Lockdowns, quarantines, and the closing of international borders have emphasized diversification in global supply chains. Recently, the US National Intelligence Council released its Global Trends report, which assesses key trends and uncertainties focused on global, long-term trends and dynamics the NIC believes are likely to shape companies, communities, states, and the international system for decades.
The report reveals many pre-existing, global economic trends have catalyzed. We outline below some key takeaways we believe are important for manufacturing and supply chains decision makers to be thinking of today.
- A combination of the desire to protect jobs in the manufacturing sector, concerns about capturing gains from winner-take-all technological progress, and a focus on critical inputs, such as medical equipment and pharmaceutical feedstocks, is likely to further accelerate the use of protectionist trade policies.
- The anticipated increase in job losses in manufacturing during the next two decades is likely to place pressure on governments, particularly those in advanced and manufacturing-dependent emerging economies, to take protective actions.
- Configuration of many global supply chains in 2020 largely reflected the importance of economies of scale and labor as a source of value creation in the manufacturing sector, leading to the centralization of production in a few lower wage locations, especially China. A large increase in the use of digital technologies and additive manufacturing might reduce the importance of economies of scale and labor as an input and encourage firms to move more production closer to markets.
- By 2040, advances in novel materials, coupled with smart manufacturing, will reshape the production of everything from consumer goods to high-end military systems, reducing costs, extending capabilities, shifting supply chains, and enabling entirely new design options.
- Materials and manufacturing are inextricably linked in a long-standing virtuous cycle, where advances in one drive advances in the other. Although this cycle alone could continue to drive progress for decades to come, it most likely will be accelerated by convergent advances in high performance computing, materials modeling, artificial intelligence (AI), and bio-materials.
- Labor productivity growth has fallen in most economies during the past two decades even as there have been large advances in technology. The next wave of technological improvements, including AI could reverse this trend. AI might have large effects on productivity during the next two decades, in line with the delayed nature of productivity gains from electricity and information technology. The pace of AI adoption could also affect productivity gains. Although any gains are likely to be unequally distributed, both between and within countries, countries that are net gainers from an AI-induced productivity boost would have expanded economic opportunities that could allow them to deliver more services, reduce national debt levels, and finance some of the costs of an aging population.
- Additive manufacturing (AM), more commonly known as 3D printing, is being used to fabricate an increasing variety of materials, from titanium to explosives, in smaller facilities and with less expertise, bringing advanced manufacturing capabilities to small companies and individuals worldwide. Despite some technical hurdles and questions of reliability, AM is driving a revolution in modern manufacturing by enabling rapid prototyping, highly customized parts, onsite production, and the fabrication of shapes that would otherwise be impossible.
- Advances in information systems, including computational modeling and machine learning, combined with advanced physical systems, such as a robust industrial Internet of Things and advanced robotics, are likely to enable fully integrated, collaborative manufacturing systems that respond in real time to meet changing conditions in the factory, in the supply network, and in demand.
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- Regarding changing sources and, composition of power to drive industry and states, control of key sites of exchange, including telecommunications, finance, data flows, and manufacturing supply chains, will give countries and corporations the ability to gain valuable information, deny access to rivals, and even coerce behavior.
- Lockdowns, quarantines, and the closing of international borders have catalyzed some pre-existing economic trends, including diversification in global supply chains, increased national debt, and greater government intervention in economies. Moving forward, the character of globalization may retain some of the changes from this crisis period, and debt, particularly for developing economies, will strain national capacities for many years.
- Amassing the resources to sustain broad technology leadership, including the concentration of human talent, foundational knowledge, and supply chains, requires decades of long-term investment and visionary leadership. Those focusing their resources today are likely to be the technology leaders of 2040.
- Spin off technologies and applications are often available for rapid adoption in nearly every region of the world, enabling even developing countries to take advantage of the latest core advances, develop global applications in niche areas, or contribute to the supply chains of more advanced economies
- The next decades will see increasing global competition for the core elements of technology supremacy, such as talent, knowledge, and markets, potentially resulting in new technological leaders or hegemonies in the 2030s. Complex international supply chains, the global diffusion of innovation, and investments by geopolitical rivals could further impede the unilateral use of technology by nations to achieve their goals.
- The pace of technological change, notably developments in advanced manufacturing, AI, and biotechnology, may hasten disruptions to manufacturing and global supply chains, eliminating some modes of production and jobs and bringing supply chains closer to markets.
- Shifting supply chains could disproportionately affect less advanced economies, while many new jobs will require workers with improved or retooled skills. Venture Outsource is seeing this play out currently based on comments and questions during our manufacturing cost model training sessions.
- Japan’s highly educated population, technologically innovative economy, and integral position in trade and supply chain networks position it to remain a strong power in Asia and beyond. Japan is likely to remain highly economically dependent on its largest trading partner and main regional rival China and a close ally of the United States while working to further diversify security and economic relationships, particularly with Australia, India, Taiwan, and Vietnam.
- One possible prediction the report conveys is in 2040, the world is fragmented into several economic and security blocs of varying size and strength, centered on the United States, China, the European Union (EU), Russia, and a few regional powers, and focused on self-sufficiency, resiliency, and defense. Information flows within separate cyber-sovereign enclaves, supply chains are reoriented, and international trade is disrupted. Vulnerable developing countries are caught in the middle with some on the verge of becoming failed states.
- Separating economies has dire consequences, including massive financial losses for countries and corporations, as supply chains fracture, markets are lost, and once lucrative sectors, like travel and tourism, decline. The resulting economies are less vulnerable to future supply chain disruptions but also less efficient.
This last point underscores the importance of manufacturers taking steps today to better manage spend and optimize cash flow for more efficient, and effective, manufacturing supply chains.
There is little doubt many OEM equipment manufacturing industries, jobs, supply chains, and business models will be impacted. Outcomes to decision-making are typically best when decisions are made during periods suitable for your company vs making decisions because the market is forcing your company to change.
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