Executives take a quiet turn away from globalisation
     
Trump’s ‘America First’ rhetoric plays into a trend that was already under way
      
by: Gillian Tett

© AFP


A company such as 3M, the American manufacturing powerhouse, seemed until recently a beacon of globalisation. It sells the Post-it note and other famous products all over the world. Indeed 60 per cent of its $30bn revenues, and 40 per cent of its workforce, sit outside American shores.

But here is a curious thing: if you ask Inge Thulin, the Swedish-born chief executive of 3M, to describe corporate strategy these days, he does not speak of globalisation. Instead, he prefers to talk about “localisation” — and the benefits of operating in the mighty US of A.}

“We employ 20,000 people in manufacturing in America and we have expanded this by 10 per cent in the last five years,” he told me last month at the Council on Foreign Relations in New York. “Our strategy has changed. If you go back [several] years, there was a strategy of producing at huge facilities at certain places around the world, and shipping it to other countries. But now we have a strategy of localisation and regionalisation. We think you should invest in your domestic market as much as you can.”

This is a thought-provoking statement, not least because I have heard several other executives echo it in private. For the past three decades western multinationals have been outsourcing production to low-cost places such as China, creating global supply chains. But today, instead of celebrating “free” trade, American executives are calling for “fair” trade, along with “reciprocity” and “equalisation” of trade deals. This is a euphemism for better terms for US companies.

“What is new today, is the conversation [about trade],” Andrew Liveris, chief executive of Dow Chemical recently observed. “[American companies] have not had fair access to many markets for a while. We got used to that . . . but not any more.” Or as Mr Thulin says: “Things like Nafta are working well, but it can be improved . . . what we want is fair trade.”

Does this simply reflect the new mood music in the White House? Yes, in some respects. Business leaders are trying to ingratiate themselves with the White House (and avoid any tweet attacks) by aligning themselves with President Donald Trump’s “Make America great again” rhetoric.

Many also genuinely welcome Mr Trump’s economic reform pledges. Indeed, five months after the inauguration, executives’ support for the president still seems strikingly high, regardless of the endless scandals around the White House or this week’s furore about the Paris climate change accord. “President Trump is pro-growth and very engaged — this is good from the perspective of doing business in the United States,” argues Mr Thulin, once again evoking sentiments I have heard other chief executives toss around.

But there is a further crucial factor behind this linguistic shift: when Mr Trump started talking about restoring US manufacturing last year, he was not swimming against the tide. On the contrary, he tapped into a subtle trend that was already emerging.

To understand this, take a look at a survey of US companies conducted by Boston Consulting Group. This survey showed until recently that American companies were busy building cross-border supply chains: in 2012, 30 per cent said China was the most likely destination for US company investment. But in 2015, BCG found a shift had occurred: 31 per cent of companies planned to boost production in America, but only 20 per cent said the same about China.

One reason for this shift is a rise in relative wage costs in China. Another is that production costs in the US have fallen because of automation and cheap energy. However, a third point is that chief executives have realised that long supply chains create political and logistical risks. “The days of outsourcing are declining,” Jeff Immelt, General Electric chief executive, observed late last year. “Chasing the lowest labour costs is yesterday’s model.”

Now, this does not mean people such as Mr Thulin, Mr Liveris or Mr Immelt are turning their back on the globe; in a world of “localisation”, there is still incentive to keep overseas production serving overseas markets. Nor should anybody overstate the speed of this shift: it is subtle and slow.

But the main point is this: even before Mr Trump arrived in office, the C-suite was losing its blind faith in globalisation. For better or worse, we face a more localised world. And that trend owes as much to robots and digital technologies as any political firebrand — and will probably outlast any president, too.

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