time problem that any citizen of any country can understand.
Even more, there's a growing sense of shock about how little is actually made in the U.S. today. Frankly, Europe is faced with the same problem. Key sectors are woefully deficient in meeting the demands of the medical emergency. And for so many developed world economies, it goes beyond the medical emergency at hand.
Globalization's Efficiencies and Costs
Let's be clear: globalization has been efficient and offers many benefits. But with the march of globalization, significant industries throughout the developed world have been hollowed out, emptied of talent, and financial vitality. We see this, especially in our industry. Twenty years ago, more than half of all clothing sold in the United States was made domestically; today, it's just a couple of percent. Imports have swamped the market.
Yes, consumers have benefitted with low prices and greater product variety, but these benefits have come with real costs. So many products are cheaply made, and often made by poorly paid workers in terrible environments. More so, the distances required to support these elaborate supply chains, the greenhouse gas emissions necessary to power ships and planes, harm the planet. The model that has grown up under globalization is predicated on 18,000-mile supply chains, sold to consumers at the lowest price possible while maintaining the highest possible through-put of product.
But this model has proven to be a steady race to the bottom. From a business perspective, this model of production — often referred to as "fast fashion" — has efficiently stuffed stores full of products that increasingly no one wants. And that was before to Covid-19 outbreak. Today, many of the top stores in the world are closed as government and municipalities struggle to contain human transmission of the virus.
I don't think many of these stores will ever reopen, particularly large-chain, mall-based stores. Financially, they were on shaky ground before the outbreak. What we may find is that the infestation will only hasten their demise.
Implications for the Future
It doesn't seem that the Covid-19 will wipe out civilization, although the current situation is plenty scary. As of this writing, I have a sick family member awaiting test results of whether he has contracted Covid-19 or not. So, Covid-19 is personal for me, and I know the outbreak is as well for so many thousands of other people around the world.
But back to our business. Mall-based retail made be permanently harmed by the virus, and other forms or physical retail may also be irrevocably altered. Yet, I've heard the online sales for many retailers and brands remain descent. There's no question the overall demand for clothing is down, as many consumers have been laid-off by their employers. A bunker mentality has people conserving their financial resources. The psychology is awful. Now's not the time to buy new wardrobes.
Even so, I can't help but think that change — permanent change — will occur as a result of all of this. If anything, online shopping may only grow as a result. What's more, globalized supply chains may fade away. In its wake, more local and regionalized supply chains may gain a foothold in the market. I suggest that speed to market will become more critical than ever.
Heck, environmentalists have been telling us for years that globalized supply chains were not sustainable. Perhaps they were right, only for unforeseen reasons.
It's essential to think through possible implications for the future after Covid-19. Still, it's equally important to avoid blaming others for something that no one could have seen coming. We should learn from the past so that we can prepare for the future. And, never give up.
Note: This article was originally published on just-style.com in April 1, 2020.