The new landscape for manufacturing

Even for micro businesses, how things get made can be shaped by macro trends and geopolitics. Now small-scale producers are taking back control.
manufacturing hero

Globalisation was going pretty well until trade wars with China hit, followed by Trump, Brexit and Covid-19. When you can’t source goods or parts from the other side of the world, long, tenuous supply chains and worldwide marketplaces don’t seem quite so appealing. Understandably, then, there has been a backlash. And the backlash has a name: slowbalisation.

The term was coined by Dutch trend-watcher Adjiedj Bakas long before the pandemic, in January 2019, and is a nod to the slowing down of the global economic cogs of commerce. In recent months, the idea has come back into fashion. 

‘We’ve seen that sourcing from Asia to Europe is too complicated in times of crisis,’ says Adjiedj. ‘We’re also learning that buying more local goods and services makes more sense.’

Head to Almere, a satellite town on the leafy fringes of Amsterdam, and you will find a number of homes with Italian glass lighting by La Fucina del Vetro. ‘I recommended this small producer from Venice I found on eBay to all of my neighbours,’ says Adjiedj. ‘The chandelier producer was on the site fishing for trade, using eBay as bait. I got a better price going direct.’

The same scene is playing out all around the world. ‘Young digital-first startups in central Asia selling beautiful knitwear produced by local grannies,’ Adjiedj continues. ‘Or AliExpress in China populated by thousands of small manufacturers. People’s access to novel producers from across the world has never been greater, yet this comes at a time when we’re all rethinking where we buy from and from whom.’

Slowbalisation is reflected in the figures of the World Trade Organisation, where a 9% drop in global trade was forecast for 2020. The tide is turning against full-scale, hyperglobalisation as the interweaving of world economies unravels little by little. Rolling shutdowns of factories during the pandemic and empty supermarket shelves highlighted the danger of being over-exposed to any one country, any single supply chain.

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‘Citizens in western countries that have been at the receiving end of the negative effects of globalisation have turned protectionist,’ says Jaideep Prabhu, professor of marketing at Cambridge Judge Business School. ‘Witness the support for Trump in the US and Brexit in the UK. Interestingly, for a while it was the west that championed globalisation. Now, increasingly it is the emerging world, led by China, that is championing it.’

Jaideep continues: ‘The net effect of this is that we’re seeing the disruption of global supply chains and a move towards reshoring. This could hurt small-scale producers in the short run, but could be a boon for them in the mid to long run. It will be important to watch countries’ future industrial policies going forwards, especially as governments try to stimulate local industries in new and developing sectors.’

Shift to local

In the wake of the Covid-19 pandemic, Japan has already earmarked more than $2bn of a record economic stimulus package to assist manufacturers in shifting production out of China. The aim is to diversify sources and reshore production.

‘Cheap labour in an overseas country has quickly gone from an advantage to a disadvantage,’ says Thomas Frey, senior futurist at the DaVinci Institute in Colorado. ‘We’re seeing a shift to local manufacturing, local supply chains, stockpiling of inventory and tight controls over sensitive exports. Near-term trends of nationalism and deglobalisation will take years to rebound from.’

For at least the past three decades, China has been the undisputed factory for the world. This has enabled it to dominate ever bigger segments of all types of production, from Christmas-tree lights to shoes. It is home to 28% of the world’s manufacturing, which is nearly as much as the US, Japan and Germany combined. Arguably it’s been the world’s biggest beneficiary of globalisation.

However, the advantage that China once offered is now being eroded as living standards and labour costs rise from Guangdong to Beijing. Up to a quarter of goods exported worldwide, worth $4.5trn annually, could shift to different countries in the next five years, according to McKinsey Global Institute.

‘Much of what is evolving actually consists of change that was coming anyway, but which has now been sped up by the Covid-19 pandemic,’ says Sven Smit, a director of the institute.

‘After the 2008 global financial crisis, businesses that invested the most in the future did much better than those that retreated or were overly cautious. It’s likely to be the same again this time. Individual companies can’t cut costs to achieve prosperity. They will need to reimagine demand.’

From ‘factory first’ to 3D printing

This is already happening, with companies building ‘factory-first’ narratives around their brands that have both a local and regional appeal. Selling direct via the web also allows small producers to appeal to consumers through storytelling, as does local production. There’s a lot more to talk about when you make things in-house, or source hyper-locally, rather than buy faceless parts from halfway around the world.

There are other factors at play here. Hyperglobalisation doesn’t sit well with Greta Thunberg and the younger generation concerned about the environment. ‘I think the biggest reason for a reset is a greater awareness of climate change and the unsustainable transportation of goods around the world,’ says Anna Glansén, the co- founder of Tomorrow Machine, a Stockholm-based design studio that produces edible food packaging. ‘We need to look at more sustainable local production and technologies. This is why 3D printing is interesting – it doesn’t create any waste material and has the potential to remove the transportation of parts completely. I believe that we will see more of it in the near future.’

The digital ecosystem that helped boost global sourcing and sales is also the very system that is now allowing ubiquitous digital tools for local manufacture. Micro brands can easily tap into the maker movement, while the plug-and-play resources available to small producers worldwide are now great in number. Every component for a successful business is cheaper than it ever was in the past.

‘Increasingly, small teams can do things that only large firms or the government could do 10 or 20 years ago. Not only with respect to software but also increasingly in hardware, too,’ says Jaideep Prabhu.

However, for many countries, the skills for manufacturing have already been lost, exported overseas in a previous era. It’s unlikely that these jobs will be reshored any time soon. The institutional memory for making things in some places has long gone. This will need to be re-learnt in an era of YouTube or massive open online courses (aka MOOCs).

‘Customers ask if we could make our furniture locally. I tell them that the skills just don’t exist here anymore. I couldn’t reshore production if I tried,’ says Charlie Gillmore, founder of GillmoreSPACE, a small producer of British-designed, high-end furniture, based in the southwest of England.

‘Right now, my biggest worry is the cost of sea freight from Asia, which has gone up by a factor of four. You need to bid, even, for limited bookings. It shows there’s little leeway in just-in-time global supply chains today. At the same time, Amazon has a lot to answer for. Customers expect instant gratification. They want goods today, not in 12 weeks.’

Small manufacturers vs large

Covid-19 has been a catalyst for change, accentuating the cracks in the global economic system. Luckily, many small manufacturers can adapt easier than giant multinational businesses. Small companies can drill down on new local markets and opportunities at speed. They can also make global supply chains shorter, faster, smarter and safer in a way that the likes of Unilever or Costco cannot.

But how do you weather the big global economic and geopolitical power plays of the manufacturing industry when you’re a small producer? ‘The name of the game in a world with risk and uncertainty is not to hide from vulnerability, which is a fool’s errand,’ points out Emily Blanchard, associate professor at Tuck School of Business at Dartmouth College in the US. ‘Firms that try to become self-sufficient or to source, or sell, only locally will lose the many benefits of being able to engage with dynamic and efficient producers and consumers all around the world.’

Think of this next phase, when the impact of the Covid-19 pandemic has finally lessened, not only as a period of slowbalisation. Instead, we will see small businesses making the most of local and regional production and consumption, with an eye on the global market as well. Hopefully, it will turn out to be the best of both worlds.

This article was first published in Courier issue 39, February/March 2021. To purchase the issue or become a subscriber, head to our webshop.

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