Transformations ‘Hiding in Plain Sight’

Findings from the McKinsey Global Institute study, Globalization In Transition

A recently released McKinsey Global Institute study, Globalization In Transition: The Future of Trade and Value Chains, uncovers changes that have occurred since the mid-2000s, but were obscured by the Great Recession.

Among the study’s key findings:

• “Goods-producing value chains have become less trade-intensive. Output and trade both continue to grow in absolute terms, but a smaller share of the goods rolling off the world’s assembly lines is now traded across borders.”

• “Cross-border services are growing more than 60 percent faster than trade in goods, and they generate far more economic value than traditional trade statistics capture. We assess three uncounted aspects (value-added services contribute to exported goods, the intangibles companies send to foreign affiliates, and free digital services made available to global users). National statistics attribute 23 percent of all trade to services, but including these three channels would increase their share to more than half.

• “Less than 20 percent of goods trade is based on labor-cost arbitrage, and in many value chains, that share has been declining over the last decade. The fourth and related shift is that global value chains are becoming more knowledge-intensive and reliant on high-skill labor.”

• “Goods-producing value chains (particularly automotive as well as computers and electronics) are becoming more regionally concentrated, especially within Asia and Europe. Companies are increasingly establishing production in proximity to demand.”

Three forces explain these changes in value chains:

• “Emerging markets’ share of global consumption has risen by roughly 50 percent over the past decade. China and other developing countries are consuming more of what they produce and exporting a smaller share.

• “Emerging economies are building more comprehensive domestic supply chains, reducing their reliance on imported intermediate inputs. Lower global trade intensity is a sign that these countries are reaching the next stage of economic development.

• “Global value chains are being reshaped by cross-border data flows and new technologies, including digital platforms, the Internet of Things, and automation and AI. In some scenarios, these technologies could further dampen goods trade while boosting trade in services over the next decade.”

The full report is available at:

Jeongmin Seong, senior fellow, McKinsey Global Institute, and Steve Saxon, partner, McKinsey & Company, will speak on the report at Breakbulk Asia, March 20-21 in Shanghai.

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