The Trend of Deglobalisation and Its Impact on Sustainability
The trend of Deglobalisation and its impact on sustainability
27 March 2023
Over the past few decades, companies have typically offshored their manufacturing to countries that are cheaper and less regulated in order to cut the costs of production. However, in recent years, some businesses have started bringing their manufacturing back to their home country. This is called deglobalisation, or reshoring, and it means that products are often produced closer to the consumer. We take a look at the effects that reshoring has on sustainability outcomes.
Recent events such as the pandemic and conflict in Ukraine have affected global supply chains negatively. Many companies have faced issues linked to buying raw materials, higher shipping costs, congestion at ports and lack of workers. Reshoring theoretically allows businesses to avoid the risks and disruptions associated with foreign supply chain issues, to reduce time leads, and to reduce pollution.
However, since reshoring is a relatively new phenomenon, there is a lack of empirical evidence regarding its real impact on sustainability. Carbone and Moatti state that sustainability impacts are not significant factors in companies' decisions to reshore manufacturing. They argue that companies are more influenced by factors linked to cost and product quality. Additionally, although common sense would tell us that reshoring would reduce emissions due to decreased distance for transportation, transport is not always the main source of emissions. Taking groceries for example, Carbone and Moatti state that in France, the emissions from the production of groceries is higher than the emissions from transporting them. Furthermore, emissions from transport are not necessarily linear with distance; shorter journeys tend to emit higher emissions per kilometre than longer ones.
Additionally, Orzes and Sarkis point out that we should also consider the effect on the local community within the country where the manufacturing would be brought to. Localized industrialisation could have a negative impact on the neighbourhood and the local environment due to factors such as water, air and noise pollution, as well as the implementation of potentially disruptive infrastructure.
Moreover, we should also review the social and economic impact on the communities where factories and production facilities would be withdrawn from. For example, if production demand significantly decreased in areas such as Asia, massive negative social impacts would occur due to job losses. A reduction in global trade integration could also have undesirable economic and social outcomes in other areas of the world. For example, Sub-Saharan Africa could be affected negatively, since recent history shows that its economic growth is linked to global trade integration.
Having said this, reshoring is a good opportunity for organisations to rebuild their manufacturing processes in a sustainable way. As Orzes and Sarkis mention, businesses have a chance to decide on factors such as location, the type of production processes and which types of technology they will use. These decisions can all be taken with a focus on environmental considerations.
To conclude, there is no black and white answer for sustainability outcomes when regarding reshoring. Hopefully more empirical research will be undertaken, looking at companies that have already brought their manufacturing closer to home. Additionally, companies that decide to reshore should use this opportunity to set up facilities in a sustainable way.
Finally, it goes without saying, but all companies, no matter whether they are offshored or reshored, should be continuously monitoring and addressing social and environmental issues within their supply chains. If your company manufactures and sources products from overseas and you want to better understand your own environmental impact, then feel free to contact us about the ESGmark Carbon Footprint Analysis service at info@esgmark.co.uk .