Caterpillar workers at the company's recently expanded plant in East Peoria.
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UPS, which moves 2% to 3% of global GDP annually, says it views supply-chain disruption as the No. 1 risk facing multinational businesses today. Mitch Free, who runs MFG.com one of the world's largest online marketplaces for the manufacturing industry, says he's seeing a big trend toward regional and local insourcing not only because of risk mitigation but because consumer demand for all things to be newer, faster, better is shortening the life cycle for products (as little as six weeks from production to market in many cases). The trend toward hyperlocal product customization to suit individual customer needs in everything from jeans to ditch diggers also favors just-in-time, local supply chains. "The dynamic is not so much that American firms are bringing jobs back to the U.S. from abroad as it is that companies everywhere are bringing jobs and operations closer to where their customers are," says Free. "It's all about regionalization and localization rather than globalization."
Indeed, Caterpillar nurtures a network of about 2,000 local suppliers in the Illinois area alone, many of whom make a good living designing and producing customized goods for the firm--items destined for particular U.S. markets or specialized needs. Where things can be sourced locally, they are, in every Caterpillar territory internationally. "It allows us to better understand the needs of the local market and adjust the product quickly," says Oberhelman, "but it's also a natural currency and energy-cost hedge."
Companies are also starting to realize that localnomics can help support their revenue growth. Suppliers can also buy things from their customers, and customers can be suppliers too. IBM, which sells a lot of its products and services to small and midsize firms, recently founded an online network to source more of its business needs from such companies in the U.S. Sixteen other companies, including Caterpillar, Dell and AMD, are taking part. Since the project, called Supplier Connection, went live in March, the companies have booked tens of millions of dollars in new business from small firms. This has an exponential growth effect. A recent study by the Center for an Urban Future found that most small businesses that became suppliers to multinationals saw their employment go up, on average, 164% within two years. For the large firms, it's just smart business; many of the small and medium-size enterprises they fuel will undoubtedly become customers at some point.
RULE NO. 5
Local Leaders Must Step Up
Localnomics has great potential. But how much can governments do to nurture local economies? And how much should they do?
Economists on both sides of the political spectrum have begun to argue that we need to rethink laissez-faire trade policies when we are up against state-run capitalist systems in places like China, which openly gives preference to homegrown firms and limits foreign capital even as it exports massive amounts of cheap goods. Groups like the Council on Foreign Relations and the Information Technology and Innovation Foundation agree that the U.S. needs to get more aggressive about pursuing trade violations and punishing violators. Some economists call for sanctions or temporary tariffs.