Strategies for global connectedness

Strategies for global connectedness:
national efforts to expand international flows can leverage prosperity increase.

Extract from strategy + business – Pankaj Ghemawat and Steven A. Altman:

Not that long ago, the world was supposed to be flat. Hardly a day passed without references to globalization and “borderless markets.” This led many policymakers and business leaders to jump on the bandwagon of open globalization, treating all interconnection among countries as equally beneficial.

But this perception that “the world is flat” was so exaggerated that it is fair to call it “globaloney.” The last few years — of financial crises, weak growth, and mounting protectionist pressures — have demonstrated that the world is far less connected than it appeared to be. The real world is roughly only 10 to 25 percent globalized. Most of the activities that could take place either across or within national borders are still domestic, and the international flows that exist vary widely among countries, industries, and types of business interactions.

Now the trend is toward localization. The same policymakers and business leaders who once sought universal openness are focusing their investment, attention, and effort within their own home countries. Few of them, however, have actually measured the level of globalization that exists in their country; fewer still have quantified the untapped potential for growth in their countries. If they had, they would recognize that they need increased global connection, even more than before — but in a smarter, more conscious, more considered form.

In plotting a course toward smarter integration, the differences among countries matter a great deal. Two attributes merit special consideration. The first is global depth. When used to describe a country’s interactions, it refers to the magnitude of international flows — of goods, labor, information, and capital — relative to the size of its domestic economy. In other words, an economy’s depth represents how much of it is devoted to exports or imports. Because international trade and investment are generally beneficial, the practical prescription for most countries is to work toward increasing their depth.

The other important dimension of global connectedness is breadth, which is the extent to which a country’s international trade flows are spread out globally versus confined to a particular set of partner nations. Breadth can be too great or too small: Some countries would benefit from more diversification whereas others could gain more from greater focus. But although the particulars may vary, the general rule holds true around the globe: By strategically increasing international connectedness, political leaders have the potential to unleash tremendous economic and social gains.

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