There's no place like home: Is 'deglobalisation' changing the way the world does business?

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Tariffs, trade wars and geopolitical tension – the playbook on how Australian firms conduct business in the global arena is being rewritten on a near-daily basis. From monitoring unrest in the Middle East to shifting trade tariffs and policies under the US Trump administration, there are strong signals that nations are retreating from the global theatre of economic activity. Many observers, including the World Economic Forum, are flagging a potential pattern of “deglobalisation” marked by a slowdown in global growth, shifting investment patterns, a renewed focus on economic nationalism and revised foreign trade policies. But is what we’re seeing truly a global retreat, or simply a move toward regionalisation? We're sharing insights from The University of Queensland (UQ) Business School experts on what deglobalisation may mean for Australia and how businesses and leaders can navigate strategic shifts in this new era.

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Part 1. A global retreat or a regionalisation?

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While drivers of globalisation retreated in the wake of the COVID-19 pandemic, the World Economic Forum contends the deglobalisation trend first emerged following the 2008 global financial crisis (GFC). As multinational organisations reassessed their supply chain vulnerabilities and countries navigated increasing trade tensions and rivalries, deglobalisation accelerated. Additionally, the International Monetary Fund (IMF) reported that international trade restrictions increased from 1,000 in 2019 to more than 3,000 in 2023 – a number likely to rise sharply once the full effects of US trade tariffs are realised.

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But experts are divided on whether these economic and geopolitical patterns indicate a true deglobalisation, including UQ Business School’s International Business discipline leader Professor Peter Liesch. “Deglobalisation is a misunderstood construction,” Professor Liesch explained. “There’s a raft of research and publications around the notion of regionalisation being a more realistic understanding, because a lot of the big companies that we consider global are actually operating regionally.” He pointed to data trends measured by the DHL Global Connectedness Index (GCI), which collates more than 4 million data points on country-to-country flows. “This global index consistently shows that flows of trade, capital, people and information have held up very resiliently during the global financial crisis and COVID,” Professor Liesch said.

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Whether a retreat or a regionalisation, Australia isn’t immune to the effects of this seismic economic trend and how it shapes global supply chains, impacts manufacturing and influences climate management strategies.

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Part 2. Rethinking supply chains: from efficiency to control

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Global supply chains are no longer just about cost – they’re about continuity and control, says Dr Tao Bai. The international business expert is currently researching how trade wars between the USA and China impact the global strategies of multinational companies – especially in relation to global value chains, which are the internationally distributed networks of production stages that come together to deliver a final product. He noted that recent geopolitical tensions, combined with the lingering effects of the 2008 GFC, the 2020 pandemic and major natural disasters such as the 2011 Japan earthquake and tsunami, have led to companies prioritising resilience over efficiency and cost.

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These “wake-up calls” disrupted existing supply chains, which were structured for optimal efficiency with consolidated processes, streamlined inventory and the purchasing power that comes from using a small pool of key suppliers. “Companies started to realise that when they maximise their efficiency, they actually put themselves at risk,” Dr Bai said. “So now, they’re having more conversations about building resilient – rather than just efficient – supply chains. It’s a strategic trade-off facing most multinational companies in the face of geopolitical uncertainty.” He recommended a 4-step approach for businesses to mitigate the risk of vulnerability across their supply chains:

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Step 1: Map your entire supply chain. "Map beyond your first-tier supplier. Pay more attention to your second and third-tier suppliers because these are often where the vulnerabilities lie," Dr Bai said. “For instance, your first-tier supplier – who you deal with directly – could be from India or Thailand. However, if their suppliers are from China, when something happens in China, it will quite quickly disrupt your supply chain.”

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Step 2: Assess your risks. “To understand the risk of your supply chain, you need to track key dimensions for all supply chain partners, such as the concentration risk and geopolitical exposure," Dr Bai said. “A concentration risk refers to the percentage you rely on a supply chain partner. So, if it’s 100 per cent, you’re in a really vulnerable position.”

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Step 3: Plan ahead. “You need to assess and factor in lead time variability, which means planning to make sure you have enough guaranteed supply to continue operating," he said. "Companies can do this in a strategic way. For instance, they can isolate their critical components and use dual or multiple sourcing to secure these and then build inventory buffers. Excess inventory can increase holding costs, but it’s justified by volatility.”

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Step 4: Engage with technology. “Investigation of new technology, such as digitisation and AI-driven forecasting, is critical as it can help companies enhance their agility and reduce overstocking," Dr Bai explained. “Invest in a modular production system so when one particular component in the supply chain is disrupted, the others can keep functioning because the system is modular and resilient.”

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Part 3. The new frontier of manufacturing

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Similar to the evolution of global supply chains, cost efficiencies aren’t the only consideration in this new era of manufacturing. As the US’s dynamic agenda of tariffs and trade deals continues to play out, the manufacturing sector finds itself operating under increased political scrutiny. “We’ve got to be careful about the political hype and what’s going on in geopolitics compared to what companies are actually doing,” Professor Liesch cautioned. “Economics trumps politics. Good companies will do whatever it takes to do good business. And if that means they should carry out part of their activity somewhere else in the world, those companies will try to get it done there.”

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Professor Liesch said the current US administration’s tariff scheme’s end goal of returning production and manufacturing industries to home soil was unlikely to be substantially realised. “Production costs in the US are higher; it takes quite a long time to establish and re-establish those facilities. If and when a future administration removes the tariffs, that production is likely going elsewhere in the world again,” he said. “So, why would companies invest heavily in bringing manufacturing temporarily back to the US, knowing it doesn’t make good economic sense in a freer trading regime, which is likely to return at some point in the future?”

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On home soil, recurrent campaigns urging companies to manufacture in Australia may have limited feasibility. “Like ‘America First’, ‘Made in Australia’ is politically fashionable, and it always pleases national populations to have their governments espouse such policies, but there are economic rationalities here,” Professor Liesch said. “For companies to do good business, location choices for manufacturing don’t always align with politicians’ ambitions.”

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Part 4. Forging ahead: the green steel business using regionalisation as a strategic advantage

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Despite the potential limitations of bringing production and manufacturing back to Australia, a combination of strategic, political, economic and technological factors has prompted some Australian manufacturing companies, such as Future Forgeworks, to establish operations close to home. Founded by UQ Master of Business Administration (MBA) alum Rohan Richardson, Future Forgeworks is building a sustainable steel mill in Swanbank, west of Brisbane, using recycled steel to create rebar (reinforcing bar) products for construction.

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“It makes economic sense to redirect scrap metal that’s usually shipped overseas for processing only to be returned to Queensland as rebar, and instead manufacture it locally, right here in Queensland,” Mr Richardson explained. “Technology has come a long way in the 30-40 years since the last steel mills were built in Australia, and I saw an opportunity to harness new technology. My decision to found Future Forgeworks was less about geopolitical tension and more about making use of the commodities we have right here in Australia. By locally manufacturing rebar, we can begin to build Australia’s sovereign capability to produce these essential goods, ensuring national security and operational advantage. As a local supplier, we can also improve the supply chain cost and risk. At the end of the day, local manufacturing provides stability for the steel industry’s supply chain, which means less reliance on imports that include shipping costs and tariffs, and savings that can be redirected to local economic stimulus.”

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Mr Richardson predicts that when fully operational, the mill will stimulate the local economy by at least $100 million, create 400 jobs for mill construction, more than 200 permanent onsite jobs and about 500 jobs across the supply chain. He says it will also support local industries, including logistics, personal protective equipment (PPE), scrap metal and fabrication.

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“Personally, this presents a great opportunity to bring back manufacturing capabilities to Queensland, and a way to give back to the Ipswich area that I grew up in by creating manufacturing jobs and new career opportunities in an emerging industry and upskilling Queensland workers in regional areas,” he said. However, Mr Richardson noted that while there’s growing demand for onshore manufacturing, Australia’s market size and geographic location present challenges. “The limitation of circular economies – a system based on the reuse and regeneration of materials – is the restriction on supply and the size of the total market in Australia,” he said, referencing Future Forgeworks’s planned green steel mill. “With speed to market being a priority, there's no need for us to reinvent the wheel when the technology has already been proven internationally. The innovation lies in bringing it to Australia and applying it here for the first time.”

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Working in its favour is Australia’s storied history of resilience and ingenuity in capitalising on niche manufacturing opportunities. Professor Liesch singled out 2 other industries where Australia could make strategic inroads. “The COVID era demonstrated that we were too reliant on international suppliers for essential items, so there’s an opportunity for core pharmaceuticals to be made in Australia,” he said. “Medical apparatus is another. Australia has demonstrated innovation in manufacturing boutique medical equipment and apparatus.”

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Part 5. Championing sustainability in an unstable world

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Deglobalisation presents both opportunities and threats to achieving global and national sustainability goals, with UQ Business School Industry Professor Belinda Wade highlighting 2 competing tensions. On the one hand, reshaping supply chains and manufacturing operations by consolidating and localising them can improve transparency, increase efficiency and minimise carbon emissions. On the other hand, action on issues such as climate change and biodiversity management requires global agreements and standards that elevate sustainability beyond national self-interest.

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“The devil is in the detail,” Professor Wade warned. “Onshore production can have environmental benefits by shortening the value chain, but the degree of benefit really is location-specific. We need to account for differences in regulations and manufacturing, as well as social and environmental conditions. If you move production from an area with strict environmental regulations in place to a location where these are lacking, it may end up generating greater environmental harm overall.”

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Establishing onshore manufacturing and consolidating supply chains may require significant investment, but it can also provide environmental and social opportunities. “If a country is in a position to establish new industries onshore, it can present an opportunity to do things better,” Professor Wade said. “Nations that are considering setting up onshoring need to look at how they can develop these sectors in a way that embraces circularity. They also need to explore where resources are coming from, where the waste is going and how they can close the loop.

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“Another consideration in establishing national production is smart manufacturing – a concept that leverages digital technologies to create more efficient, flexible and data-driven manufacturing processes – and whether it can be integrated into a precinct-level plan that takes more of an ecosystem approach to development and circularity," she said.

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While advocating for a transnational approach to tackling the core influences of environmental and climate management, Professor Wade said there was increasing rigour and transparency required of companies, too. She pointed to the introduction of 2 International Financial Reporting Standards that guide how a company should disclose sustainability and climate-related risks and opportunities.

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These global standards inform the Australian Accounting Standards Board’s 2 Australian Sustainability Reporting Standards: a voluntary disclosure of sustainability-related financial information (S1) and mandatory climate reporting (S2). “There’s the potential for companies to really step forward and play that crucial leadership role in addressing and advancing climate change and wider sustainability issues,” she said.

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Well, that's all for now. As usual, we've learned a lot from the experts at UQ Business School. We hope you've picked up some practical strategies to help you stay ahead of the curve in an ever-shifting world.

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You can read more UQ Business School research insights at business.uq.edu.au/momentum. Until next time.