Manufacturing comes home: the rise of 'localnomics'

Issue 88: August 2012

From boardrooms to shopping centres, factory floors to social media sites, a widespread preference is starting to emerge for all things local. The trend is being labelled 'localnomics' and it's predicted to challenge the dominance of globalism significantly.

In a recent Time article Rana Foroohar claims rising labour costs in developing world countries are making offshore production a less attractive option. At the same time, a growing appreciation of the social and sustainability benefits of local manufacturing is rising steadily.

But there's more to localnomics than changes to manufacturing alone. Commentators suggest growing consumer interest in local and personalised products over generic outputs is also destined to transform the SME, marketing and finance sectors.

Rise of the (local) machines

Manufacturing jobs have been leaving the West over the last half-century largely due to high labour costs. But as wages start to rise in China these jobs may be coming back. What makes this possible is a new generation of robotics that is more cost effective than offshore manufacturing alternatives.

Foroodar claims that rather than replacing the need for blue-collar workers in developed world countries, lightning-fast automated factories will bolster local innovation (which means more jobs) and require the services of a large number of skilled workers for maintenance.

Bringing manufacturing back to developed nations is said to offer other positive trickle-down effects such as the growth of smaller local businesses that can act as suppliers and the expansion of the educational institutions required to train high-tech blue-collar workers.

Aside from the green benefits of using nearby enterprises Foroodar says local supply chains pose less risk than those based offshore in often very different cultural environments. And in an interesting twist, she claims local governments will emerge as key powerbrokers in new localised manufacturing hubs.

Localism goes online

Localnomics in many ways has its roots in localism, a term can mean a neighbourhood, community, region or country. What all of these different layers of localism have in common is the desire to build ecosystems of support and consumer demand.

Where globalism allowed manufacturing to achieve economies of scale with standardised outputs, localnomics responds to emerging consumer demand for new products that are delivered very quickly, often in a personalised form.

The French skincare company Codage, which enables customers go online to select ingredients and concentrations in many products, offers an example of this bespoke approach. The result is the building of a community rather than just consumers.

Renewed interest in all things local offers significant opportunities for SMEs including the ability become part of geographically exclusive social networks such as nextdoor.com, a US social media site that allows people in a neighbourhood to chat about local happenings and recommend local businesses.

Building local ecosystems

Rather than pleading their case to a bank manager, entrepreneurs may soon be pitching ideas to their local networks. Crowdfunding, the process in which funds are collectively pooled from a network of individuals, is increasingly taking on a hyper-local complexion in the US.

According to Springwise, new services like Lucky Ant allow businesses to pitch an idea or need exclusively to their local community, which then collectively chooses if it wishes to fund a new venue.

The businesses selected by Lucky Ant are required to explain why they need funding, for example to purchase new equipment and hire new staff. The projects that achieve their target pledges can then thank their local supporters with perks or free goods.

Local relationships are also a key element of the website Supplier Connection, a B2B site that's currently being used by firms including Caterpillar, IBM and Dell in the US to find local suppliers to fulfill their supply chain and distribution requirements.

A new paradigm starts here

'Glocalism'... 'hyperlocalism'... 'localnomics'... a number of different terms are currently emerging to describe the same trend: renewed interest in the opportunities provided by local production.

With this change comes a range of new opportunities for the local networks needed to support local manufacturers and to facilitate the innovation and training required to accommodate new technologies.

As Foroohar puts it, this doesn't spell the end of global supply chains, but instead highlights the complementary benefits of local production and sourcing, concepts that until very recently seemed headed for extinction.

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