From conflict to the economy, technology, health, and our food and energy crises – the annual World Economic Forum was recently held in Davos to discuss these urgent issues that are affecting every nation across the globe. The atmosphere felt heavy at times – in the shadow of the ongoing war in Ukraine. The presence of Ukraine’s Foreign Minister, Dmytro Kuleba at the event added to the charged ambience and made some of the key themes this year more poignant than ever. The conflict certainly was a significant backdrop to my speech – ‘The Impact of Global Crises on Value and Logistics Chains’.
I was privileged to be accompanied on the panel by American economist (and Nobel Memorial Prize in Economic Sciences winner) Professor Doctor Joseph Eugene Stiglitz. Coincidentally, my speech felt very aligned to his words on globalisation. Also on the panel was the Swiss Federal President, Doctor Ignazio Cassis – who listened in great detail to what I had to say and requested that my speech be emailed to him afterwards.
On that note, I’d like to draw your attention to some key points of my speech (you can also watch the full version here).
Point 1: triad of crises
«We now live in a time which may appropriately be characterised as extreme. There are decades when nothing happens, and weeks when decades seem to occur. Recent catastrophic, and unrelated crises – a pandemic, intensifying climate change, and war in Europe – are unrelated, but they have one thing in common. They’re all having a major, lasting, and transformative impact on value and logistics chains.”
Significance: end of globalisation
In my opinion, these parallel, cataclysmic events will go down in history as precipitating the end of globalisation as we know it. Now industries, corporations and governments are being forced to rethink the way they trade and do business; namely to think more vertically. (You can read more on the trend for and benefits of vertical value chains in my blog here.) Uncertain supply chains are the new normal. And while this feels precarious for many, it also presents an opportunity – in particular, for the losers of globalisation (such as commodity-dependent developing countries).
Point 2: free trade under pressure
«Europe plays a limited role as a producer of raw materials, but as a consumer, it’s a juggernaut. We have some consumer power, but it’s a fickle tool – as experienced by European car makers when supply bottlenecks during the pandemic caused temporary stoppages. Competition over access to scarce resources and raw materials puts free trade under pressure. The World Trade Organization’s ‘one size fits all’ regime is in the process of being superseded by a ‘spaghetti bowl’ of bilateral agreements. The most dangerous moments in world politics occur when an ascending great power surpasses the old hegemony. This breeds insecurity and risky behaviour.”
Significance: vulnerable supply chains
Europe currently consumes about one fifth of the world’s metals and minerals but extracts only about 3% of the global total. However, Europe imports more than 90% of such critical raw materials. We are therefore extremely exposed and vulnerable when it comes to reliable, functioning supply chains. What’s more, the current war is re-drawing the global political map. It is pushing states like Russia and China, who control a significant share of the global supply of critical raw materials, closer together.
Point 3: think vertical
«There’s an answer for these challenges; a solution that will enable nations to address the impact of the ongoing economic and climate crises. And it’s called ‘vertical value creation’. Instead of heavily relying on the import of raw materials, western nations can secure resources abroad as well as harness their own domestic resources to exploit, process and transport consumer goods and commodities to higher levels up the value chain progressively – for example in the steel or battery industries.”
Significance: benefits of vertical value chains
There are many positives to thinking more vertically, but here are some important ones.
- Boost economic resilience and reduce chronic trade deficits.
- Improve the environmental and carbon footprint with shorter supply chains.
- Attract foreign capital – multinational companies and international investors.
- Create greater cross-border cohesion and meet environmental and social goals.
- Foster technological innovation, skilled jobs, and economic diversification
Thriving in the 21st century
So, where does this leave us? Climate protection and economic security are not mutually exclusive. In my opinion, therefore, it’s critical that policy makers and captains of industry support the new opportunities – embrace them even, especially those near western economies. Vertical value chains can serve as a model to tackle the significant global challenges we are facing today – and will help industries and economies not only to survive, but to thrive in the 21st century.
And I am certainly not alone in this thinking. It was clear from the panel attendees that they were attuned to the notion that globalisation is fast becoming an outdated concept. And not just them; I received a lot of feedback regarding vertical value creation. And I welcome further conversations on this in the future.