High-tech manufacturing causes a shift to end-user markets---that reduces goods trade.
Manyika et al. 16---James M. Manyika is an academic, consultant, and business executive. He is known for his research and scholarship into the intersection of technology and the economy, including artificial intelligence, robotics automation, and the future of work. (“Digital Globalization: The New Era of Global Flows”, McKinsey Global Institute, March 2016, https://www.mckinsey.com/~/media/mckinsey/business%20functions/mckinsey%20digital/our%20insights/digital%20globalization%20the%20new%20era%20of%20global%20flows/mgi-digital-globalization-full-report.pdf)//AN
But even as technology enables more complex procurement and collaboration, the importance of different factor costs is shifting. After years of choosing production locations largely on the basis of where low-cost labor is available, many manufacturers are beginning to reassess those decisions. Factors such as logistics costs, lead time, productivity, consumer preferences, and proximity to other company operations are being given greater weight.
For some products, low-cost labor will continue to be the decisive factor. As China’s wages rise and the country makes a push to move up the value chain into more innovative, higher value-added industries, more of its manufacturing business is up for grabs. Japan, for instance, has been shifting FDI from China to Southeast Asia. Now even some Chinese companies are shifting textile and apparel production to Africa.
However, more than two-thirds of global manufacturing activity takes place in industries that tend to locate close to demand—and companies have to consider emerging markets as sources of that demand, not just supply. As incomes rise in these regions, demand is fragmenting as customers expect greater variation and more after-sales service.112 According to a recent UPS survey, approximately one-third of high-tech companies are moving manufacturing or assembly closer to end-user markets—and this number is up by 25 percentage points from 2010.113
In the future, 3D printing could change the very definition of what constitutes an intermediate good, disrupting logistics companies. UPS, for example, recently launched a pilot program to experiment with offering industrial-grade 3D printing services.114