Tompkins International

When we predicted last year that 2008 would see further globalization, we did not expect that the costs of doing business in China would rise so significantly by midyear or that fuel prices would rise 150 percent before dropping to current levels. 2009 will begin with all businesses dealing with the global economic downturn. The important question is how they deal with it. Simply cutting jobs is never the right answer. Work force reductions should emanate from rethinking strategies and business models and not from across-the-board percentages. The best companies will rethink and make changes that affect supply chains in at least three important ways. First, it will lead to changes in freight flows as companies determine more efficient ways to source and places to source from. Better understanding total delivered costs means finding the most efficient sourcing locations, not just where we can find the lowest-cost labor. Where we source from, and deliver to, determines the lowest product price. Thus, volumes on many shipping lanes will change, and companies will need to reposition assets and capabilities accordingly. Second, smart companies will look for new customers in new markets. When consumer confidence and spending drops, the best companies seek new customers. That will likely involve those in emerging markets. Offshore sourcing was only the beginning of large-scale globalization; when countries achieve GDP growth, consumer demand expands and their markets become consumption targets. This will intensify and will impact global commerce dramatically. Third, if the economic crisis begins to slowly improve later in the year, we will see dramatic differences from the first half. As smart companies focus on efficiencies, they also focus on making strategic investments that allow them to emerge from the recession stronger and more directed. Contingency plans will be implemented in new markets for real estate, supply-chain technology, logistics networks, new products, new services and even innovation. Those companies that emerge stronger from the recession will dominate supply chains beginning in the second half of 2009.