The Frugal Economy, Part 3:
Global Value Chains Become Hyper-Local Value Networks

By building hyper-local value networks that are open, adaptable and deeply rooted in communities, businesses can gain agility and resilience and maximize sustainable local impact.

Brand Provided | By Navi Radjou | Published 3 weeks ago | About a 11 minute read

Image: Vertical Harvest

Many US and European companies that previously offshored their industrial operations to cheaper countries such as China are now relocating manufacturing back to their home countries.

This phenomenon, known as nearshoring or reshoring, has taken off massively since 2020 — first, due to COVID-19; but also because of rising geopolitical friction with China, the global manufacturing hub. A Kearney study shows that 96 percent of US CEOs intend to bring back their manufacturing to the US, or have already taken steps to do so — up from 78 percent in 2022.

However, simply moving a factory from China or Taiwan to Arizona or Ohio is not sufficient for US brands to meet the demands and values of US consumers. In a November 2023 survey by American Compass and YouGov, 42 percent of US consumers feel that “manufacturing is important to a healthy, growing, innovative economy” and clamor for US-made products.

The bad news is that 62 percent prefer to pay higher prices to support US manufacturing, rather than pay more to combat climate change (38 percent); over half of US adults surveyed prefer policymakers to focus on enhancing the US industrial sector, rather than improving the environment.

The survey reveals three competing desires — revitalize left-behind communities, boost domestic manufacturing, and combat climate change — which respondents find it challenging to juggle and harmonize.

What if Western firms capitalized on the reshoring trend in the US and Europe to completely transform manufacturing value chains in order to address their customers’ three competing aspirations? Brands can achieve that Holy Grail of balancing economic growth, social cohesion, and environmental stewardship if they boldly reinvent their outmoded value chains.

Limitations of global value chains

In today's customer-centric, collaborative and rapidly changing economy, the traditional value chain — a set of interconnected activities to develop and bring a product to customers — faces four major limitations.

The linear value chain fails to engage creative 'prosumers'

Brands view customers as nothing more than walking wallets. They see buyers as passive receivers of the value chain's output — excluding them from actively participating in R&D, production and marketing. However, empowered by the internet, social media, digital tools such as 3D printing, creative spaces such as FabLabs, and decentralized energy systems, passive buyers are evolving into active “prosumers” — spearheading the Do-It-Yourself (DIY) Maker movement.

Futurist Alfin Toffler predicted that this “prosumation” movement will accelerate during the 21st century and blur the line between production and consumption, compelling businesses to reconsider their engagement with customers throughout the value chain.

The insular value chain doesn’t favor B2B collaboration

The conventional value chain focuses internally. It outlines a series of connected activities carried out by a company using exclusively its own resources — and those of its suppliers and partners — to turn an idea into a final product or service for the customer. From this perspective, a brand’s competitive advantage lies in its capability to optimize its own value chain more efficiently than rivals.

In the interdependent business environment, however, the concept of competitive advantage is being replaced by cooperative advantage. Innovative firms strive to collaborate with other companies, even competitors, to jointly create new and larger “blue ocean” market opportunities that are advantageous for all. Thanks to B2B sharing platforms, companies in different sectors can today combine their R&D, manufacturing and go-to-market resources to co-create greater value for all stakeholders.

The static value chain doesn’t deliver agility and resilience

Using lean manufacturing techniques such as Six Sigma and Kaizen, businesses have fine-tuned their value chain to achieve efficiency gains. Today, brands leverage their “lean” value chains to produce and deliver their products cheaper and quicker. But these well-oiled, static value chains lack the agility and resilience needed to respond to unforeseen market shifts.

Similarly, when cataclysmic events such as pandemics, wars and natural disasters strike, many businesses find it challenging to swiftly adjust their inflexible value chain processes to prevent disruptions. In a VUCA (volatile, uncertain, complex, and ambiguous) world, businesses must collaborate with suppliers and partners to create agile and resilient value chains that can respond quickly to supply and demand fluctuations.

The wasteful and complex value chain is unsustainable

From apparel and automotive to food and energy, every industry value chain — whether globally dispersed or nationally integrated — is notoriously wasteful and unsustainable. For instance, from the cotton field to the shop, a pair of jeans travels 1.5 times around the planet — which adds up to 65,000 km and the associated emissions. In the US, fresh produce travels 1,500 miles from farm to plate. Around 5 percent of the electricity generated in the US is lost in transmission and distribution, which is sufficient to power all seven Central American countries.

The complexity of industry value chains makes them wasteful and unsustainable. University of Illinois researchers studied 9.5 million food transit routes in the US. One food journey follows “corn grown on an Illinois farm to a grain silo in Iowa, from where it is transported to feed cows in Kansas. After processing, the meat products then make their way back to Illinois and onto the shelves of a grocery store in Chicago.”

Likewise, to produce a single passenger car — which is made up of 20,000 parts — a carmaker must orchestrate a multi-tiered, global value chain of roughly 8,000 suppliers. Sadly, only 13 percent of companies have full visibility into their multi-tiered value chain. The more layers in a value chain, the greater its Scope 3 emissions (especially upstream ones) — which account for up to 90 percent of many businesses’ total carbon footprint.

Bottom line: firms must stop orchestrating hyper-global value chains that are inflexible, closed, and unsustainable. Instead, they must build and facilitate hyper-local value networks that are adaptable and sustainable, and maximize social impact.

The rise of hyper-local value(s) networks

A hyper-local value network (HYLOVAN) is a dynamic, open ecosystem that proactively involves a diverse set of stakeholders within a specific area — such as a city or county — to collaboratively develop customized solutions that address local market and social requirements.

Each word in HYLOVAN highlights unique features that make the system way more impactful than a traditional value chain:

“Hyper-local” refers to the fact that a HYLOVAN can have a geographical range that could be as limited as a neighborhood or as extensive as an entire city — in the US, it does not extend beyond the county level.

In order to cut supply chain expenses and environmental footprint, a HYLOVAN primarily obtains its inputs — from raw materials to workforce — from nearby sources. A large portion of what it produces — such as products and services — is consumed within the local area, although some can be delivered to nearby communities using eco-friendly transportation methods. As a result, a HYLOVAN is intrinsically frugal.

Take Vertical Harvest’s vertical farm in Jackson Hole, Wyoming: It is three stories tall and only takes up 1/10 of an acre, yet it is able to grow and deliver 100,000 pounds of fresh leafy greens year-round to local restaurants and groceries. On average, Vertical Harvest’s healthy produce only travels 6 miles from the farm to the consumer — a much shorter distance than fresh food’s typical 1,500-mile journey in the US.

Vertical Harvest minimizes its carbon footprint but maximizes its social handprint: 40 percent of its staff are individuals with disabilities. The organization is expanding its successful hyper-local food production model to the state of Maine, where its hydroponic greenhouse will grow annually over 2 million pounds of fresh produce and employ around 50 underserved community members.

Similarly, in early 2023, CarbonCure and Heirloom — two startups focused on carbon removal and utilization, conducted a successful pilot project where they captured CO2 from the air and stored it permanently in concrete for use in local construction projects. The whole value chain — the carbon-capture unit, the concrete batch plant and construction sites — was situated end to end within the San Francisco Bay Area.

“Value(s)” means a HYLOVAN aims to valorize — unleash the full value of — physical, natural, intellectual, cultural and social assets that have been underused or devalued in a local area due to economic or historical factors. Moreover, a HYLOVAN promotes positive values — such as equity, trust, sustainability — within a community by embodying them.

For instance, the French postal service La Poste teamed up with SUEZ — a leading provider of circular environmental services — to set up Recygo, a joint venture to collect and recycle office waste. Today, 75,000 postal workers and SUEZ employees collect 65 tons of office waste each day at over 23,000 sites across France. Recygo recycles the waste and creates socio-economic value locally. The waste is first sorted at a local center that employs economically disadvantaged people and then recycled at one of the 84 regional paper mills situated throughout France.

“Network” refers to the resilient and flexible properties of a HYLOVAN, which — in contrast with a monolithic, linear value chain — can continuously adapt and evolve to effectively react to shifts in its surroundings. A HYLOVAN can accelerate innovation, minimize risks and capitalize on new opportunities swiftly by openly sharing information with all members — facilitating fast and efficient coordination.

A hyper-local value network engages diverse local stakeholders | Image credit: Navi Radjou

GRDF — France’s top natural gas distributor — has established a network of Living Labs rooted deeply within French territoires (a geographical unit similar to US counties), with the goal of repositioning local citizens as the focal point of the energy transition. Conceptualized by MIT scholars, a Living Lab is an open innovation ecosystem that draws together diverse community members — residents, entrepreneurs, companies, non-profits, government entities — to jointly create valuable goods and services that benefit and improve the public welfare.

In each community, GRDF’s Living Lab applies agile development processes to engage local partners to iteratively test, learn and deploy disruptive solutions — such as the development of green gas and agroecology. These solutions are tailored to maximize sustainable value in the local context but can be replicated in other places. For example, by generating biomethane locally using organic waste from agriculture and food, and then injecting it into GRDF’s distribution network, communities achieve energy self-sufficiency, lower emissions, enhance soil health, protect water resources and generate employment opportunities.

As of today, 547 methanization units are injecting directly into GRDF’s distribution network. By deploying these Living Labs across France, GRDF is proactively scaling out its own operating model to enable and lead the decentralized production of renewable gases — which in turn, will speed up the decarbonatization of local communities. GRDF projects that by 2050, 73 percent of the gas flowing in France’s distribution grid could be green gas — most of which can be produced locally.

US and European brands that want to reshore manufacturing and reindustrialize their countries need to first revamp their entire value chains. By building and facilitating hyper-local value networks that are open, adaptable and deeply rooted in communities, businesses can gain agility and resilience and maximize sustainable local impact.