What This Recession Means To Globalization And Supply Chain.

The world after couple of years of recession has become a very different place, the growth engine of the world has shifted to places like China and India from US and Europe. While US are working on a firm plan to come out of recession as quickly as it can, Europe is still in grip of recession as evident by the fiasco in Greece. But what this new world order will mean to the globalization and how will it affect supply chain?

The last decade saw a wave of outsourcing and globalisation taking place at each and every level of an organisation. The term globalization moved from books of high flying consultants from McKenzie’s n Accenture to the real world. Big outsourcing deals were taking place from places like China, India, and Brazil which were in part was powering growth in these markets. All big companies have bigger targets to outsource from India or China. Big offices were being setup by companies like GM, Chrysler, Volvo, Ford to make suppliers in India and China competitive enough in terms of process and quality while cost was never a problem due to low input and labour costs. But suddenly the markets in the US and European regions fell due to recession and so was the demands of goods and automobile while the markets in countries like China and India kept on growing at a pace which was making every European and US observer envy.


This all leads to a whole new paradigm in globalization:
1. Reduction in demand means the outsourcing deals were not either put on hold or the volume required reduced significantly and thus the whole benefit of outsourcing was negated.
2. The high unemployment rate in US and European regions meant labour becomes easily available at cheaper rate.
3. The requirement surged in developing countries like India or China making the domestic suppliers stretched to the maximum. This leaves them very little room to leave their capacities to foreign players. It is always logical to go with the rising star and when the rising star is near your home then why go for a fading star far away.

These changes affect a lot of supply chain professional directly. In 2008 nobody could have predicted a strong growth in 2009 thus every supplier was reluctant to put additional capacities. Now after a strong growth in 2009 and even stronger growth projected n 2010, the pressures on capacities have increased dramatically. The local markets are eating into the capacities of all suppliers and there are not many capacities left for suppliers in India and China to outsource to western countries. And if some suppliers do go for lucrative European markets then there will be shortages in already stretched markets in these developing countries. This will make the current year a very challenging one as capacities will be stretched to the maximum due to strong local demand and yet the lure of dollar will make every organization to go for outsourcing. The scarce resources will have to be managed well by every supply chain professional.