Benchmarking Globalization to Boost Business Connections

Ghemawat and Altman suggest how globalization might evolve

09/04/2015 Barcelona

IESE Insight
Closer connections between countries can be a good thing / Illustration: Giulio Bonasera

Though global connectedness, which correlates with global growth, appears to be recovering since the global economic crisis, there is still a long way to go, as the latest issue of IESE Insight reveals.

Global strategist and professor Pankaj Ghemawat and research scholar Steven A. Altman unpack the findings of the latest DHL Global Connectedness Index, a comprehensive study that measures the depth, breadth and directions of trade, capital, information and people flows between countries. Greater international flows and deeper global connectedness correlate with faster growth and other benefits for countries, according to their research.

They discuss some of the implications for multinationals, analyzing the results for four Western economies worth watching: Spain, the United Kingdom, Germany and the United States.

  • Spain. While Spain is finally growing again, the country has huge untapped potential, say the authors. Deeper global connectedness could help bolster Spain’s economic recovery.
  • United Kingdom. With its global connectedness underpinned by its ties to Europe, a proposed U.K. referendum on EU membership and recent growth in anti-immigration sentiment could have huge implications there. A U.K. exit from the European Union would have serious consequences on its global connectedness, say the authors, adding that the United Kingdom could gain from strengthening its ties both to Europe and some of the world’s faster growing regions.
  • Germany. Like other advanced economies, Europe’s industrial powerhouse has struggled to keep up with the shift of economic activity to emerging economies, and its ties to emerging economies have not kept pace with those countries’ fast growth. German firms will need to stretch themselves to retain and reinforce their positions abroad.
  • United States. The U.S. economic recovery appears to have taken hold. However, a rising dollar could mean greater trade deficits in 2015. Fears about Europe’s economic prospects and new military commitments abroad make it tempting for many Americans to hunker down behind fortified borders. But doing so would ignore a golden rule of history: human progress is advanced by nations courageously reaching out to expand circles of cooperation.

Words of Warning

The majority of international interactions tracked by the authors have gone from being mainly between advanced economies to increasingly involving emerging economies. The authors see the declining breadth of global connectedness among Western multinationals as a worrisome trend. In their article, they suggest four things Western MNCs can do better to tap into growth in emerging economies.

The biggest mistake would be to opt for protectionism; in fact, they should do the opposite. "It is precisely when growth slows that the power of global connectedness is needed to accelerate economic recovery," say the authors.

"The future of globalization lies in the hands of a much broader collection of nations than was the case at any point in the recent past – a reminder, if ever one was needed, of the empowering and enriching benefits of globalization’s slow but onward march."

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Read the article "Benchmarking Globalization to Boost Business Connections."