The Explosion of Globalisation

by Jörgen Eriksson on February 26, 2016

imageConventional wisdom says that globalisation has stalled. Measured by trade statistics, the flows of goods and money to pay for goods are slowing down and even reversing. The Financial Times wrote today, that the value of goods and services which crossed international borders last year fell by 13,8%, in the first contraction since 2009. Much of the slump was due to a slowdown in China and other emerging markets.

But although the global goods trade has flattened and cross-border capital flows have declined sharply since 2008, globalisation is not heading into reverse. Instead, it is entering a new phase defined by soaring flows of data and information.

The way we measure international flows, by the value of traditional goods and services, is disrupted with digital internet based business and digital payments.

A new report my McKinsey Global Institute, Digital Globalization: The New Era of Global Flows documents this. I came across this report as I recently did some research on how disruption has hit the financial industry, and remarkably, digital flows, which were practically non-existent just 15 years ago, now have a larger impact on GDP growth than the centuries-old trade in goods.

Although this shift makes it possible for companies to reach international markets with less capital-intensive business models, it poses new risks and policy challenges as well. The world is more connected than ever, but the nature of its connections has changed in a fundamental way. The amount of cross-border bandwidth that is used has grown 45 times larger since 2005. It is projected to increase by an additional nine times over the next five years as flows of information, searches, communication, video, transactions, and intra-company traffic continue to surge.

In addition to transmitting valuable streams of information and ideas in their own right, data flows enable the movement of goods, services, finance, and people. Virtually every type of cross-border transaction now has a digital component.

Trade was once largely confined to advanced economies and their large multinational companies. Today, a more digital form of globalisation has opened the door to developing countries, to small companies and start-ups, and to billions of individuals. This opens up a huge business opportunity for developing disruptive fintech businesses. More about this in another blog article very soon.

Tens of millions of small and midsize enterprises worldwide have turned themselves into exporters by joining e-commerce marketplaces such as Alibaba, Amazon, eBay, Flipkart, and Rakuten. Approximately 12 percent of the global goods trade is conducted via international e-commerce. Even the smallest enterprises can be born global: 86 percent of tech-based start-ups surveyed by MGI report some type of cross-border activity. Today, even the smallest firms can compete with the largest multinationals. After all, on the internet any business is 13” inch across the screen.

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