[AI-generated audio article] From trade wars to tariffs and geopolitical tension – global business is getting a major shake-up. We unpack the rise of ‘deglobalisation’, what it means for Australian firms, and how the next generation of leaders can stay ahead in a world that’s turning local to go global.

Tariffs, trade wars and geopolitical tension - the playbook on how Australian

firms conduct business in the global arena is being rewritten on a near-daily

basis.

From monitoring unrest in the Middle East to shifting trade tariffs

and policies under the US Trump administration,

there are strong signals that nations are retreating from the global

theatre of economic activity.

Many observers,

including the World Economic Forum,

are flagging a potential pattern of "deglobalisation" marked by a slowdown

in global growth, shifting investment patterns,

a renewed focus on economic nationalism and revised foreign trade policies.

But

is what we're seeing truly a global retreat,

or simply a move toward regionalisation?

We're sharing insights from

The University of Queensland (UQ) Business School experts on what

deglobalisation

may mean for Australia and how businesses and leaders can navigate strategic

shifts in this new era.

Part 1.

A global retreat or a regionalisation?

While drivers of globalisation

retreated in the wake of the COVID-19 pandemic,

the World Economic Forum contends the deglobalisation trend first emerged

following the 2008 global financial crisis (GFC).

As multinational organisations

reassessed their supply chain vulnerabilities and countries navigated

increasing trade tensions and rivalries,

deglobalisation accelerated.

Additionally,

the International Monetary Fund (IMF) reported that international trade

restrictions increased from 1, 000 in 2019 to more than 3, 000 in 2023 -

a number likely to rise sharply once the full effects of US trade tariffs

are realised.

But experts are divided on whether these economic and geopolitical

patterns indicate a true deglobalisation,

including UQ Business School's International Business discipline leader

Professor Peter Liesch.

"Deglobalisation is a misunderstood construction,"

Professor Liesch explained.

"There's a raft of research and publications

around the notion of regionalisation being a more realistic understanding,

because a lot of the big companies that we consider global are actually

operating regionally." He pointed to data trends measured by the DHL Global

Connectedness Index (GCI), which collates more than 4 million data points

on country-to-country flows.

"This global index consistently shows that

flows of trade, capital, people and information have held up very resiliently

during the global financial crisis and COVID," Professor Liesch said.

Whether

a retreat or a regionalisation,

Australia isn't immune to the effects of this seismic economic trend

and how it shapes global supply chains,

impacts manufacturing and influences climate management strategies.

Part

2.

Rethinking supply chains: from efficiency to controlGlobal supply chains

are no longer just about cost - they're about continuity and control,

says Dr Tao Bai.

The international business expert is currently researching

how trade wars between the USA and China impact the global strategies

of multinational companies - especially in relation to global value chains,

which are the internationally distributed networks of production stages

that come together to deliver a final product.

He noted that recent geopolitical

tensions, combined with the lingering effects of the 2008 GFC,

the 2020 pandemic and major natural disasters such as the 2011 Japan

earthquake and tsunami, have led to companies prioritising resilience

over efficiency and cost.

These "wake-up calls" disrupted existing supply

chains, which were structured for optimal efficiency with consolidated

processes, streamlined inventory and the purchasing power that comes from

using a small pool of key suppliers.

"Companies started to realise that

when they maximise their efficiency,

they actually put themselves at risk," Dr Bai said.

"So now,

they're having more conversations about building resilient - rather than

just efficient - supply chains.

It's a strategic trade-off facing most multinational companies in the

face of geopolitical uncertainty." He recommended a 4-step approach for

businesses to mitigate the risk of vulnerability across their supply

Step

1: Map your entire supply chain.

"Map beyond your first-tier supplier.

Pay more attention to your second and third-tier suppliers because these are

often where the vulnerabilities lie,"

Dr Bai said.

"For instance, your first-tier supplier - who you deal with directly

- could be from India or Thailand.

However, if their suppliers are from China,

when something happens in China,

it will quite quickly disrupt your supply chain."Step 2: Assess your

risks.

"To understand the risk of your supply chain,

you need to track key dimensions for all supply chain partners,

such as the concentration risk and geopolitical exposure," Dr Bai said.

"A concentration risk refers to the percentage you rely on a supply chain

partner.

So, if it's 100 per cent, you're in a really vulnerable position."Step 3: Plan

ahead.

"You need to assess and factor in lead time variability, which means planning to

make sure you have enough guaranteed supply to continue operating,"

he said.

"Companies can do this in a strategic way.

For instance, they can isolate their critical components and use dual or

multiple sourcing to secure these and then build inventory buffers.

Excess inventory can increase holding costs, but it's justified by

volatility."Step 4: Engage with technology.

"Investigation of new technology, such as digitisation and AI-driven forecasting,

is critical as it can help companies enhance their agility and reduce

overstocking,"

Dr Bai explained.

"Invest in a modular production system so when one particular

component in the supply chain is disrupted,

the others can keep functioning because the system is modular and resilient."Part

3.

The new frontier of manufacturingSimilar to the evolution of global supply

chains, cost efficiencies aren't the only consideration in this new era

of manufacturing.

As the US's dynamic agenda of tariffs and trade deals

continues to play out, the manufacturing sector finds itself operating

under increased political scrutiny.

"We've got to be careful about the

political hype and what's going on in geopolitics compared to what companies

are actually doing," Professor Liesch cautioned.

"Economics trumps politics.

Good companies will do whatever it takes to do good business.

And if that means they should carry out part of their activity somewhere

else in the world, those companies will try to get it done there."Professor

Liesch said the current US administration's tariff scheme's end goal

of

returning production and manufacturing industries to home soil was unlikely

to be substantially realised.

"Production costs in the US are higher;

it takes quite a long time to establish and re-establish those facilities.

If and when a future administration removes the tariffs,

that production is likely going elsewhere in the world again," he said.

"So,

why would companies invest heavily in bringing manufacturing temporarily

back to the US, knowing it doesn't make good economic sense in a freer

trading regime, which is likely to return at some point in the future?"On

home soil, recurrent campaigns urging companies to manufacture in Australia

may have limited feasibility.

"Like 'America First',

'Made in Australia' is politically fashionable,

and it always pleases national populations to have their governments

espouse such policies, but there are economic rationalities here," Professor

Liesch said.

"For companies to do good business,

location choices for manufacturing don't always align with politicians'

ambitions."Part 4.

the green steel business using regionalisation as a strategic

advantageDespite the potential limitations of bringing production and

manufacturing back to Australia,

a combination of strategic, political,

economic and technological factors has prompted some Australian manufacturing

companies, such as Future Forgeworks,

to establish operations close to home.

Founded by UQ Master of Business

Administration (MBA) alum Rohan Richardson,

Future Forgeworks is building a sustainable steel mill in Swanbank,

west of Brisbane, using recycled steel to create rebar (reinforcing bar)

products for construction.

"It makes economic sense to redirect scrap

metal that's usually shipped overseas for processing only to be returned

to Queensland as rebar, and instead manufacture it locally,

right here in Queensland," Mr Richardson explained.

"Technology has come

a long way in the 30-40 years since the last steel mills were built in

Australia, and I saw an opportunity to harness new technology.

My decision

to found Future Forgeworks was less about geopolitical tension and more

about making use of the commodities we have right here in Australia.

By locally manufacturing rebar,

we can begin to build Australia's sovereign capability to produce these

essential goods, ensuring national security and operational advantage.

As

a local supplier, we can also improve the supply chain cost and risk.

At

the end of the day, local manufacturing provides stability for the steel

industry's supply chain, which means less reliance on imports that include

shipping costs and tariffs, and savings that can be redirected to local

economic stimulus."Mr Richardson predicts that when fully operational,

the mill will stimulate the local economy by at least $100 million,

create 400 jobs for mill construction,

more than 200 permanent onsite jobs and about 500 jobs across the supply

chain.

He says it will also support local industries,

including logistics, personal protective equipment (PPE),

scrap metal and fabrication.

"Personally,

this presents a great opportunity to bring back manufacturing capabilities

to Queensland, and a way to give back to the Ipswich area that I grew

up in by creating manufacturing jobs and new career opportunities in an

emerging industry and upskilling Queensland workers in regional areas,"

he said.

However, Mr Richardson noted that while there's growing demand

for onshore manufacturing, Australia's market size and geographic location

present challenges.

"The limitation of circular economies - a system based

on the reuse and regeneration of materials - is the restriction on supply

and the size of the total market in Australia," he said,

referencing Future Forgeworks's planned green steel mill.

"With speed

to market being a priority, there's no need for us to reinvent the wheel

when the technology has already been proven internationally.

The innovation lies in bringing it to Australia and applying it here

for the first time."Working in its favour is Australia's storied history

of resilience and ingenuity in capitalising on niche manufacturing

opportunities.

Professor

Liesch singled out 2 other industries where Australia could make strategic

inroads.

"The COVID era demonstrated that we were too reliant on international

suppliers for essential items, so there's an opportunity for core pharmaceuticals

to be made in Australia," he said.

"Medical apparatus is another.

Australia has demonstrated innovation in manufacturing boutique medical

equipment and apparatus."Part 5 - Championing sustainability in an unstable

worldDeglobalisation presents both opportunities and threats to achieving

global and national sustainability goals,

with UQ Business School Industry Professor Belinda Wade highlighting

2 competing tensions.

On the one hand,

reshaping supply chains and manufacturing operations by consolidating

and localising them can improve transparency,

increase efficiency and minimise carbon emissions.

On the other hand,

action on issues such as climate change and biodiversity management requires

global agreements and standards that elevate sustainability beyond national

self-interest.

"The devil is in the detail," Professor Wade warned.

"Onshore

production can have environmental benefits by shortening the value chain,

but the degree of benefit really is location-specific.

We need to account

for differences in regulations and manufacturing,

as well as social and environmental conditions.

If you move production from an area with strict environmental regulations

in place to a location where these are lacking,

it may end up generating greater environmental harm overall."Establishing

onshore manufacturing and consolidating supply chains may require significant

investment, but it can also provide environmental and social opportunities.

"If

a country is in a position to establish new industries onshore,

it can present an opportunity to do things better," Professor Wade said.

"Nations

that are considering setting up onshoring need to look at how they can

develop these sectors in a way that embraces circularity.

They also need to explore where resources are coming from,

where the waste is going and how they can close the loop.

"Another consideration

in establishing national production is smart manufacturing - a concept

that leverages digital technologies to create more efficient,

flexible and data-driven manufacturing processes - and whether it can

be integrated into a precinct-level plan that takes more of an ecosystem

approach to development and circularity," she said.

While advocating for a transnational approach to tackling the core influences

of environmental and climate management, Professor Wade said there was increasing

rigour and transparency required of companies, too.

She pointed to the introduction of 2 International Financial Reporting

Standards that guide how a company should disclose sustainability and

climate-related risks and opportunities.

These global standards inform the Australian Accounting Standards Board's 2

Australian Sustainability Reporting Standards: a voluntary disclosure of

sustainability-related financial information (S1) and mandatory climate

reporting (S2).

"There's the potential for companies to really step forward and play that crucial

leadership role in addressing and advancing climate change and wider

sustainability issues," she said.

Well, that's all for now.

As usual, we've learned a lot from the experts at UQ Business School.

We hope you've picked up some practical strategies to help you stay ahead of the

curve in an ever-shifting world.

You can read more UQ Business School research insights at business.

uq.

edu.

au/momentum.

Until next time.