Increasing globalization is not a new phenomenon, even in a business sense, but it has increased since the end of the nineteenth century and particularly over recent decades. The main reasons for the increasing globalization of recent years have been advances in technology and communications.
The word âglobalizationâ has different meanings depending on context and subject. Each meaning is in turn subject to dispute and debate. It can, for example, relate to ideologies, as indicated by the many religions with adherents across the world, but also by the spread of neo-liberalism as an economic orthodoxy accepted in many capital cities. It can likewise refer to the spread of different cultural approaches, as in the cases of ballet, jazz or, more recently, âworld musicâ. But it is economically that changes have had the most impact.
The term globalization is most often used as short-hand to refer to economic globalization â the growing internationalization of economic systems. It is unnecessary to go as far as Friedman (2007) and argue that everything is becoming more global and that there is growing convergence around the world, but clearly economic systems are increasingly linked to each other. The fall of the Berlin Wall and the collapse of communism in central and eastern Europe was a catalyst for linking those systems to the other European and North American systems, and the continuing liberalization of the communist regimes in Asia has led to extensive linkages there too. As we write, Cuba and the USA are taking the first steps for a long time towards allowing trade linkages.
Basically, however, all discussions of globalization are centred on the notion of increasing inter-dependence and integration across national borders (see Box 1.1).
Box 1.1 Inter-dependence and new patterns of integration
Sheehan and Sparrow (2012) summarized the inter-dependence between the triad economies as follows. At the time, China had US$2.4 trillion of central bank foreign exchange reserves (these subsequently grew to $3.5 trillion by 2014) and an estimated $4â5 trillion of corporate reserves. It was financing the consumption of Chinese goods by the USA and the strength of the dollar was, to a degree, dependent on Chinese investment strategies. Yet, at the same time, China held $630 billion of euro debts. The eurozone had replaced the USA as the largest importer of Chinese goods and had become the second largest exporter to China. China had become one of Africaâs largest trading partners, and bought 33 per cent of its oil from Africa and exported $60 billion to Africa. In China the trade share of gross domestic product (GDP) has dropped, from 64 per cent in 2006 to 41 per cent in 2015, as it continues to shift away from its early manufacturing export development model.
Neither China, Europe nor the USA could really afford any one part of the global economy failing. Although there was a global shift in power taking place, there was also considerable agency left open to MNEs. There was, however, a challenge to the previously dominant USâUK view of globalization.
For example, Japanese MNEs pursued what became known as the âflying geeseâ model of industrialization in the 1980s and 1990s, through which they led Asian development â bringing manufacturing to other, following countries as activities migrated out from Japan in a V-formation in the quest for cheaper labour and greater efficiency (The Economist 2014a). Singapore and Hong Kong have also moved their economies up the global value chain, generating far more value now from services such as banking than from manufacturing. By the 2000s China had entered the frame. Similar pressures now face Chinese coastal cities, as inland locations, such as Chongqing, or lower wage countries, such as Vietnam and Cambodia, attract manufacturing. East Asia today has become the second most inter-connected regional economy after the EU, without the benefit of free trade connections. But the production system today is a networked and inter-dependent model, sometimes called Factory Asia, and likened more to a spiderâs web ( The Economist 2014a) as components move in all directions, crossing and re-crossing borders. For example, a pair of shorts made for the US market consists of buttons made in China, zips made in Japan, yarn spun in Bangladesh, but woven into fabric and dyed in China, and the garment stitched together in Pakistan. Every pair of shorts has to look as if it were made in the same factory. China is a part of this network, although not the hub of it, but has announced plans for a âmaritime Silk Roadâ to build an infrastructure of ports and shipping connections across countries such as Cambodia and Sri Lanka.
Many other examples of the changing topography of global economic activity can also be seen. A recent development has been the Chinese expansion into Latin America and Africa, creating new patterns of comparative management (as well as a new geographical demography in terms of international mobility). For example, in 2009 the China Development Bank and Sinopec lent US$10 billion to Brazilâs state-controlled oil company, Petrobras, in return for ten yearsâ supply of 200,000 barrels of oil a day. FDI into Brazil has helped to fund a new set of Brazilian MNEs: Petrobras, in oil, Embraer, the worldâs third largest maker of passenger jets, InBev, the worldâs largest brewing company, and steel makers, bus builders, food companies, textile and cosmetics firms soon expected to follow (The Economist 2009a).
Reflecting such developments, a significant proportion of MNEs was expected to come from the emerging markets â for example, the Boston Consulting Group at one point considered that, of the next 100 MNEs to emerge, many would be from the emerging economies, with 14 emerging from Brazil. A few years later there was more scepticism and concern about the resilience of emerging markets, but the general shift in attention was already clear. Chinese firms already make up some 20 per cent of the Fortune Global 500, while the share of US and West European companies dropped from 76 per cent in 1980 to 54 per cent in 2013.
Shifts in the zeitgeist of global trade occur swiftly, and generally at a pace that can rapidly date a book like ours. It is also easy to popularize trends, when a more balanced perspective is needed. An example would be the temptation to overstate the importance of the ChineseâAfrican trade. While China as a country now has the largest volume of trade with Africa, and in the early 2010s it pursued a strategy of gaining access to resources and markets to support its own rapid growth, Africa is no longer uncontested space in trade terms. According to United Nations Conference on Trade and Development (UNCTAD) data, by 2013 China and Africa were exchanging $160 billion worth of goods a year, and between 2003 and 2013 more than 1 million Chinese labourers and traders moved to Africa. However, China remains only one of many investors and traders in the region. African trade with five European countries, France, Spain, Italy, Germany and Britain (in order of trade), amounted to $225 billion. Its trade with the USA was $7 billion, $57 billion with India, $25 billion with each of Japan and Brazil, and countries beyond these accounted for another $454 billion. By 2015 AfricanâIndian trade represented the fastest growing, providing 7.5 per cent of all FDI into Africa. Britain was the leading investor, investing twice as much as the next country, which was the USA, and three times as much as China.
Cautions aside, the decision in 2015 to make the yuan the fifth currency (alongside the dollar, the euro, sterling and the Japanese yen) in the International Monetary Fundâs (IMF) basket of âspecial drawing rightsâ (SDRs) by 2016 opened up the way for new surges of investment flows and cemented the shift in the global power balance.
While shifts in trading patterns can happen very quickly, we do seem to now be entering a different set of competitive dynamics ( The Economist 2014a; McKinsey Global Institute 2015). A ...
