Big data affects global trade

Article Overview: Start what you know and leave the rest to others--a brief summary of the global value chain concept. The digital age reduces the cost of managing the global value chain and makes it possible to realize the spread of complex global value chains. But technology does not stop there. Based on some estimates of data collected by sensor networks and the Internet, new technologies that use the novel algorithm can further optimize global value chains. In the future, robots and 3D printing may change the way we view skilled labor and mass production and reshape the global value chain into regional value chains.

Anyone who has had a course in basic economics might recall the phrase, "specialization and trade are key to economic growth". In the classroom, this concept is usually illustrated with wines and breads. Every step of a finished product in the global value chain follows the same logic, which makes businesses and economies focus on what they do best, while buying the necessary semi-finished products and services to others. As a result, global value chains are becoming increasingly fragmented and complicated, so that some researchers think they should be renamed "Global Value Networks".

Indeed, in most economies, a large number of imported semi-finished products have been re-exported after value-added processing processes. According to the Organisation for Economic Cooperation and Development, the organization now has more than half of its manufacturing imports of semi-finished goods, and more than 70% of imports are intermediate services such as business services.

The reduction of trade barriers and the development of science and technology are key to contributing to this global situation. Low telecommunications costs, for example, have prompted American companies to outsource customer service to India. Information and communication technologies are also highly effective in collecting and disseminating data, thereby reducing costs and better regulating global value chains. Companies such as Procter and Gamble have achieved double-digit productivity gains by tracking supply-chain logistics through smart software and barcode. With the help of barcode with long distance reading and writing ability, radio frequency identification technology is expected to be further. Anglo Apparel Apparel company has pasted RFID tags on its products and has deployed a wireless radio frequency identification network system in one of its stores. The system immediately discovered the store's inventory system reported missing about 1,500 items. Imagine what would happen if such a system were deployed around the world and connected to the Internet. You can get real-time global inventory data, inventory loss and redundancy will also be greatly reduced.

Large data and predictive analysis can help enterprises optimize logistics, forecast demand more accurately or hold better time-to-market for products, thus further improving efficiency. It has far-reaching implications for almost every industry, whether it be industrial products or entertainment. GE, for example, has created a large database of industrial machines by sharing blind data from its customers. This allows its monitoring center to forecast more than 200 device failures per month, which can reduce unplanned downtime to almost zero.

With real-time optimization and more accurate long-term forecasting, value chains are expected to become more resilient. More intelligent data and computing capabilities will also lead to more convenient supply chain stress testing, which will enable detection of potential defects and test the corresponding modifications, and the trade process becomes more reliable. For example, an analysis of Thailand's climate model and the supply chain structure in the electronics industry could prevent the region's hard drive prices from soaring by two to three times times after the 2011 floods. Of course, more interconnected and digitized supply chains also imply an increase in cyber threats. The "Icefog" discovered by Kaspersky Labs in 2013 was a cyber attack on the South Korean and Japanese supply chains.

However, the more disruptive effects of the current supply chain are other technologies. With the advent of advanced manufacturing robots, more companies may follow Swatch's footsteps, which use high-tech machines to produce watches, and nominally they do come from Switzerland. This trend will also be driven by the Low-cost and versatile 3D printing that offsets the advantages of centralized mass production. Put the two together and you may realize that the distance between a perfect outsourcing partner and you is much closer than you think. Edit/Zhangdian

(reprinted from The Economist GE Look projectile column)

(Responsible editor: Mengyishan)