27 Jun Globalization in detour or a rebalancing of power in the making?
Remember when we were all told that the world is flat, and that globalization was an unstoppable wave? Remember when we were told that it was going to be as easy to do business on the other side of the world as it was next door? Well, a funny thing has happened, and companies are changing their strategies accordingly.
Global FDI flows and greenfield FDI have declined on average with 15% over 2017 according to UNCTAD and FDI Intelligence. Similarly, global trade has also declined slightly over the 2013-2017 period (with the exception of trade in services which has increased). And increased protectionist (trade) policies adopted by several countries may lead to a greater decline in trade (in merchandise). For example with new tariffs being put in place by the US government the trade ‘war’ between the US and China will most likely further escalate. The US government is blaming China for unfair trade policies which has led to a huge trade deficit for the US. Much of this trade deficit is, however, due to intra-firm trade by US firms producing in China and exporting their products back to the US (think about electronics, laptops, and cell phones).
Traditionally FDI and trade, driven by multinational companies and the liberal economic policies of governments, have been the main channels for globalization over the last two decades. This has led to the rise of many emerging countries on the global economic landscape. However, with increased isolationist & protectionist policies, geo-political tensions, and a more cultural backlash against globalization, we may see a tendency towards de-globalization?
On the other hand we have seen the rise of (technological) developments that may spur further globalization and interconnectedness or – in other words – the intensity and scope of globalization may even increase. Some of these developments are: industry 4.0 (including AI, Robotics, Big Data, Blockchain etc.), smart cities, innovative ecosystems, increased awareness of sustainable economic practices and renewables, smaller firms, (tech) start-ups, and communities but with greater global presence etc. These developments have led us to ask some critical questions. Will we see an era towards de-globalization or further regionalization or will the ‘face’ and the main actors of globalization change? How will countries be able to respond and develop competitive policies taking into account these changes? What will be the new balance of power that will emerge? The answers to these key questions will be important for the economic development and competitiveness within the global economy for many countries in the next 10-20 years.
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Dr. Douglas van den Berghe
CEO- Investment Consulting Associates (ICA)