But the larger issue may be that for all of our belief in the growing universality of data, information and the knowledge that flows from them, interaction is still quite limited and may, as the following article explains, be declining in some respects.
The internet has shaped our perception of how globalization has evolved. But we have tended to extrapolate from the experiences of the few to assume that the many are enjoying a similar broadening of horizons and contacts.
The reality is that globalization has been driven more by communication than by trade or even capital flows. And even that connectivity of which we are so awed and so proud turns out to be rather more constrained than we might want to believe. Less than 20% of internet traffic crosses borders while fewer than 5% of telephone calls do. This even in a world where only 30% of relatively affluent and ostensibly 'worldly' Americans possess passports which are legally available to any US citizen.
The fact is that globalization is hard. Perhaps not in the ways it was two hundred years ago, but it still involves dislocation and assumptions of risk that require trust, sacrifice and considerable effort. None of which may be justified by the available returns.
Globalization will prevail because where there are untapped markets there is opportunity and there is less of that than there is of people seeking advancement or capital seeking a better return. But enterprises should not delude themselves about the challenges, even as the determined work to overcome them. JL
Justin Fox reports in Harvard Business Review:
Less than 20% of internet traffic crosses borders, and fewer than 5% of telephone calls do.
Globalization marches on. But the pace isn’t all that fast, and the overall level of global connectedness still hasn’t gotten back to its all-time peak of 2007. The overwhelming majority of commerce, investment, and other interactions still occur within — not between — nations.
That’s the message from the just-released DHL Global Connectedness Index 2014, which combines measures of trade, capital, people, and information flows to give a picture of how entwined we citizens of the world are with each other. Here’s the headline chart, with the subindexes for “depth” (the volume of flows) and breadth (how widely distributed the flows are among different countries):
The index is compiled by Pankaj Ghemawat, a professor at NYU’s Stern School of Business and the IESE Business School in Barcelona, and Steven Altman, a lecturer at IESE. Ghemawat, a frequent HBR contributor, began arguing in 2007, with the book Redefining Global Strategy, that the world isn’t nearly as flat as Tom Friedman said it was. As he put it that year in Foreign Policy magazine:
Despite talk of a new, wired world where information, ideas, money, and people can move around the planet faster than ever before, just a fraction of what we consider globalization actually exists. The portrait that emerges from a hard look at the way companies, people, and states interact is a world that’s only beginning to realize the potential of true global integration. And what these trend’s backers won’t tell you is that globalization’s future is more fragile than you know.The financial crisis of 2008 and subsequent global recession demonstrated that fragility, as trade flows shrank dramatically. And in 2011, after Ghemawat published another globalization book, World 3.0, global logistics giant DHL asked him to put together an annual index of globalization’s progress (or regress). When I asked Ghemawat if it wasn’t a little bit weird for a champion of globalization like DHL to commission such research from a globalization skeptic, he laughed and said, “If the world were already connected, they couldn’t trumpet what a role they play in connecting it.”
The big news in the chart above, other than global connectedness getting back close to its 2007 peak, is that the breadth of connectedness is still declining. Breadth is a measure that reflects how many different countries a particular country is interacting with and the distances over which interactions occur, among other things. So the tourist trade in the Bahamas, while it scores high for depth because there are lots of tourists, doesn’t have much breadth because more than 80% of them come from one country, the U.S., that is less than 200 miles away and accounts for less than 10% of the world’s outbound tourists.
This global decline in the breadth of connectness, Ghemawat says, suggests that “with the big shift in economic activity to emerging markets, the world is in some sense getting pulled apart.” For the past couple of decades, globalization been largely driven by trade, investment, and other interactions between developed countries and developing ones. Now the action is among the developing countries (and formerly developing countries), which is having the effect of re-regionalizing many economic flows. South-to-South trade is now growing faster than South-to-North or North-to-South, Ghemawat says, while North-to-North trade “has basically stagnated.”
The index’s different “pillars” of connectedness have also followed different trajectories over the past decade:
Trade, as already noted, took a big hit and has now rebounded. The number of people studying or working outside their home country hasn’t changed much, while the information index has been rising fast. (The capital measure is a moving three-year average, because otherwise it would be too volatile to make sense of.) But the information flows have been rising from a pretty low base: Less than 20% of internet traffic crosses borders, and fewer than 5% of telephone calls do. The international calls that are made tend to follow immigration routes:
Of the international calls measured here, 41% are made from advanced economies to emerging ones. The route with the most calling minutes, by far, is from the U.S. to Mexico, and second is the U.S. to India.
So the world is still far from flat. And it’s not even getting that much flatter.
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