Alt-migration: the coming age of alternative global mobility

For organizations that move people around the world, there are fundamental questions that should be asked.

In brief

• How will national self-reliance (i.e., protectionism in various forms) and “near-shoring” impact global mobility going forward?
• What are the mobility and related impacts of China’s increasingly dominant position in global supply chains?
• How can organizations reap the benefits of interconnectivity while navigating the risks and downsides of the present dependency on China, which represents an overwhelming single source of production, exports and markets?

In the early 1930s, another period of economic uncertainty, an observer wrote “I think the world in which we shall live these next 30 years will be a pretty restless and tormented place; I do not think that there will be much of a compromise possible between being of it, and not being of it.”¹ The author of this comment was theoretical physicist J. Robert Oppenheimer, who later became known as the father of the atomic bomb.

In today’s environment, we are again called upon to consider the compromises inherent in “being of it, and not being of it.” How we collectively respond to this question will shape economic and mobility patterns over the coming decades.

There is a tension at the heart of today’s economic debates: to deglobalize, or to double down on the cross-border path hewn over the past 30 or more years? Countries throughout the world wonder how best to respond to the recent pandemic crisis, to Russia’s invasion of Ukraine, to years of rising tensions between the United States and China, to relentless climate change, to the seemingly endless surge of refugees, among numerous other challenges. Should they draw in, or refresh cross-border connections?

Policy leaders such as Chrystia Freeland, Canada’s Minister of Finance and Deputy Prime Minister, have called for a global trade reset to emphasize “friend-shoring,” a concept also suggested by US Treasury Secretary Janet Yellen. Speaking at the Brookings Institution on October 11, 2022, Freeland stated that “we should stop supporting autocracies such as Russia and China and focus on trade and investment in the countries of our democratic allies.”

Effectively, Freeland’s “manifesto” held that we must abandon the optimism that post-communist countries would gradually turn into good global citizens. The dream is over, in other words, of globalization as a force for transforming the entire world into a rules-based, open-border production and consumption market. Going forward, new considerations must be applied.

Such considerations generally fall into one of two camps. First, strive towards genuine national self-reliance, referred to by the economic term of autarky, by which a country seeks to produce and consume all it requires within its own national borders, safe in a bubble beyond a troubled world. Second, establish a safe and reliable bridge to broader markets, but navigate that route with an appreciation born of experience, recognizing we coexist in a complicated, diverse and dangerous environment.

Mobility and immigration policy can be established to support either of these choices. Even in a closed or restrictive market focused on self-reliance, policymakers can focus on bringing to such markets the internationally sourced skills to buttress a padlocked economic system. Or, as ever, such policies can be the sharp point of the spear in exploring, establishing and managing global supply chains.

In consequence, mobility is fragmented, looking for direction and certainty. In today’s environment, there is no longer a clear roadmap, a fixed set of markers or locations by which to plot the course for future investment and focus.

Where next: here or there? Is this fragmentation an existential crisis, or merely a reset?

To better address these questions and to help anticipate the next phase of mobility policy, we must review the genuine potential for self-reliance, as well as the soundness of possible new global markets. Decisions taken in assessing these choices will determine the future of mobility — and much else — over the coming period.

Global integration, but with nuance

Economic study of national self-reliance is rare.

History is regrettably full of examples where states have sought to achieve economic independence through war and pillage. Indeed, seeking security through the grabbing of resources, “living space” or a neighbour’s enviable asset is practically History 101. Even the expansion of the US land empire to the west through “Manifest Destiny” was undertaken to expand and exploit a captive market. In more recent times, the European Union was developed to create — through negotiated treaty rather than force of arms — a common market that could buttress the continent against outside economic pressures.

A dispassionate study, however, as to whether a modern nation could truly achieve the fabled ideal of self-reliance, without subsuming its neighbours’ resources, is scarce. Two recent papers have, however, sought to address this quandary from different economic perspectives.

Paul Godfrey at Brigham Young University’s School of Management sought to outline what he defines as “the four types of capital” required by a nation to achieve self-reliance³. These capital forms are:

• Institutional capital: the system you live in
• Social capital: the relationships you have and seek to develop
• Economic capital: the “money in your wallet” and the assets generated by your society
• Human capital: “the stuff in your heads, heart and hands,” as well as the ability and openness to attract or to generate more such capital

Godfrey offers an analysis as to how to measure the impact of these capital flows on a state’s goal of self-reliance. He proposes using what economists refer to as a “stock and flow” model, essentially the same manner by which accountants look at a business’s performance. They look at the balance sheet, which represents the different capital stocks at any given time, and the income statement, which captures the resource inflows and outflows.

“The balance sheet metaphor,” notes Godfrey, “raises another important characteristic of the four types of capital, as a balance sheet contains both assets (positive capital) and liabilities (negative capital).”

Godfrey concludes that the ability of a single nation to garner and hold economic resources more than its basic needs is severely hampered by going it alone. The capital accounts benefit from interaction with other economies; left alone, they atrophy. There is simply not enough regeneration within even a large domestic market to maintain the same levels of performance over time. Competition, fresh perspectives, interaction, new investment sources and many other factors arising from cross-border markets contribute, Godfrey concludes, to a rise in the net value of a nation’s capital, no matter how large or successful the nation.

A separate study sought to better understand the ability of not just a single nation but of an entire geographic region to prosper by standing alone. A paper published earlier this year by McKinsey & Company² divided the world into eight distinct regions:

• Asia-Pacific, excluding China
• China
• Europe 30, essentially western and northern Europe, including the UK
• North America
• Eastern Europe and Central Asia
• The Middle East and North Africa (MENA)
• Latin America (LatAm)
• Sub-Saharan Africa

The study serves to outline in considerable detail the interconnected character of modern economies and supply chains. For example, Asia-Pacific, including China, is the leading global exporter of manufactured goods, as well as the largest supplier of electronics. Europe and North America, meanwhile, provide much of the advanced machinery and technology innovation, as well as, through extensive mobility programs, the intangible know-how that supports production of advanced electronics such as semiconductors. While these are prodigious strengths, the report notes that every region has vulnerabilities.

China imports more than 25% of its energy resource needs. Energy resources from the Middle East and Russia power China and India. China also imports more than 25% of its mineral needs, primarily from Australia, Brazil, Chile and South Africa.

The nations of the Europe 30 import more than 50% of their energy resource needs. Prior to 2022, Europe 30’s largest source of energy resource imports was Russia. Since Russia’s invasion of Ukraine in early 2022, European economies have been attempting to diversify sources of natural gas away from Russia. Europe 30 is also a significant net exporter of pharmaceuticals but relies on Asia-Pacific for crucial inputs of active pharmaceutical ingredients.

North America is a net importer of both manufactured goods and mineral resources, with Asia-Pacific is its main partner for both. While North America leads in research, technology development, capital investment and innovation, it imports about 25% of its electronic needs, and Asia-Pacific including China accounts for about 85% of these imports. North America also imports about 10% of its mineral consumption, again with Asia-Pacific as its largest partner. The United States alone imports more than 70% of its consumption needs for more than 30 minerals from markets outside the region.

Other regions are even more dependent on global markets. The resource-rich regions of Eastern Europe and Central Asia, LatAm, MENA and Sub-Saharan Africa are net importers of manufactured goods and services, sourced roughly equally from Asia-Pacific and Europe 30. Asia-Pacific in turn is the largest partner of these regions for flows of electronics, textiles and basic metals, while Europe 30 is their largest partner for pharmaceuticals and machinery.

MENA is the largest net exporter of energy resources, but it depends on other regions for more than 60% of its food supply. Prior to Russia’s invasion of Ukraine, most such foodstuffs flowed into the region from those two countries. In LatAm, Brazil and Argentina are two of the world’s largest grain exporters, but they rely on flows of fertilizers from the rest of the world. Notably, they have been sourcing more than 50% of their potash imports from Russia and Belarus.

The details could go on, but each region, no matter how vast or how wealthy, is intrinsically reliant on others. In today’s world, neither country nor region is an island of independence.

The McKinsey report also noted that, notwithstanding the disruption caused by the COVID-19 pandemic, most global flows continued to grow — or even accelerate — in 2020 and 2021. Mobility, even in such a period of compromised situations, remained important. Overall, flows of intangibles, trade and capital increased, and their relative resilience was essential to navigating the turmoil of the pandemic. Moreover, flows of data reached an all-time high and, the study adds, “enabled remote working and the continued operation of businesses at a time when travel was largely impossible.”

If we agree with the conclusions of the two papers cited above, deployment, immigration and mobility will play important roles in a global economy that must remain interconnected. It would be negligent, however, not to remain cognizant of the changing circumstances in the geopolitical and financial landscapes. Attitudes, trust and openness between nations are, so it would seem, simply harder to come by now than they were 20 or 30 years ago.

How, then, to best to move forward? And what role can mobility play in the coming era?

The mobility metaverse

The modern patterns of global trade, investment and mobility were established in the late 20th century with one overwhelming objective in mind: to unleash the tremendous potential of China as both a source of production, with its abundance of cheap labour, and a market, with its population of more than 1 billion people, for international goods.

The first mover was credited to be Panasonic, the Japanese electronic giant, which first established a manufacturing centre in China in 1987. At that time, the Chinese economy was slightly smaller than Canada’s. Today, China’s GDP has grown some 15-fold to more than US$14.7 trillion, the world’s second-largest (Canada’s GDP, meanwhile, is about US$1.6 trillion, ninth-largest). China’s share of the electronics manufacturing industry alone exceeds US$1 trillion, more than a third of the entire global market.

Mobility policy was central in transforming China and other developing nations throughout the world. A spirt of openness in temporary work permit and business visitor entry policy, combined with advances in technology and communications, coalesced to drive transformative growth and opportunity. For a moment there, hope rose that such openness, broader prosperity, and a rules-based international commercial order would enhance democracy in China and elsewhere.

The candidates for alt-mobility

With increasing pace and urgency, global business is seeking locations other than China in which to invest in manufacturing, components and assembly, services and support. As The Economist recently pointed out, Chinese labour is no longer that inexpensive, as between 2013 and 2022 manufacturing wages doubled to an average of US$8.27 an hour, almost four times that of China’s neighbouring countries. More pressing, however, is the determination by many business and political leaders that China may no longer be a reliable long-term business partner.

The signs of what might be called a strategic withdrawal of Western business from China are clear. Between 2020 and 2022, the number of Japanese companies, for example, operating in China fell from nearly 14,000 to about 12,500, the first recorded such decline. The volume of direct foreign investment in China similarly slowed over the recent period.

It should be recognized, however, that not all leading global economies have taken this path. German auto, chemicals and heavy equipment manufacturers continue to invest heavily in the country, which continues to be Germany’s largest trading partner, with more than US$320 billion in annual trade. The Economist reports, for example, that Volkswagen relies on China for more than 40% of its total global sales. But consider that other leading German companies like adidas, are choosing to invest in alternative production and assembly sites in Vietnam and India.

Notwithstanding some outliers, therefore, the pace of all-out investment in China as the hub of the global commercial wheel has slowed. The International Monetary Fund, taking note of this trend, has noted the cost of such decoupling could fall somewhere between 0.2% and a staggering 7% of global GDP over the course of the present decade.

The questions therefore arise: if China is to be less central to the planning, investments and deployment strategy in global manufacturing and supply chains going forward, who will take its place? And can such a deliberate policy be achieved without crippling the global economy?

To begin to answer the first question, it is clear the successor will not be a single country. India is a rising giant, especially in the service and back-office support sectors, where it has long staked its claim. Indian manufacturing facilities overwhelmingly serve only the domestic market. Further, local regulations and restrictions make rapid upscaling of such production overly complex in the country. India’s time will come, perhaps sooner than we think, but it is not yet there.

If we consider the eight regional sectors acknowledging that North America and Europe 30 will continue to be sources of capital, innovation and skilled human capital for other geographies — which among the remaining regions have the best chance to rise to the opportunity this displacement represents?

The leading candidate is the Asia-Pacific region surrounding China. This “Alternative Asia” includes South Korea, Taiwan, the Philippines, Indonesia, Singapore, Malaysia, Thailand, Vietnam and Cambodia. Its working age population, as calculated by the World Bank, numbers 1.4 billion people, which exceeds China’s 950 million. Its core of educated people is also greater, and its population, rather than aging and shrinking like China’s, is expanding. Moreover, led by investment from Japan, which has been developing opportunities in the region for decades, Alt-Asia is already a major exporting power; indeed, its combined manufacturing exports to the US in 2022 totalled US$634 billion, greater than the US$614 billion from China.

Alt-Asia is seizing its chance. Recent economic and, to an extent, mobility treaties are coming into place or are being expanded. The Regional Comprehensive Economic Partnership, which includes China,) has been complemented by an Indo-Pacific Economic Framework, which excludes China but adds India, and seeks to ease regulatory barriers to complex supply chains that run through several countries. The objective appears to be to create a single market, especially in intermediate products, and to boost the confidence of international partners.

The success of these and related efforts are already found on the ground. Vietnam is now the world’s largest supplier of motorcycle parts, and major global brands such as Nike and Apple have relocated, or are in the process of relocating, much of their manufacturing and assembly efforts out of China and into Alt-Asia.

The path will not be linear, as China remains an overwhelming regional and global presence. Companies in the process of relocating their manufacturing have reported supply chain disruption in awaiting components that have to be sourced in China. Yet the trend of transition appears to be clear. In consequence, mobility programs will have to be reconsidered to support the shift in emphasis as global business ups its investment and operations in Alt-Asia.

Casting our minds further afield, what other regions could best step into the role of a manufacturing and service power arising from the potential of de-friending China? Africa’s considerable infrastructure and energy shortfalls, among many other pressing challenges, makes the region an unlikely contender for this mantle for a generation or two. MENA hopes to diversify from its overwhelming reliance on oil and gas, but the profits those commodities generate still seem too tempting to divert serious attention to such efforts. Eastern Europe has increased its role in providing both global back-office and assembly services, but unrest in the region makes for a particularly risky investment.

But why not Latin America? Alt-Asia has been far-sighted enough to sign onto the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which better links Brunei, Japan, Malaysia, Singapore and Vietnam with Canada, Chile, Mexico and Peru. Moreover, LatAm is ideally suited geographically to take advantage both of North American time zones and access to both the Pacific and Atlantic oceans, linked of course by the Panama Canal.

Yet LatAm faces many challenges if it seeks to become an “Alt-LatAm” that could replace a portion of China’s vast manufacturing supply chains. The region’s population is considerable at about 670 million, but its proportion of those with even a secondary education is less than that of Alt-Asia.

After more than 40 years of free trade agreements with Canada and the US, Mexico has improved its overall manufacturing, especially its component fabrication industries, but its global trade outside North America and its Latin neighbours has not markedly improved. 

While Brazil remains the largest economy in LatAm at some US$1.4 trillion in 2022, 12th largest in the world, it and many of the other LatAm economies remain, other than in defined food sectors and grain staples, focused on serving wholly domestic economies. Similarly, the bulk of the region’s manufacturing output doesn’t flow outside the region, a trend exacerbated by the inward-looking Mercosur, or Southern Common Market, agreement.

There have been some efforts in Alt-LatAm to look to international markets, and to seize on the opportunities arising from the Russia-Ukraine war. Intraregional trade and movement treaties have been made and expanded between many nations within the LatAm region, particularly in South America, to better attract international investment. The prices of minerals, the largest export sector, have risen, as have foodstuffs, particularly coffee), and the region is seeking to expand its place in these global markets. These steps position the region to better expand on its latent manufacturing potential, building on success in the steel and some electronics (batteries) industries.

Overall, however, LatAm has failed to benefit from the investment support of a partner such as Japan in Alt-Asia, which has been developing sources of manufacturing supply in that region for decades. The United States, in contrast, has not invested significantly in supply chain manufacturing in LatAm, focusing its efforts on infrastructure to support the region’s export of commodities such as foodstuffs and minerals to the US market.

The region itself is not free from blame. Many could argue that it is less stable and more poorly governed than Alt-Asia. Interregional immigration and mobility policies have improved, primarily through the Mercosur accords, but the region generally remains far more ponderous, bureaucratic and protectionist than Alt-Asia, particularly in permitting the entry and authorization of temporary foreign workers.

While crime and corruption are evident in both regions, inflation is much more rampant and investment stability and monetary policy appears much less assured in LatAm. One could argue that this trend continues with the relatively recent LatAm political and economic movement towards the left, such as Argentina, Brazil, Chile, Colombia, Mexico and Peru. Population displacement and falling standards of living are growing concerns, as evidenced by the hordes of desperate people streaming to the US southern border, and the election of left-of-centre leaders in these countries.

Still, if we are seeking manufacturing and production alternatives in a post China-centred world, no region anywhere boasts more opportunity than LatAm. The region is in many ways a greenfield for establishing world-class manufacturing and assembly operations. New facilities could incorporate the latest green energy technology and renewable approaches. Applying experiences derived from establishing large-scale manufacturing operations in China and Alt-Asia, as well as the mobility programs designed to source and locate leading engineering, logistics and computer expertise to the region, could be significant.

Together, such efforts could play a central role in significantly expanding the manufacturing output of most of LatAm, creating a genuine new alternative production source. With its wealth of raw materials and rare earth metals, and with an infrastructure base now largely devoted only to local commodity supply and to food export, LatAm could accelerate its position in global manufacturing supply more rapidly than any other candidate region.

Much would need to be done to stabilize governments and financial institutions, and to break the back of organized crime throughout the area. But such efforts must start with a vision. Seizing on the promise represented by Alt-LatAm taking a seat at the table vacated by a receding China would be a generational change for its people.

Mobility and immigration policy here too has a role, to facilitate the transformative power of uniting global talent with potential and opportunity. To become alternatives to the present overweening power and influence of China, and to realize new prosperity throughout their respective regions, informed mobility can expedite the emergence of Alt-Asia and Alt-LatAm.

Conclusion

In early days of 1930, following the collapse of the US stock markets and the dawn of the Great Depression, John Maynard Keynes wrote, “we are suffering now from a bad attack of economic pessimism.” A similar pessimism permeates today. In truth, however, there is much room for optimism.

Changes are afoot, with both Russia and China being deemed by much of the world as too risky and unreliable to be trading and investment partners. Alternatives are required. And alt-regions have the once-in-a lifetime chance to stand up and carpe diem in manufacturing and supply voids.

Mobility and immigration policies can support either self-sourcing or alternative region sourcing programs. With unemployment rates at historical lows in much of the developed world, if a country determines certain industries/productions are crucial for self-supply — microchips, vaccines, agricultural productivity, to name but a few — it follows that countries should be considering the facilitative movement for migrant/foreign workers by issuing work-authorized visas for those with skills and experience in such fields.

Similarly, if alternatives to an over-reliance on China must be developed, mobility and immigration expertise can ease the pathway towards expanding and expediting the role the alt-regions can play in supporting global trade and supply networks.

The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.