Reimagining your talent and technology strategies amid deglobalization

The last two decades have seen a slow but remarkable change: the growth in the flow of goods across borders has been on the wane, while the flow of data between economic systems and geographies has seen an explosion. Globalization, as we know it, is changing in complexion. And the most immediate impact of the change will be on how enterprises use technology to quickly remodel their operations, drive product innovation, hire and train talent for new roles, and reduce business friction.

A research paper released by the International Monetary Fund (IMF) in late 2017 pointed out that the volume of world trade had grown by slightly over 3% a year since 2012, which was less than half the average growth rate during the previous three decades. Now the trend of deglobalization has been fast-tracked. There are several factors contributing to this. The factors include a disruption in supply chains triggered by the pandemic, recent geo-political fractures leading to trade sanctions, surging inflation, a rise in energy costs, the pressure to decarbonize, and resistance to cross-border agreements fueled by protectionism and a surge in right-wing nationalism.

It is almost impossible to snap ties with a global economy overnight, because no nation is self-sufficient. But we will see deglobalization picking up as enterprises try to secure themselves from uncertainty, boost business resilience and mitigate risk.

While new models of cooperation evolve, the most visible impact of the deglobalization trend will be the urgency to exploit local markets, build proximity to customers, and re-shore and near-shore material suppliers, talent, and operations. The trend is not without its upside. For one, the prospect of saving time and energy while simultaneously improving communications and collaboration is highly attractive to enterprises. Many enterprises will also look forward to eliminating their constant battle with cultural and linguistic barriers —so far, an unavoidable part of offshoring — leading to a reduction in management and operational overheads. Most importantly, re-shoring and near-shoring will win them social and governmental approval while simplifying compliance.

Among the first industries scrambling to re-shore and near-shore is manufacturing. A recent ABB survey of 1,610 executives in the US and Europe found that 70% of US businesses were planning to bring back home or near-shore production. Technologies such as automation, artificial intelligence and robotics have been reducing labour inputs in manufacturing. These investments will tip the scales for re-shoring and near-shoring in the manufacturing industry.

Other industries, such as retail, healthcare and financial services, will be quick to follow. Citi is already making the change. In early 2022, the US financial group announced its decision to sell its retail banking and credit card businesses in Southeast Asia and India to focus on diversification and growth in closer-to-home geographies.

The shift to re-shore and near-shore operations and markets will force significant strategic changes. For example, it will mean establishing new partnerships and creating new operating models in the financial services sector.

Read the tea leaves: digitalization and integration will hold the key to success. Planners must step up their game, enabling their enterprises to achieve flexibility, adaptability and customizability for local markets. They also need to look at digitalization to cushion the impact of inflation by lowering costs. Large, established businesses will choose suppliers and partners who have already digitized their operations or are investing in it, making it easier to onboard them and quickly integrate value chains. The changing ecosystem of manufacturers, suppliers, service providers, and partners will have to acquire new tools and technologies, in addition to technical capabilities, to thrive in a deglobalized environment.

New roles and specializations will also be created in the wake of deglobalization. These roles were, until recently, managed by offshore partners offering talent arbitrage. The new roles will force a change in skilling and organizational structures.

Enterprises will experience a skills gap triggered by the restructuring of business and the emergence of new roles. They will be forced to invest heavily in automation and Augmented, Virtual, and Mixed Reality (AR, VR, and MR) technologies to assist the workforce.

Fortunately, data and analytics have been steadily seeping into the DNA of enterprises. With the vast amount of data at their disposal, they can determine the course of action they need to take quickly. However, acting on the decisions will need support from a wide array of new technological investments. Enterprises slow in making these investments will put themselves at risk.