Jorge Sicilia (BBVA) at Esade: “Globalization won’t disappear – the cost would be prohibitive”
“Uncoupling and regionalization are happening, but globalization isn’t going to disappear – the cost would be prohibitive. Globalization will mutate, but the world can’t go back to how it used to be,” said Jorge Sicilia, head economist of the BBVA Group and director of BBVA Research, during his talk at the conference ‘The value chain: resilience vs optimization’ organized by the Esade Corporate Governance Center and EsadeGeo. Also taking part in this session, within the framework of the 3rd Lecture Series entitled “Geopolitics on Board Agendas”, were the board members María Eugenia Girón and Ana García Fau, who agreed that not all value chains are equally fragile and that today’s scenario creates risks, but opportunities too.
“Companies’ value chains are the most efficient arrangement for optimizing their production processes. Any tweaks to their design will affect the P&L statement, which is why it’s so hard for companies to change them,” said Jorge Sicilia, who believes that “this explains why there’ve been so many shocks over such a long period as companies overhaul their design and invest in resilience.”
These shocks, explained Sicilia, started with the financial crisis of 2008 and continued until the tariff war of the second Trump Administration, and will continue to be driven by different forces arising from the geopolitical landscape, the protectionism of trade and industrial policies, the ownership and management of supplies and tech development. He insisted that global trade would nonetheless continue to function. “Trade hasn’t been broken; it’s changing its structure. Exports and imports carry on, but the way these relationships are interlinked is evolving.”
Connector countries and relative vulnerability
Against this backdrop, the chief economist of the BBVA Group and director of BBVA Research highlighted the increasingly important role of connector countries regarded as neutral, such as Mexico and Vietnam, because they are destined to become new global economic bridges with increasing clout in international trade. “The regionalization of trade doesn’t necessarily mean that chains will be shorter, they might in fact get longer and more resilient too because they rely on fewer sources of tension,” he explained before pointing out that these countries do not spring up from nowhere: “To be significant players they need human capital, industrial capacity and infrastructures in order to become an integral part of global trade.”
At this point he distinguished between the two main configurations of value chains: ‘spiders’ in which each component comes from a different country and is assembled in a single place, and ‘snakes’ in which production moves from one country to another, and sometimes back again for some sections. “In spider chains, it’s relatively easy to find a replacement if a supplier fails because their structure is more diversified,” he said. However, he warned that “snake chains involve a rigid sequence, so any disruption at a single point can bring the entire production process to a halt,” whilst recalling that this chain configuration is particularly vulnerable to geopolitical and logistical shocks.
Instruments available to boards
Board member María Eugenia Girón agreed with Sicilia about the impact of geopolitical uncertainty on the value of companies. “Markets are tremendously volatile,” she said, but “there are also upsides. Some companies have benefited from tariffs because sales have been boosted in their own markets and other markets without these barriers.” Then, as regards the instruments for boards, she highlighted “the importance of working dynamically with risk models to minimize them” and relying on advisors and third parties, in addition to public-private collaborations.
Board member Ana García Fau then emphasized the importance of thoroughly understanding the value chain of the industry in which each company operates. “A thorough understanding of your industry’s chain is crucial,” she said. She also pointed out that the complexity of today’s landscape has changed how boards are managed and operate. “We had never dealt with so many scenarios, so much analysis and so much planning. Uncertainty is greater than a few years ago and, in this situation, it’s better for us to work with more scenarios.” As a result, she believes it is essential for boards also to have suitable experience and specialized external support: “Not all knowledge can be sourced in-house.”
Also taking part were Mario Lara, director of the Esade Centre of Corporate Governance, who welcomed the delegates, and Ángel Saz Carranza, director of EsadeGeo, who chaired the discussions.
