Business in the New Era of Globalization

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Business in the New Era of Globalization

As recently as a decade ago, most business leaders believed that the world was becoming “flat” and that global companies, unconstrained by national borders, would soon dominate the world economy. 

Today, those exaggerated claims have been proven wrong. 

In fact, we hear cries for a massive pullback from globalization in the face of new protectionist pressures.  And we believe those proclamations will prove as wrong as those of 1990s globalists. 

Admittedly, some of the euphoria about globalization has shifted to gloom, especially in the United States.  But globalization has yet to experience a serious reversal.  And even if it did, it would be a mistake to talk about the end of globalization.

A full-scale retreat from globalization or an overreliance on localization would hamper companies’ ability to create value across borders and distance using the rich array of globalization strategies that are still effective—and which will continue to work well into the future.  Today’s turmoil calls for multinationals to subtly rework strategies, organizational structures, and approaches to societal engagement. 

To see how globalization is actually evolving, consider the DHL Global Connectedness Index, which tracks international flows of trade, capital, information, and people.  The two index components of greatest business interest are merchandise trade and foreign direct investment; these were hit hard during the financial crisis, but neither has suffered a similar decline since then.  Trade experienced a large drop-off in 2015, but that was almost entirely a price effect, driven by plunging commodity prices and the rising value of the U.S. dollar.  Updated data suggests that in 2016 foreign direct investment dipped, in part because of the U.S. crackdown on tax inversions.  Complete data for 2016 is not yet available, but factoring in people and information flows will probably reinforce the conclusion that globalization has stayed flat or even increased.

What has nose-dived, however, is the public sentiment in the United States and other advanced economies.  An analysis of media mentions for the term “globalization” across several major newspapers—including the Wall Street Journal, the New York Times, and the Washington Post in the U.S. and the Times of London, the Guardian, and the Financial Times in the UK—reveals a marked souring of sentiment, with scores plummeting in 2016...

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