Automation reduces goods trade and particularly hurts developing economies.

Finally, 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. First, 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. Second, 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. Finally, 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.

Companies face more complex unknowns than ever before, making flexibility and resilience critical. With the costs and the risks of global operations shifting, companies need to decide where to compete along the value chain, consider new service offerings, and reassess their geographic footprint. Speed to market is becoming a key battleground, and many companies are localizing supply chains for better coordination. Rather than keeping suppliers at arm’s length, companies can benefit from more collaborative relationships with those that are core to the business.

The trends we identify may favor advanced economies, given their strengths in innovation and services as well as their highly skilled workforces. Developing countries with geographic proximity to large consumer markets may benefit as production moves closer to consumers; those with strengths in traded services also stand to gain. But the challenges are getting steeper for countries that missed out on the last wave of globalization. As automation reduces the importance of labor costs, the window is narrowing for low-income countries to use labor-intensive exports as a development strategy. Regional integration offers one possible solution, and digital technologies also hold possibilities for new development paths.