How the Platform Economy is Changing Global Trade
Firms and even countries will need a strategy as the world moves from pipelines to platforms.
Two conflicting forces are shaping the future of global trade. On one hand, protectionism, largely exemplified by moves like Brexit and the United States’ withdrawal from the Trans-Pacific Partnership (TPP), is constraining the free movement of global value flows. On the other hand, digital technologies are blurring national boundaries and fostering greater cross-country flows.
The shift from pipelines to platforms has been a focus of my work in recent years. Pipelines are the linear value-creation and delivery models that we’ve inherited from the industrial era. As the world becomes more connected, platform business models create a central infrastructure that enables interactions between producers and consumers. This more open, networked flow of value is affecting globalisation in three main ways.
The changing face of globalisation
First, the power of pipelines in driving global flows is reducing. Advanced digital manufacturing systems lower production costs, favouring locally concentrated supply chains. This is reshaping the trade flows that had emerged between the West and the East in the era of outsourcing. Adidas, for example, announced that it is moving some of its production from China back to Germany owing to the lower costs of robotic manufacturing in Germany. Firms around the world are considering multi-local manufacturing as an alternative to outsourcing.
On a similar note, increased consumption in emerging markets also drives a need for regional manufacturing. The East no longer merely supplies the West – another factor contracting supply chains and leading to the decline of the pipeline-based model of global trade.
Second, the mix of trade is changing in a digital world: Even as goods trade slows down, there is an increase in services trade and cross-border data flows. Digital technologies allow products-based business models to morph into services-based ones. For example, companies like GE and Siemens are increasingly switching from selling equipment to delivering data services, including predictive equipment maintenance and usage-based leasing.
Third, and most importantly, platforms enable much smaller enterprises to participate in global trade without investing in their own supply chains. Alibaba, for example, enables a significant portion of SME trade and has now moved to financing these SMEs in China. Amazon and WeChat have similar ambitions. As these platforms get bigger and benefit from winner-take-all scenarios, we may see control points over trade shifting from political countries to digital platforms.
These three factors together are driving the shift in global trade from pipeline-based globalisation to platform-based globalisation.
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