The rise of the ultra-picky consumer means global supply chains face additional pressures beyond the current trade-war landscape.
Owing primarily to technological advances, businesses are increasingly adopting flexible production rather than one-size-fits-all, as customers demonstrate a willingness to pay more for tailored goods and services, according to a report by UK-based trade economists Shanella Rajanayagam and Doug Lippoldt at HSBC Bank.
“Consumers today are increasingly demanding a greater variety of goods and services that are more tailored to their individual needs,” Rajanayagam and Lippoldt wrote, citing sectors as diverse as clothing, health care, automobiles and computing. That’s likely to prompt more “near-shoring,” where production is shifted closer to the end consumer, they said.
Another factor behind the trend is a growing army of millennials and expanding middle classes in emerging markets, all with rising purchasing power.
The changes might put economies like China, Bangladesh and Vietnam on guard as low-cost, high-volume manufacturing work is shifted away. There’s evidence these economies were already losing that relative advantage: Just 18% of goods trade takes place from low-wage to high-wage countries, the report said, citing McKinsey data.
Emerging markets broadly won’t necessarily be hurt, though. An HSBC survey shows that businesses are increasing investment to enable production of customized goods and services, especially in Indonesia, South Africa and Brazil. For Indonesia, which also happens to have a booming millennial cohort, about 65 percent of respondents said they planned to increase such investment.
The HSBC economists see technological advances as the primary driver of customized trade. That includes 3-D printing, which has become more accessible, more affordable, and more capable — further propelling localized production over orders for intermediate inputs from developing countries.
In addition, 5G technology that accommodates swifter communication should also make delivery of these customized products more efficient, the authors wrote. Artificial intelligence that enables consumers to track their nutrition and health via mobile apps will enable them to more easily order personalized goods and services in those sectors.