Making Sense of Globalization

Pankaj Ghemawat
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Globalization is not a uniform phenomenon around the world.
By Pankaj Ghemawat and Steven Altman
Not so many years ago, the forward march of globalization seemed to many people to be almost a law of nature. Trade would always grow twice as fast as GDP, financial markets would continually become more integrated, foreign direct investment (FDI) would proliferate freely, and information and people would move around the world more easily. Borders and distance might cease to matter at all. But then came 2008 and the global financial crisis. It hit trade and capital flows hard, and now many question whether globalization has stalled or even gone into reverse.

Globalization did increase slightly in 2013—and, with or without that increase, will continue to have a significant impact on every company that pursues a multinational strategy. But the changes are not as simple as people might think. Globalization is not a uniform phenomenon around the world. The world’s most globally connected countries (such as the Netherlands, Singapore, Switzerland, and the United Kingdom) are many times more connected than the least (which include Burundi, Myanmar, Botswana, and Paraguay). Because the extent of global connectedness is correlated with economic growth, this discrepancy matters for both the countries and the companies that do business there.

But it would be unwise to base your decisions about where to do business on overall connectedness alone. Smart strategies in today’s complex environment require a multidimensional view of those interconnections. Companies must consider three important dimensions:
  • Depth: how much of a country’s economic activity is taking place across national borders (as opposed to within the countries)
  • Breadth: how globally a country’s international flows are distributed (whether, for example, they involve just neighboring countries)
  • Directionality: the proportion of inward to outward flows for any country

Read full article as published in Strategy + Business

Pankaj Ghemawat is a Global Professor of Management and Strategy and Director of the Center for the Globalization of Education and Management.