January 17, 2019


Globalization in transition: The future of trade and value chains (Susan Lund, James Manyika, Jonathan Woetzel, Jacques Bughin, Mekala Krishnan, Jeongmin Seong, and Mac Muir, McKinsey Global Institute)

Globalization is in the midst of a transformation. Yet the public debate about trade is often about recapturing the past rather than looking toward the future. The mix of countries, companies, and workers that stand to gain in the next era is changing. Understanding how the landscape is shifting will help policy makers and business leaders prepare for globalization's next chapter and the opportunities and challenges it will present.

Global value chains are undergoing five structural shifts

One of the forces reshaping global value chains is a change in the geography of global demand

The rise of domestic supply chains in China and other emerging economies has also decreased global trade intensity

New technologies are changing costs across global value chains

Given the shifts in value chains, companies need to reevaluate their strategies for operating globally [...]

Section 4: New technologies are changing costs across global value chains

The explosive growth of cross-border data flows, highlighted in MGI's previous research on digital globalization, is ongoing. From 2005 to 2017, the amount of cross-border bandwidth in use grew 148 times larger. A torrent of communications and content travels along these digital pathways--and some of this traffic reflects companies interacting with foreign operations, suppliers, and customers.

Instant and low-cost digital communication has had one clear effect: lowering transaction costs and enabling more trade flows. But the impact of next-generation technologies on global flows of goods and services will not be as simple. The net impact is uncertain, but in some plausible scenarios, the next wave of technology could dampen global goods trade while continuing to fuel service flows.

Digital platforms, logistics technologies, and data-processing advances will continue to reduce cross-border transaction costs and enable all types of flows

In goods-producing value chains, logistics costs can be substantial. Companies often lose time and money to customs processing or delays in international payments. Three sets of technologies will continue to reduce these frictions in the years ahead.

Digital platforms can bring together far-flung participants, making cross-border search and coordination more efficient. E-commerce marketplaces have already enabled significant cross-border flows by aggregating huge selections and making pricing and comparisons more transparent. Alibaba's AliResearch projects that cross-border B2C e-commerce sales will reach approximately $1 trillion by 2020. B2B e-commerce could be five or six times as large. While many of those transactions may substitute for traditional offline trade flows, e-commerce could still spur some $1.3 trillion to $2.1 trillion in incremental trade by 2030, boosting trade in manufactured goods by 6 to 10 percent. Continued rapid growth in small-parcel trade would present a challenge for customs processing, however.

Logistics technologies also continue to improve. The IoT can make delivery services more efficient by tracking shipments in real time, and AI can route trucks based on current road conditions. Automated document processing can speed goods through customs. At ports, autonomous vehicles can unload, stack, and reload containers faster and with fewer errors. Blockchain shipping solutions can reduce transit times and speed payments. We calculate that new logistics technologies could reduce shipping and customs processing times by 16 to 28 percent. By removing some of the frictions that slow the movement of goods today, these technologies together could potentially boost overall trade by 6 to 11 percent by 2030.6

Automation and additive manufacturing change production processes and the relative importance of inputs

Previous MGI research has found that roughly half of the tasks that workers are paid to do could technically be automated, suggesting a profound shift in the importance of capital versus labor across industries. The growing adoption of automation and advanced robotics in manufacturing makes proximity to consumer markets, access to resources, workforce skills, and infrastructure quality assume more importance as companies decide where to produce goods.

Service processes can also be automated by artificial intelligence (AI) and virtual agents. The addition of machine learning to these virtual assistants means they can perform a growing range of tasks. Companies in advanced economies are already automating some customer support services rather than offshoring them. This could reduce the $160 billion global market for business process outsourcing (BPO), now one of the most heavily traded service sectors.

Additive manufacturing (3-D printing) could also influence future trade flows. Most experts believe it will not replace mass production over the next decade; its cost, speed, and quality are still limitations. But it is gaining traction for prototypes, replacement parts, toys, shoes, and medical devices. While 3-D printing could reduce trade in some specific products substantially, the drop is unlikely to amount to more than a few percentage points across overall trade in manufactured goods by 2030. In some cases, additive manufacturing could even spur trade by enabling customization.

Overall, we estimate that automation, AI, and additive manufacturing could reduce global goods trade by up to 10 percent by 2030, as compared to the baseline. However, this reflects only the direct impact of these technologies on enabling production closer to end consumers in advanced economies. It is also possible that these technologies could lead to nearshoring and regionalization of trade instead of reshoring in advanced economies. Moreover, developing countries could adopt these technologies to improve productivity and retain production, thereby sustaining trade.

New goods and services enabled by technology will impact trade flows

Technology can transform some products and services, altering the content and volume of trade flows in the process. For example, McKinsey's automotive practice estimates that electric vehicles will make up some 17 percent of total car sales globally by 2030, up from 1 percent in 2017. This could reduce trade in vehicle parts by up to 10 percent (since EVs have many fewer moving parts than traditional models) while also dampening oil imports.

The shift from physical to digital flows that started years ago with individual movies, albums, and games is now evolving once again with streaming and subscription models. Streaming now accounts for nearly 40 percent of global recorded music revenues. Cloud computing uses a similar pay-as-you-go or subscription model for storage and software, freeing users from making heavy capital investments in their own IT infrastructure.

The advent of ultra-fast 5G wireless networks opens new possibilities for delivering services. Remote surgery, for example, may become more viable as networks transmit sharp images without any delays and robots respond more precisely to remote manipulation. In industrial plants, 5G can support augmented and virtual reality-based maintenance from remote locations, creating new service and data flows.

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Posted by at January 17, 2019 3:56 AM