There’s much to be said about the spate of consolidations this year, to be sure, as EPS’ Bolaji Ojo recently discussed; there are real industry changes afoot. Certainly, much of the transactional strategies have to do with the views into new market positions, and the opportunities to scale and refine oligopolies -- among other competitive vantages -- that huge, multibillion-dollar war chests afford mega-companies and mega-investor groups.
There is more to these market events than corporate finances and consolidations though; there is a larger dynamic that evidences macro-shifts, which will have significant disruptive effects on the balance of economic power and supply chain structures in the years ahead.
The significant number of consolidations along the semiconductor and electronics supply chain are certainly going to have an impact on the power dynamics and structure of business in the years to come. Much of that impact will not be felt at first. The current effects will likely focus on the continued shrinking of component sources, particularly at the manufacturing points; this reduction in companies translates into a reduction in components and lines, of course.
But is this consolidation the new status quo or is this an indicator of a consolidation and retrenchment of the globalization era that is now moving more toward a soon-to-emerge “multipolar” landscape? As Credit Suisse Research Institute explains, multipolar means “[…] trade, economic, socio-cultural and corporate activities take place around several geopolitically significant poles.” The ramifications of these consolidations and minor stake acquisitions are the emergence of new, and multiple, focal points for trade where the US and EU are no longer the cornerstones but China, India, and likely a South American economy will step up to hold rival prominence.
One key example of the rise of multipolarism is the Tsingua war chest and its explicit strategy to invest roughly $47 billion in multiple companies and IP in order to become one of the top global component sources in the world, to compete toe-to-toe with Samsung, Qualcomm, and similar chip giants today.
While the current global economic situation is not one that obviously promotes the imminent rise of emerging markets -- despite the many years of lauding their potential -- the forecasts of rapid (and sustainable) emergent economies’ rise has thus far mostly led to disappointment. There is, however, more to the machinations than a misguided forecast. If we consider the long-term, global view of the macro-economic, political, and social dynamics that have been building and their trajectory from the perspective of market growth opportunities, then we see additional layers and patterns emerge. As Credit Suisse Research Institute argued this fall, interdisciplinary global research indicates a move toward a multipolar world and away from traditional globalization as we’ve known it over the past two centuries:
[…] the world is most multipolar in terms of trade patterns and economic activity; but financially the world, although highly globalized, is much less multipolar with USA still dominating markets.
Our sense is that the world is currently in a benign transition from full globalization to multipolar state, though this is not complete.
In big picture terms, […] IMF forecasts underlines this trend by showing how China and India are on their way to building dominant economic powerhouses.
[…] the world has moved into the first quadrant of the [Globalization] Clock [which plots globalization and multipolarity scaled against their long-term averages] – a sweet spot – to become more globalized and more multipolar at the same time, accentuated by the economic weakness of developed economies and stronger emerging market economies.
Considering the impact of multipolarism on our current supply chain, the issues of diversification, agility, and importantly supply are going to gain in competitive currency and urgency. As EPS’ Ojo underscored, the rise of partial stakes held by companies such as Tsinghua Unigroup in the remaining oligopolies is a clear strategy being employed to increase control and competitive positions in the industry. These minor stake gains, in turn, pave the way for multipolar expansion as new supply chain anchors emerge. These new anchors grow in line with their steadily expanding middle and upper classes, a path that will continue to pave the way for emerging economies to take their position as the future anchors for global trade and industry. This will not be a sudden shift, to be sure, the multipolar transformation will slowly evolve but the end point will be a significantly different structure in our industry as well as many others.
Likely, the outcome of multipolarism will provide a healthier, more diversified set of global economic strongholds, but that shift will come at a highly disruptive cost for the US and EU which have, for centuries, held the leadership position throughout the eras of globalization. I agree with Credit Suisse research though, the future looks to be an evolving multipolar landscape and with that our supply chain’s structure and centers of power will also shift significantly.