A tale of two worlds: Digital globalisation v/s political globalisation

A leader of a global industrial company – which has survived and thrived through the ebbs and flows of globalisation over the past century – brought out the remarkable recent shift in the narrative of globalisation when he lamented to me that “globalisation is not a zero sum game as current geopolitics makes it out to be”. He went on to add, ironically, that despite the geo-political rhetoric they are continuing to grow strongly, especially their global services business, as the world becomes even more tightly integrated digitally.
These two seemingly conflicting narratives of the world, the geopolitical and the digital, have fundamentally transformed the half century old model of globalisation. This dichotomy is further influenced by the seemingly opposing geopolitical approach of the two leading economic powers, US and China.
While the United States has overturned its late 20th century policy as the champion of open borders and global trade and is embracing economic nationalism as a bargaining lever to achieve its objective of ‘fair trade’, China is pushing a new geopolitical order with its One Belt One Road initiative. In both cases, the loss is that of multilateralism which underpinned the growth of globalisation over six decades since World War 2, despite economic hiccups like the oil crisis of the 1970s or the dotcom bust in 2000.
This dichotomy of the two worlds is playing out in the metrics of globalisation. The negative geo-political narrative of growing protectionism is reflected in ‘old’ metrics that show a downward trend with slowdown in the global merchandise trade affecting the trade multiplier on global GDP. Similarly global FDI intensity (as percentage of total global investment or global GDP) is also falling and together has brought down global GDP growth from a high of 4.5% in 2010 to around 3%.
On the other hand the digital narrative is all about growth in the number of globally connected consumers, which has gone from 0.7 billion in 2003 to over 3 billion. The number of globally connected machines is growing even faster and currently number over 6 billion, which is forecast to more than treble to over 20 billion by 2020.
This growth in digital connectivity has lead to an explosive growth in global data from 100 gigabytes in 2002 to over 20,000 GB in 2015, and it is expected to cross 60,000 GB by 2020. So while the merchandise trade is slowing down services trade, especially digital services trade, is growing strongly.
These two world narratives have led to very different ‘winning’ strategies, both at the level of countries and companies. While overall global growth has slowed, we are also seeing greater divergence in growth rates among countries, especially emerging markets, a marked contrast from the convergence among developing county growth rates that defined the last two decades of globalisation.
Developing countries that have strong services exports and strong domestic consumption continue to grow while many commodity and even manufacturing export led economies struggle. Clearly a very different winning formula from the manufacturing and merchandise led export growth model of the second half of 20th century.
Similarly, the fastest growing companies are those who have built their business models around services and digital platforms, selling to digitally connected consumers or businesses. Examples are companies like Fitbit and Uber who are building multi-billion dollar global businesses not in decades but months and years by leveraging this rapid growth in digital integration. Perhaps the most dramatic example of such growth was Niantic, the makers of the PokemonGo game who reached billion dollar revenues in just six months from over 100 million consumers in over 125 countries.
At a recent conference in US where i presented my thesis of new globalisation resulting from these two narratives, the head of a global consumer company articulated the unfortunate tale of the two worlds very nicely when he said that in the current political climate where anything ‘global’, ‘world’ or ‘united’ is almost demonised, whereas anything ‘national’, ‘us versus them’ and ‘protectionist’ is heralded, people lose sight of the fundamental and undeniable truth that protectionism and nationalism have never in history created wealth for society at large.
He went on to add that the most important question for him was how should corporations position themselves in this battle of two worlds? Should they jump on the bandwagon of protectionism as some global firms are doing by abandoning some markets which was very “convenient” politically in the short term, but destroys value in the long term? Or should he consciously ignore the political noise and instead fully embrace the rapidly converging global consumer trends?
A non-trivial choice to say the least, with no easy answers. But it is important to remember that ebbs and flows of globalisation are not new. Over the last century and half, the world has witnessed several major waves of globalisation.
Each time, globalisation’s momentum was halted by some crisis. After each reverse, globalisation was redefined and emerged stronger than ever – but also in a very different form. Hopefully the current era will be no different and the two worlds will converge as the inexorable logic of the market and consumers bring about the alignment of the two worlds. And prove once again that globalisation is not, and never was, a zero-sum game.


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