How globalisation affects supply chains

People have been trading across the world for centuries, if not millennia. However, the term globalisation as used today, really refers to the unprecedented scale and speed of international business achieved in the past few decades.

Easier travel, the internet, trade deals, and a growing market of consumers in developing economies, have all combined to create a system that is much more dependent now on what is happening on the other side of the world than it ever was.

The spread of coronavirus had an immediate economic effect. Globalisation helps to explain why many car plants in the UK have had to decrease output - they are dependent on sales and components from around the world. When both collapsed during the pandemic, it affected the UK’s ability to manufacture vehicles.

Ian Goldin, professor of globalisation and development at Oxford University, says that the current global economic system brings huge benefits, but also huge risks. According to Goldin, "risks have been allowed to fester" and we’re seeing that now with the Ukraine crisis, and previously with the banking crisis of 2008, and the vulnerability of the internet to cyber-attacks.

While globalisation has helped raise incomes and develop economies, it comes at the increased risk of contagion —be it financial or medical.

Richard Portes, professor of economics at London Business School, believes that things will have to change because businesses and people now realise what risks they’ve been taking.

"Look at trade," he explains. "Once supply chains were disrupted [by coronavirus], people started looking for alternative suppliers at home, even if they were more expensive. If people find domestic suppliers, they will stick with them… because of those perceived risks."

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