Consultant’s Insight: The dark side of business digitalization

Geopolitical risks are growing concerns for governments and shippers. The latest concern: Belgian government officials scrutinizing the presence of Alibaba’s logistics subsidiary, Cainiao, at its European hub in Liege (LGG), which could affect Alibaba’s European expansion plans and have a negative impact on one of Europe’s largest air cargo hubs. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo Next columnist[/caption] Belgium’s security service agency is investigating “possible espionage and/or interference activities” carried out by Chinese entities “including Alibaba,” the Financial Times first reported.Cainiao denies any wrongdoing. “Data security and privacy protection are of paramount concern to our business. We comply with all laws and regulations, including [General Data Protection Regulation],” the company told the Financial Times. Cainiao may indeed be complying, but data security concerns may see the subsidiary close its European activities. Data collection is the new gold in supply chains. What is being collected, how it is used and who it is shared with are a growing concern among shippers, customers and governments, particularly as businesses become more digitized. Belgium’s security service said the presence of Alibaba “constitutes a point of attention” because of legislation requiring Chinese companies to share their data with Chinese authorities. “China has the intent and capacity to use this data for non-commercial purposes,” the agency said. ‘Friendshoring’ and supply chain security The U.S. government has been focused on the Chinese app TikTok for similar reasons. Federal agencies were required to delete the app from government-issued mobile devices earlier this year, and various cities, including New York City, have also barred government workers from downloading it. Other countries and government bodies have also banned the app from official devices. China’s National Intelligence Law from 2017 requires organizations and citizens to “support, assist and cooperate with the state intelligence work” and “as necessary for their work, national intelligence work institutions are to use the necessary means, tactics and channels to carry out intelligence efforts, domestically and abroad.” Concern over China’s National Intelligence Law spans industries such as semiconductors , pharmaceuticals and others deemed “critical goods” by the federal government . The U.S. Department of State announced in March plans to implement the International Technology Security and Innovation Fund to support semiconductor supply chain security and diversification and adopt trustworthy and secure telecommunications networks. These plans focus on nearshoring and partnering with politically friendly countries, also called “friendshoring.” Friendshoring may have its benefits, but, according to an IMF study , it could lead to a more fragmented global trade network and the loss of 2% of the world’s gross domestic product. Developing countries, which would otherwise benefit from more foreign investment, are most vulnerable to losing economic output. Today, supply chain decisions must consider political aspects. Assessing the profitability of friendshoring could result in the complete reconfiguration of existing supply chain networks. Consulting firm McKinsey estimates that up to 26% of global exports could potentially be relocated in the next five years, amounting to up to $4.6 trillion.

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