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Globalization, Suez Canal Remains Blocked By Grounded Container Ship

Strategy

Globalization has rallied during the pandemic – here’s what that means for leaders

Published 29 March 2021 in Strategy

There was a solid thesis that globalization had stalled or gone into reverse even before coronavirus, which made the shift seem all the more likely this year, thanks to the short-term Balkanization of trade, capital and labor.

One area where coronavirus hit especially hard is the free movement of people, which has collapsed under lockdowns. The steep drop in skilled migration threatens the economic recovery, as it hits the growth of the working-age population.

But as working practices are transformed, technology is rapidly dissolving national borders. Many the world’s largest employers are have introduced hybrid models of working, with staff working from home and the office. Zoom has stepped in for physical meetings and cut out unnecessary travel, addressing long festering concerns over the high cost and carbon footprint.

Business leaders should continue to champion this practice, even after the crisis abates. It combines the benefits of flexible working, such as accessibility, with the need for networking, collaboration and mentoring in the office.

The boom in digital connectivity, which underpins economic and social activity, has been a boon for globalization, as it smooths the path of information flows. According to Comcast, the pandemic caused US internet traffic to rise 32% in 2020 compared with pre-pandemic levels.

The fast flow of data has fueled the rapid growth of global ecommerce, empowering companies to tap consumer growth markets abroad. According to eMarketer, ecommerce sales grew 27.6% in 2020 and totaled $4.280 trillion. In a globalized world, company bosses need to embrace digital services and solutions as a way to lower the cost of transactions.

That’s a boon for global supply chains too as it makes them nimbler while increasing global collaboration, for example cross-border science in the race for Covid-19 vaccines. Indeed, this can benefit society more broadly through public-private partnerships that are already facilitating the rapid roll-out of vaccines and track-and-trace systems.

The first approved jab from Pfizer/BioNTech highlights the fruits of globalization: the shot was developed in record time in Germany by the children of Turkish immigrants before being tested in several different countries, manufactured in Belgium and first approved in the UK. This and other jabs offer a path out of economic malaise to potential prosperity, but collaboration is a double-edged sword.

It can create chaos in extreme circumstances. The unfortunate example is the spat between European Union member states over allocation of vaccines. The EU spent too much time seeking consensus across the bloc with its all-for-one and one-for-all strategy, and was too slow to approve vaccines and strike procurement deals. The world needs leaders who act as orchestrators, executing a strategy as well as exercising diplomacy.

Joe Biden fits the mold. A self-confessed globalist, the US president has already restored America’s global leadership role, having rejoined the Paris Climate Accord to tackle the systemic risk of climate change. He is also expected to re-engage with multilateral organizations such as the World Trade Organization, after years of unilateralism under Donald Trump.

Biden is a bellwether for globalization, having taken a more progressive approach to immigration, boosting the movement of people. The president also has an opportunity to halt the decoupling of the US and China, the world’s two largest economies. But the fact that US-China investment flows remain strong suggests the US-China trade war is overblown.

According to Rhodium Group, US investors held $1.1 trillion in equity issued by Chinese companies last year, suggesting a stronger than expected bilateral investment relationship, despite a drive by both sides to protect sensitive industries and more closely scrutinize foreign investment.

In another positive signal for globalization, global trade in goods returned to its pre-pandemic level at the tail end of last year, according to the Netherlands Bureau for Economic Policy Analysis, driven by increasing demand for imports in developed economies. After falling by a projected 9.2% last year, the WTO expects a 7.2% rise in global trade volume in 2021.

That would belie executives’ concerns over cross-border risks such as creeping nationalism. It has encouraged reshoring, with some companies bringing manufacturing activities back home, especially medical equipment, to the delight of protectionist politicians such as Trump who promised local jobs to win votes.

The nationalization of supply chains may be a catchy political slogan, but companies risk shooting themselves in the foot. Reshoring risks hitting suppliers hard, and crimping their ability to export raw materials and components in critical areas such as vaccine production.

That would lead to rising costs that cannot easily be passed on to consumers amid grumblings of a return of inflationary pressures, which would reduce the appeal of locally produced products as they become more expensive, and see consumers turn to cheaper imports.

Global supply chains were constructed on the idea of moving manufacturing production to nations with cheap labor. Trade is so deeply integrated between countries that it seems inconceivable that supply chains can be disintegrated. It makes sense to diversify supply chains even further, into numerous locations, to hedge against cross-border risks, whether trade wars or cyber-attacks.

De-globalization may provide a short-term reputational boost, but companies need to play the long game. Crises force immediate attention on the here and now, but it’s toxic leaders who consider only short-term financial gains over long-term sustainability.

Globalization should benefit everyone, but too often it has been about maximising investor returns. The shareholder primacy doctrine has fuelled inequality and populism, however, and led to the anti-globalization backlash that is damaging for both business and society.

Instead, leaders need to embrace the stakeholder model, and consider their impact on employees, suppliers, customers and the planet. In short, they need to put values above value. If globalisation is to survive longer term, it must benefit the many, not the few.

But there are reasons for optimism. It is reasonable to expect the fourth aspect of globalization, financial flows, to improve, given the staggering requests for emergency money received by the International Monetary Fund and other multilateral institutions to support economies that have been devastated by Covid-19.

It underscores the unprecedented need for a more inclusive form of globalization, to deliver cross-border flows of capital, technology, investment, jobs and vaccines. If there’s one silver lining in the Covid-19 pandemic, it’s that it could be the shot in the arm that globalization needed.

Authors

Sameh Abadir

Professor of Leadership and Negotiation at IMD

Sameh Abadir is a Professor of Leadership and Negotiation at IMD. He is the co-director of IMD’s Negotiating for Value Creation program (NVC) and teaches in IMD’s signature program Orchestrating Winning Performance (OWP).

Mark Greeven

Professor of Innovation and Strategy at IMD

Mark Greeven is Professor of Innovation and Strategy at IMD. Drawing on a decade of experience in research, teaching and consulting in China, Mark explores how to organize innovation in a turbulent world.

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