Hong Kong and Singapore - 1st and 3rd in EY's Globalization Index 2011

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  • 90% of Global executives expect increase in protectionist measures
  • Companies should behave like a start-up rather than an established multinational
  • Globalization continues to advance despite uncertain economic outlook

Hong Kong, 8 February 2012 — Hong Kong and Singapore ranked first and third respectively in EY’s Globalization Index 2011 released today.

The third annual EY globalization report draws on two sources of original research: EY’s Globalization Index, which measures the world’s 60 largest economies according to their degree of globalization relative to their GDP, and a survey of 1,000 senior business executives worldwide, conducted in late 2011, canvassing their thoughts on globalization; as well as a forecast of global and regional GDP growth over the next four years.

The report says that, despite faltering prospects for the world economy, globalization is still increasing among a majority of the world’s 60 leading economies as they so far avoid descent into protectionism. However, 90% of business executives surveyed by EY expect to see an increase in protectionist measures if the global economy slides into a double-dip recession.

While EY forecasts that global GDP growth will be just 3.4% in 2012, the index continues to predict that globalization will continue to advance this year and up to 2015. This is most pronounced for medium-sized emerging markets like Vietnam, Malaysia, Mexico and Colombia and smaller European countries like Belgium, Denmark, Slovakia and Austria.

Lou Pagnutti, Area Managing Partner, Asia-Pacific of EY comments, “While globalization continues apace regardless of weaker growth around the world, it is important to take into consideration that most of this growth comes from Asia.”

Where will economic growth come from?

Business executives surveyed were understandably nervous about the current business outlook. The performance of the emerging markets, led by the BRIC countries, continues to offset sluggish growth in the developed world. EY forecasts that the combined GDP of the emerging markets is set to grow by 5.3% in 2012, while Emerging Asia is set to grow by 6% in 2012.

“With Emerging Asia continuing to outpace the developed world and increase its share of world GDP, rising economic and trade links will see a continued flow of Foreign Direct Investment (FDI) from Asia. The GDP of emerging markets (measured on a purchasing power parity basis) could overtake that of the developed economies as early as 2014, with about 70% of total world growth in the next few years coming from the emerging markets, of which over a half will be from China and India.” says Pagnutti.

“Ranked first and third respectively, it is no doubt that Hong Kong and Singapore are leading the way with innovation and diversity.” Pagnutti explains, “The ability to adapt and react with flexibility, responsiveness and unconventional thinking put them in the leading positions”.

What does it mean for business?

Besides an increase in protectionism, the sovereign debt crisis in the Eurozone and the global economic slowdown have also raised the possibility of a new credit crunch as banks scale back lending against a backdrop of declining confidence in interbank markets. The continued strength of domestic demand in many of the Asian economies, with key manufacturing exporters holding lower levels of stocks than at the onset of the 2008/09 global recession, should help to protect the Asia-Pacific region from the threat of recession in Europe. In addition, many Asian countries still have plenty of scope to cut interest rates further and to raise government spending to support growth in the face of weaker demand from the advanced economies.

“Asia will continue to be the most dynamic region in terms of trade. EY estimates that, by 2030, 40% of spending by the global middle class will take place in Asia, which compares to 10% currently.” Pagnutti adds.

“Companies headquartered in this part of the world worry less about asset prices and more about inflation which continues to be an ongoing issue despite tightening monetary policy.”

This report has uncovered four fundamental business challenges that companies must navigate in the years ahead. These four challenges are:

1) Succeeding in rapid-growth markets is harder than it used to be.

Succeeding in rapid-growth markets is becoming more difficult because costs are rising, competition is becoming more intense and growth, while still rapid compared with that of the developed world, is slowing. Companies will have to shed their organizational baggage, devise innovative strategies that will secure a quick payoff and take a broader stakeholder view toward the investment.

2) One size does not fit all markets.

As companies diversify into markets with vastly different prospects and business environments, they face increasing operational complexity. Companies will have to integrate networks according to logically grouped markets, rethink approaches to outsourcing as well as investigate the benefits of near-sourcing.

3) Policy has become more important and less predictable.

An uncertain and dynamic policy environment – especially rising protectionism – is causing considerable concern. Companies should engage with policy-makers to make the right decisions, combine local knowledge with global coordination and build stronger relationships with tax administrations.

4) Good people are hard to find.

Companies everywhere find it increasingly difficult to match suitable candidates with available positions. To help deal with the problem, companies should put the best talent in the most promising markets, promote managers in line with the pace of the market and revamp the expatriate model.

Long-term winners?

EY believes that to be a long-term winner in this increasingly uncertain world companies will have to adapt a different mindset. In particular they should understand that managing across highly divergent and fast-moving markets requires focus on execution and operational excellence.

“The key to success will be for companies to combine their local and global components to ensure that they maintain the competitiveness relevant to local environment while still enabling the company to leverage global resources. Companies must develop highly flexible business models that enable them to respond to new opportunities and threats. And they must understand why inclusive leadership is increasingly important to thrive in constantly changing conditions.” Pagnutti concludes.

-ends-

Notes to Editors

About The Globalization Index

The Globalization Index developed for this report measures and tracks the performance of the world’s 60 largest economies according to 20 separate indicators that capture the key aspects of cross-border integration of business. The indicators fall into five broad categories: openness to trade; capital movements; exchange of technology and ideas; labor movements; and cultural integration. The Index measures “relative” rather than “absolute” globalization. This means that a country’s* trade, investment, technology, labor and cultural integration with other countries is measured relative to its GDP rather than by the absolute value of these elements being exchanged. The Index, therefore, reflects the degree to which the global integration of a country is observable or experienced from within that country.
*Country or, where applicable, territory

About the survey

The Economist Intelligence Unit surveyed 1000 business executives in November 2011

About the World GDP forecast

EY, in conjunction with Oxford Economics, forecasts global and regional economic growth as follows:

World GDP growth
 201020112012201320142015
World GDP 4.63.73.44.54.74.5
US 3.01.72.42.63.03.1
EU-27 1.81.60.01.31.92.5
Japan 4.1-0.51.73.32.41.5
Emerging Markets 7.16.05.36.56.56.1
Asia Pacific 6.94.04.76.25.75.2
China 10.49.08.19.18.88.3
India 8.77.16.89.59.28.6

About EY

EY is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 152,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

EY refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com.This news release has been issued by EYGM Limited, a member of the global EY organization that also does not provide any services to clients.