Deglobalization

Globalization has been the order of the day for the last 30 years. At its peak, global supply chains drove lower prices. During the pandemic, these supply chains were revealed to be highly vulnerable. Heading into 2023, 86% of CEOs and investors believe that deglobalization is a reality, with almost half indicating that deglobalization is already underway and that it will be a significant event (Figure 4). This suggests that, at least for the moment, completely fungible, global and flexible supply chains are a thing of the past, and companies must fundamentally change the way they operate in the global economy and local markets.

Question: Which of the following is closest to your own view about the potential for deglobalization?

• Deglobalization has already begun and will be a significant event.

• Deglobalization has already begun and will be a minor event.

• Deglobalization will happen in the future and will be a significant event.

• Deglobalization will happen in the future and will be a minor event.

• Deglobalization will not happen.

91% of CEOs (Figure 5) are already taking steps to prepare their businesses for the effects of deglobalization.

Even so, investors are looking for much more active adaptations than CEOs are prepared for. Most notably, 65% of investors are expecting companies to make material adjustments in supply chains and start securing new sources of funding, while only 46% and 36% of CEOs respectively are actively taking steps in these areas. While investors are hyper-focused on these areas, CEOs are thinking across a much broader set of issues including looking at M&A (38%), relocating physical operations (38%) and onshoring workers (32%).

Question: How, if at all, is your business / should leading businesses adjust to the potential for deglobalization?

It is virtually impossible to discuss the reordering of the global economy without acknowledging China’s importance. Surprisingly, only 20% of CEOs responded that China is important to their business strategy today, while 51% of investors responded that China is important to their investment strategy today (Figure 6). It is unclear whether investors are focused on China because they want companies to unwind current operations or if they are, in fact, bullish on China in the long-term and want companies to increase their current levels of investment.

Regardless, it is clear that the role of China remains essential to corporations and investors both today and over the next 10 years.

However, the slight dip in China’s perceived importance at the five-year mark for both CEOs and investors suggests that the amount of weight allocated to China in the broader landscape is still very much in flux.

The U-shaped curve representing the importance of China to business and investment strategy underscores that, though critical over the long-term, China’s importance over the next five years is unclear.

Question: How important is China to your business / investment strategy today? Over the next 5 years? Over the next 10 years?