This means global business leaders can go beyond just watching disease trends and economic data - they can help tilt the balance from negative to positive feedback loops by contributing to health, growth, and international cooperation. And there is some evidence that more connected countries, even after controlling statistically for levels of economic development, are less vulnerable to infectious disease outbreaks, in part because of their stronger health care systems. Countries with higher scores on the DHL Global Connectedness Index tend to enjoy faster economic growth. But remember that globalization can also be a powerful contributor to growth and health.
This time around, robust growth can only be restored once the pandemic is clearly brought under control. In good times, they usually grow faster than GDP, and in bad times they shrink faster, too, as people and firms hunker down behind borders. Start with global growth patterns, where the key lesson is that international flows tend to swing dramatically with macroeconomic cycles.
But how deep will the plunge really be? How fast can we expect global flows to rebound? And how might future flow patterns look different from the past? None of these questions can be answered definitively yet, but leaders can find clues about the future and actionable implications for their companies by focusing on five key drivers of globalization’s trajectory:ġ.
Thus, 2020 is likely to be a low point for many globalization metrics. What Are Globalization’s Post-Coronavirus Prospects?Ĭurrent forecasts call for international flows to start growing again as the pandemic comes under control. Even if international airline passengers fall by two-thirds, there would still be more people flying abroad than there were in 2003. This unprecedented collapse does, however, follow an international travel boom. Airlines were flying 90% fewer seats on international flights, as compared to 62% on domestic flights. As of late April 2020, every country had imposed restrictions on international travel, and 45% of countries had partially or completely closed their borders to foreign visitors. Tourism contributes more to global output than automotive manufacturing, and business travel facilitates international trade and investment. The collapse of international travel, in contrast, stands out against a much steadier growth trend, and its damage is indisputable. The foreign business activity of multinational firms does not always closely track FDI trends. Nor do shrinking FDI flows necessarily augur a real retreat from corporate globalization. FDI flows, for example, fell 38% during the global financial crisis. If plummeting trade flows are unlikely to undo globalization, what about the even steeper decline predicted in foreign direct investment (FDI)? Like other capital flows, FDI tends to be volatile, so a double-digit decline is not as shocking as one might presume. Most of the run-up in trade integration since the end of World War II should remain intact.
But even the most pessimistic trade forecasts do not imply a retreat to a world of disconnected national markets. That would be a tremendously painful drop, especially in the context of today’s larger and more complex world economy. The volume of global goods exports in 2020 could fall to a level last seen in the mid-to-late 2000s, according to the latest WTO forecast. These numbers imply a major rollback of globalization’s recent gains, but they do not signal a fundamental collapse of international market integration. Current forecasts, while inevitably rough at this stage, call for a 13-32% decline in merchandise trade, a 30-40% reduction in foreign direct investment, and a 44-80% drop in international airline passengers in 2020.
The crisis and the necessary public health response are causing the largest and fastest decline in international flows in modern history. The pandemic has prompted a new wave of globalization obituaries, but the latest data and forecasts imply that leaders should plan for - and shape - a world where both globalization and anti-globalization pressures remain enduring features of the business environment.
To get all of HBR’s content delivered to your inbox, sign up for the Daily Alert newsletter.Īs leaders wrestle to guide their organizations through the Covid-19 pandemic, decisions running the gamut from where to sell to how to manage supply chains hinge on expectations about the future of globalization.
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