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Globalization & International Commerce

May 4, 2011

The Economist has a thought-provoking article entitleed ‘Globaloney‘, highlighting a new book which apparently ‘at last talks some sense’ on the the topic of globalization.

As the name implies, this book (by Pankaj Ghemawat of IESE Business School in Spain) largely argues that globalization is a myth and that far less has changed than most commentators make out.

Several years ago, when Tom Friedman started declaring that the world is flat, IACCM countered that view by suggesting that the world was in fact increasingly spiky. By that, we meant that global forces had combined to make us far more aware of the differences between cultures and nations. And while in some ways it was breaking down barriers, in others it was causing them to be put up.

I am sure that any statistician. economist or political oberver can make a compelling case for or against the theory of globalization (whatever that may actually mean). But for those of us in the world of commerce, there is no question that the last 20 years have seen dramatic changes and that these include far more exposure to international issues. In part this is down to the speed of awareness; in part it is the immediacy of the pictures delivered by the news media; but it is also because far-off incidents have a very real effect on business.

Mr Ghemawat cites interesting, but selective, data to make his case. But the truth is that modern technologies have opened world markets to many countries – if they wanted to be open. For those that did not adjust, the growth in world trade has thus far passed them by. According to the IMF, about 75 countries have been net losers from today’s international trading patterns.

The opening of world markets has proven a major learnign experience. It has driven issues such as ‘commoditization’ and, probably, ‘category management’, as buyers need to be increasingly aware of the counter-balance between low cost, supply options, and levels of risk. It has also resulted in many major corporations reshaping their business – for example, most major corporations now have more overseas employees than they do in their headquarters country. These impacts alone have forced many of us to work across borders, across languages and cultures.

Mr Ghemawat points out that ‘countries will engage in 42% more trade if they share a common language than if they do not, 47% more if both belong to a trading block, 114% more if they have a common currency and 188% more if they have a common colonial past’. These statistics illustrate that ‘borders’ take many forms and that there are many degrees of risk and complexity. Perhaps one of the most interesting points as we analyze the data is that ‘old style’ global markets were driven by colonialism (and his data shows it lingering effects). New-style globalization is driven by collaboration – that is, the voluntary adoption of a common trading block, or a common currency. And the signs are that other barriers are in fact reducing – for example, the extent to which there is a growing consistency of business language and the creation of more consistent financial rules and legal regulation.

In the past, globalization was driven by physical conquest. Today, it is about a greater meeting of minds for common benefit. Of course that will mean compromises, and requires everyone to be ready to respect alternative values. But in my experience, I think the existence of global communications technology is steadily creating a desire for greater harmony and increased openness to other views. However, this does nto change the conclusion we reached several years ago: it is a spiky world and that generates real challenges and opportunities for those of us who wish to be experts in commerce.

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