Singapore takes third spot on Globalization Index 2011
Globalization continues to advance despite uncertain economic outlook
Singapore, 8 February 2012 – Singapore ranks third after Hong Kong and Ireland on EY’s Globalization Index 2011, which measures the world’s 60 largest economies according to their degree of globalization relative to their GDP (see Appendix 1 for the rankings). The overall rank for Singapore remains the same as last year.
The Globalization Index, which was released by EY in cooperation with the Economist Intelligence Unit (EIU) and covers the period from 1995 to 2015, has five criteria: openness to trade, capital movements, exchange of technology and ideas, labor movements and cultural integration. Each of the criteria’s weighting was validated by the business leaders surveyed. The index measures the relative level of global engagement of a country. It does not measure the absolute or relative impact a country has on global commerce or the global economy.
Singapore scores the highest – a perfect score of 10.00 – in terms of openness to trade. It has yet again consolidated its position as the economy most open to the movement of goods and services, excelling particularly for cross-border trading. The country saw an improvement in score for cultural integration (6.94), but reduced scores for capital movements (6.17), technology (6.54) and movement of labor (4.37) compared to last year.
Max Loh, Country Managing Partner, Ernst & Young LLP says: “While the slump in net migration rate has dampened our score for movement of labor last year, Singapore’s business environment continues to be among the most attractive in the world. The increasing number of bilateral free-trade agreements that Singapore is negotiating, coupled with the country’s pivotal geographical location as the gateway to the region, are strengths that sustain our appeal as a choice destination for foreign direct investments in Asia. Also, Singapore is already one of the most technologically advanced countries. The further upgrades to our telecommunications infrastructure through the full delivery of the Next Generation Nationwide Broadband Network will reaffirm our position as an infocommunications hub, and open new doors to economic opportunities and social vibrancy.”
Globalization continues to advance
The EY globalization report also includes a survey of 1,000 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 shows that despite faltering prospects for the world economy, globalization is still increasing among a majority of the world’s 60 leading economies as they avoid descent into protectionism. However, 90% of business executives 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, EY says: “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: this year, 14 of the world’s 60 largest economies according to their degree of globalization relative to their GDP come from Asia, compared to 12 the year before.”
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 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 half will be from China and India,” says Lou Pagnutti.
What does it mean for business?
Besides an increase in protectionism, the sovereign debt crisis in the Eurozone and the global economic slowdown have 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 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 region from the threat of recession. In addition, many Asian countries still have plenty of scope to cut interest rates further and raise government spending to support growth in the face of weaker demand from the advanced economies.
Lou Pagnutti explains: “Asia will continue to be the most dynamic region in terms of trade. Our estimates show that, by 2030, 40% of spending by the global middle class will take place in Asia, compared with 10% currently. Also, companies headquartered in Asia worry less about asset prices and more about inflation which continues to be an ongoing issue despite tightening monetary policy.”
The report has uncovered the following four fundamental business challenges that companies must navigate in the years ahead:
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.
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. 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.
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:
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