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International Trade & The Flat World

May 17, 2013

Strategy+Business recently carried an update on the debate over whether globalization is creating ‘a flat world’ or whether the forces arguing that this is ‘globaloney’ have the upper hand.

The article is relatively inconclusive, pointing to merits and weaknesses in both arguments. At IACCM, right from the time Thomas Friedman’s famous book “The World Is Flat” was published, we argued that Friedman’s perspective was too narrow and simplistic. Back in 2005, we suggested that the correct depiction would be of a ‘spiky world’, where global technologies are in some respects shifting worldwide behavior and attitudes, yet at the same time they are accentuating and making differences more visible.

Interestingly, many of the patterns of today’s international challenges are fundamentally unaltered from those which have prevailed throughout recorded human history. It is actually a story of wealth creation, empire and exploitation. Trade, not politics. has been the consistent force that has both united peoples and driven them apart. Take any empire and you will discover that it was the merchants, not the military, who were driving expansion.

This is very true today. Modern technology has enabled a new form of outreach, where businesses can penetrate to almost any corner of the world – often without the need for any physical presence. Yet such outreach is threatening to the local power sources. It challenges underlying cutlural beliefs and threatens new influences. The very technologies that enable this penetration can then be used by those who oppose it to carry their ‘war’ to the heartland of their enemy. ‘Globalization’ today means that a US general can sit in his chair in the Pentagon and press buttons that rain remote destruction onto any part of the world. At the same time, the ‘forces of terror’ can establish worldwide networks and strike anywhere, anytime.

It is ironic that trade operates in this dual fashion, both unifying and dividing people around the world. Yet there can be no question that the last 10 years has witnessed a dramatic and continuing shift in global power balances. The latest Forbes Global 2000 analysis of the largest companies illustrates this. Back in 2004, 43% of the companies on this list were based in the Americas. Today, that percentage has reduced to 32%. In contrast, Asia has grown from just 28% to 37%. And ‘sick man’ Europe has – interestingly – grown from 29% to 31% – though it hit a peak of 33% in 2008 and is on the decline.

In the end, historical analysis suggests that overall trends and behaviors have not actually changed all that much. It is the relative speed and the methods through which change occurs that have fundamentally altered. But in that sense, ‘global networked technology’ is just the latest advance in human communication techniques. Before this, the invention of writing, ships, road transport, airplanes, the telegraph were also transformational in how and where trade could be conducted. And each of these had an impact on the need for – and content of – documented contracts and terms and conditions.  So keep writing!

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