The changing face of globalization
(As originally published in the Financial Post, February 2013)
By Kevin McKenzie, Leader, Business Development, EY
Globalization has, and will always be one of the defining issues of our time. Despite weak growth in 2012 and an uncertain economic outlook in many markets for 2013, globalization is still increasing among a majority of the world’s 60 leading economies. Increasing levels of cross-border trade, capital and labour integration are continuing to define our business landscape.
However, according to Ernst & Young’s annual globalization report, Looking beyond the obvious: globalization and new opportunities for growth, the changing face of globalization will present new challenges for companies in the coming years. The overall rate of globalization is slowing and its character is different. As a result, companies will need to look for growth in new ways and from new places.
Countries outside of the BRICS are up for consideration
For many entrepreneurial companies, Brazil, Russia, India and China (BRIC) were the big bets of the past decade. But today, globalization is evolving against a highly volatile economic backdrop, and prospering in this globally integrated environment requires constant refinement of even the most sophisticated global business strategies. In order to stimulate the global economy, head off competitors and ride the next wave of opportunities, businesses will need to bet on markets or regions of the world that may not be obvious choices today.
This may mean considering not only rapid-growth markets outside BRIC but also developed markets, as well as creating nuanced and customized strategies for different markets, sectors, areas, regions and countries.
Non-BRIC rapid-growth markets such as Mexico, Turkey, Indonesia, South Africa and Vietnam are all emerging as attractive locations for entrepreneurial companies. Despite their risks, these markets are more globally integrated than the BRICs on a range of trade, investment, cultural and technological criteria, and in the past three years have improved markedly in terms of ease of doing business, infrastructure, government policies and labour productivity to earn a competitive advantage. Many of these markets also show consistently high economic growth close to that of the leading BRICs. For example, Turkey, Mexico and Indonesia closely shadow China and India in terms of GDP growth from 2000 through 2015. Moreover, several countries and regions in Africa are shaping up to be among the most dynamic parts of the world for investment.
However, not every opportunity needs to be seized. Taking calculated risks on carefully chosen markets, categories or technologies — those that match or complement a business’s existing competencies – will offer companies the best chance of securing a sustainable competitive advantage.
Technology a key driver of globalization
Although globalization continues, its pace has slowed from pre-recession levels and its nature has changed. Capital flows between East and West have become more evenly balanced and technology is now the key driver of globalization, promoting innovation across nations and cultures, regardless of location.
Technology has long been one of the fundamental drivers of globalization, but in the years ahead, its role will become even more important. Today’s increasingly digital and connected world is having a profound impact on every market. Turning diffuse data into usable information has never been more important. Using information technology and social media well will allow organizations to capture the information they need faster and use it more collaboratively.
Underlying this trend are four transformational forces that are having a profound impact on how businesses operate and engage with their customers and how other communities/networks engage with each other: mobile, social media, digital video and big data. These four transformational forces are powerful enablers of globalization, but they also have the potential to change the competitive landscape dramatically and at an unprecedented speed.
The "learning organization" will prevail
Transforming your company into a "learning organization" will be the key to survival during these times of uncertainty. Although it cannot predict the future, a learning organization can make effective use of real-time digital technology to react to changes more efficiently, bypassing traditional hierarchies to enable faster decision-making and implementation of key strategies. That’s where the power of technology really comes into play.
Applications such as business intelligence and analytics, mobility solutions, and social networking allow businesses access to a wealth of data, both global and local. Increasing investment in a variety of digital technologies that promote mobility, collaboration and knowledge sharing will reap regular benefits to the bottom line making organizations well-positioned to thrive in the global economy of the future.
The BRICs will remain reliable options for now
It’s no news to anyone that rapid change is the new normal in business today. Prospering in this globally integrated and dynamic environment requires constant refinement of even the most sophisticated business strategies.
In this world of rapidly shifting demographics and extensive technology integration, organizations are faced with great complexity and uncertainty. It’s not always clear where the next big opportunity lies, and it may be tempting for companies to play it safe and stick to proven investment destinations such as the BRICs.
But the businesses that will ride the next wave of economic growth will be those that see the bigger picture, understand the significance of globalization, have a long term perspective, and tailor their strategies based on that understanding. It’s time now for business leaders to respond with the flexibility, speed and unconventional thinking necessary to prosper in our increasingly connected world.