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Customization will Reshape Labor, Trade & Financing: Here’s How

The rise of customization has the industry scrambling to figure out how to retrofit a system meant to create massive numbers of the same thing over and over into one that’s nimble enough to produce large quantities of goods, each tweaked to reflect the owner’s personal tastes and bodies.

And while much of the focus has been on the challenge of transforming machinery and operations in the factories themselves, that’s only one small part of the picture. On a macro level, customization could very well have ripple effects that extend to all aspects of what makes the industry tick, including labor, trade, financing and beyond.

As consumers become more and more comfortable with curating their worlds—whether it’s the milk in their lattes or the songs on their playlist—the demand for bespoke goods will only rise, according to Shanella Rajanayagam, trade economist for HSBC. Adding fuel to the trend is the booming middle class in emerging markets, which will mean even more consumers who can and will have things their way.

“This more urbanized and tech-savvy generation is leading the way in paying extra for customized goods and services, a trend that will likely be reinforced by those born after 2001, who have grown up in a digitally connected world,” she said in a brief on customization and global trade.

Rajanayagam lists next-gen design software, 3D printing, IoT, data analytics and AI as the key innovations making custom possible and changing the way the world works.

“The internet spurred trade by reducing transaction costs but newer technologies will have more complex impacts. As technology reduces the need for labor inputs, manufacturing in low-wage countries becomes less important,” Rajanayagam said.

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With this shift comes a new perspective when assessing all functions along the supply chain.

“Customization will drive greater value creation in upstream activities, such as design and R&D, and to downstream activities related to distribution channels, sales and marketing. The share of value created by actual production of goods will continue to decline. This will lead to shorter supply chains as speed to market is of the essence,” Ajay Sharma, HSBC’s regional head of global trade and receivables finance, Asia-Pacific, told Sourcing Journal.

And tech will allow companies to achieve this speed closer to home, Rajanayagam said. “Manufacturing could move from emerging to developed markets to be closer to end consumers,” she said, calling out apparel as a likely example of this shift. “Technologies like 3D printing could result in components being manufactured locally rather than imported, and may help firms improve speed-to-market and provide the flexibility to adapt quickly to changing demand.”

These companies would enjoy lower logistics and trade-related costs, Rajanayagam added.

On the other hand, other factors may tie the industries even more tightly to China in particular.

“Companies and countries used to compete primarily on cost—labor cost in particular—and factories would up sticks and move to a less expensive location. However, productivity and depth of knowledge have become very important metrics, especially in the case of customization,” said Sharma. “Supply chains may shorten and certain factories may relocate to be closer to end consumers, but a large-scale supply chain shift from China is not likely to happen any time soon.”

Further, Rajanayagam said not every product can be produced domestically, so international trade, while changed by customization, won’t be dissolved by it.

While we think about trade in terms of goods, that only tells part of the story.

“Customization involves services trade, and it’s been forecast that global services trade will grow at an average annual rate of 6 percent between 2015 and 2030, accounting for one-quarter of global trade by then,” Sharma stated, adding that services have largely been overlooked by bi- and multilateral deals like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which focus on trading goods.

“Trade policy needs to keep up,” Sharma added. “On the one hand, we need to continue to remove trade barriers; on the other hand, we need to come to an agreement on issues such as e-commerce and standards regulation and harmonization.”

Along with trade policy, the financial community will need to evolve to keep in step with the changes brought on by things like customization. The shorter the supply chain, Sharma said, the quicker companies will need access to financing. And banks like HSBC are reacting with innovations of their own.“For example, so far we have completed nine letter-of-credit transactions using blockchain, drastically reducing the time it takes to complete documentation—from five to 10 days, to 24 hours,” he said.

This piece originally appeared in Paradigm Shift, the 2019 On-Demand report. Click to read how brands and retailers are augmenting their assortments with mass customized looks and made-to-measure offerings, and learn how to determine the level of collaboration and outsourcing that’s right for your business.