Decoupling is everywhere. In the last week or so, we’ve seen several announcements on this front, including Apple’s move to diversify production away from China’s “iPhone City,” a Foxconn factory town in Zhengzhou that once produced 85 percent of the company’s Pro line of phones . Then there was TSMC’s tripling of investment in domestic chip manufacturing in the US, Brussels’ announcement of offering its own subsidies to speed up local production of clean technologies, and the surge in Indian stocks as multinational investors sought cheap new manufacturing facilities – everywhere except in China.
Reasons for these shifts ranged from anti-government protests and disruptions to operations in China, to national security and local labor concerns, to the cost of fuel or the emissions of a long haul route. But the bottom line is that the diversification, regionalization, and localization of global supply chains has only just begun and is likely to widen and deepen in the coming years. This is not only because lawmakers are increasingly incentivizing or insisting on it, but also because there is a growing group of companies providing the services and data to make this possible.
From risk consultancies to major rating agencies, from law firms to investment houses and a multitude of start-ups aiming to help companies map or even replicate alternative supply chains, everyone wants a piece of the decoupling pie.
Miles Arnone is CEO of Re:Build, a Massachusetts-based company that invests in localized manufacturing startups and helps existing companies rethink their supply chains. He works with “a wide range of companies that want to develop new hardware in areas such as clean tech, automotive, life sciences and construction and want to produce it locally”. This is not just because of the geopolitical climate, but because they want to avoid IP theft or take advantage of faster innovation or faster time-to-market by producing “local for local”.
Then there are the big multinationals that come to Arnone because they are in decoupled industries like technology but have “forgotten how to make their own secret sauce.” Essentially, this means they’ve done so much complex outsourcing that they literally have no idea how to make their own products anymore.
In fact, they may not even know who is making (or investing in) these products now due to the sheer extent of corporate globalization over the past half century, particularly between the US and China. Executives need detailed risk maps to understand their own supply chains beyond the most superficial level.
This is where data entrepreneurs come in. One of the most interesting is WireScreen, part of The Wire Digital Inc, a US-based news and data platform focused on China and global supply chains. It tracks 10 million companies registered to do business in China, and what it reveals speaks volumes about how far decoupling needs to go. The company, which has raised $14 million from investors like Sequoia, was co-founded by David Barboza, who received the 2013 Pulitzer Prize for exposing corruption at the highest level of the Chinese government.
The Wire uses open-source data from China’s own state-owned business register to create a 360-degree map of all major public and private companies operating in the country. These include not only large Chinese state-owned companies, but also medium-sized suppliers and global multinationals from Boeing to Google. The data is then translated, cleaned and cross-checked with other sources to reveal the stakeholders who ultimately benefit and the business networks and associations of those companies.
The results are shocking. For example, it is quite common to find evidence of sanctioned companies partnering with US firms, or blacklisted companies that control multiple non-blacklisted subsidiaries, meaning they are legal could import goods and services for their sanctioned investor or parent company. Although The Wire cannot “see” breaches because it has no trading records, it regularly parades the platform to government officials. There’s a lot to worry about, even beyond decoupling. For example, the data is starting to paint a picture of wealth moving to places like the British Virgin Islands.
Barboza says the platform currently holds less than 10 percent of the data collected by his team. Nevertheless, it is clear that supply chains are “the thread that can be pulled to uncover the lack of transparency in global corporations,” as he puts it. No wonder the majority of The Wire’s nearly $3 million in data subscriptions to date have come from government contractors and regulators, law firms, think tanks, and consulting firms.
Any business leader or investor should take note of this. Those who make the rules that shape the post-neoliberal world, and those who help companies comply, are creating ever more detailed pictures of how companies operate across borders. It’s one thing for politicians to push decoupling, or even pass legislation that requires it. The other is that everyone has access to data that proves whether companies comply with the law or not. I suspect that this new level of transparency will reveal opportunities and challenges that business leaders and politicians are only just beginning to imagine.