What is Reverse Globalization. ?

Globalization, whether considered beneficial or harmful, is often considered the major driving force of the modern global economy. From clothing to computers, most of the products we use have components from many countries and are produced far from where they are sold. This system of utilizing multiple sources for components is due in part to the low cost of transportation. However, will this always be the case?

In an article by ABC News , the consequences of higher transportation costs are described. In the summer of 2008, the cost of a barrel oil surpassed $100 for the first time in history. These massive oil costs led to an even larger increase in shipping costs. Due to these increased shipping costs, some companies found that it was more profitable to produce goods in the country in which they were selling in rather than using lower manufacturing costs somewhere else. This change is described as reverse globalization.

Although oil prices are not as high as they once were, reverse globalization is still occurring. The automotive industry provides an example of this. In the United States, Korean car company Hyundai built their first plant in 2002 to reduce their overall costs. Since transportation costs are proportional to the volume of goods being transported, Hyundai chose to manufacture their top selling U.S. vehicles at this plant to minimize these costs. Despite being only a single plant, this decision has been very successful in that it has helped Hyundai garner a stronger presence in the United States.

This might lead one to think that countries like India will suffer from this reverse globalization in America. However, similar occurrences are happening in India as well. Most high-end automakers who could afford to have their vehicles shipped into India since they already command a price premium are now being built in India for Indians. These include vehicles like the Audi A4, BMW 5 Series, and Mercedes C-Class.

Coca-Cola, which used to be imported into India, is now being produced in plants once used by a local cola producer.

Given the gains experienced world-wide from reverse globalization, does this mean the end of globalization? Or is this simply a false term, and merely an evolution of globalization?

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From The Times

June 11, 2008

Oil price crisis threatens to reverse globalisation