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Economics Is Strategy

As originally published by Supply Chain Management Review, February, 2018

By: Rosemary Coates
Tel: 408-605-8867
Email Ms. Coates

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"Economics is strategy." This phrase made me sit up and take notice. It was from an article in The American Interest about China's One Belt One Road initiative (OBOR). Of course, we knew that OBOR was all about economics. I have written about China's building influence around the world, but to simplify China's actions in this one impactful phrase makes it so clear.

The New Silk Road

The One Belt One Road initiative is Xi Jinping's centerpiece project. He wants to connect China's trade and influence with Europe, Asia, and Africa again, as it once was with the Silk Road. Starting around 200 BC and extending 4,000 miles, the Silk Road got its name from the lucrative Chinese silk trade and tea trade in exchange for spices, nuts and jewels from Europe and the Middle East. In addition, various science and technology innovations were traded along with religious ideas and the bubonic plague. The Silk Road was a significant factor in the development of the great modern civilizations.

Connecting the Silk Road Again With Economic Strategy

Now Xi is attempting to connect the Silk Road again by land and by sea with OBOR. This time, it is a calculated strategy of economic influence and the transformation of nations into dependent economies. Investing in other countries' infrastructure such as roads, ports, rail lines and schools has created a benefactor image for China and a beholding response from beneficiary nations. After all, taking money from China Development Bank to build roads and airports and rail stations is far better than having none of these infrastructures in developing nations.

By helping with these projects, it also relieves China's overcapacity problem in steel, machinery, and construction. In addition, building infrastructure secures China's access to natural resources not found at home.

The question is, how will these companies pay back the investment? With open markets, trade, access to raw materials, and strengthening relationships. Economics is strategy!

How will this manifest itself in our own global supply chain operations? More control and influence by China is inevitable. The strengthening of China's ties and interdependencies is happening in plain sight. While the Trump Administration is looking inward and busy with domestic policy and introducing tariff barriers, China is looking outward and extending its circle of influence.

What Do American Supply Chain Leaders Do Now?

It is critical that global supply chain professionals be watchful and vigilant, and prepare alternative strategies for addressing risk. It's time to develop alternate supply networks and perhaps consider reshoring some of your sourcing and production. Be prepared for changes in China's policies regarding foreign sourcing and manufacturing. Look for trends and assess your supply chain risk regularly.

We must be watchful over today's operations and make incremental steps towards continuous improvement. But we must not lose sight of the long-term. As supply chain leaders, we must develop strategies for addressing what is happening in our global supply chains.

Rosemary Coates, President of Blue Silk Consulting, is a seasoned executive with an MBA and 25+ years of experience in Chinese Sourcing and Manufacturing, Supply Chain Management, Procurement, Manufacturing and ERP Systems Consulting. Ms. Coates experience spans a broad range of industries including High Technology, Software, Chemicals, Health Care, Consumer Products, Industrial Products, Food Distribution, Transportation, Publishing, Retail, and Oil and Gas.

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