Globalisation under threat
Concept and History
In the 1990s, globalisation was the buzz word. It was like a wave of philosophies, concepts and initiatives sweeping thorough governments, businesses and education establishments all around the world. A concept “think global act local” was talked about a lot. The underlying philosophy was more driven by environmental implications globally as we look after each other’s backyards, which ultimately contributed to a world that was environmentally sustainable. However, Business leaders adapted this concept and suggested all its managements to think about their businesses from a global perspective, however, they needed to tweak their business processes or product line-up a bit to suit local taste of each country / society.
As part of the “Globalisation” movement, countries started to lower tariffs to encourage more free flow of products and services and transfer of economic benefits for all citizens. The global leaders, with started getting innovative. For a number of mega corporations, that were customer focussed, understood the potential of such a concept. Companies that were large localised businesses, became interested in entering / investing in countries that were unknown to them. A big challenge that emerged from this change was standardisation, low cost production and logistics. Quality took a back seat and wasn’t important as long as the produce was serving certain minimum standards and lived through the guarantee period.
Some of the factors that were challenges but were tackled and converted into catalysts:
1. Protectionism (less)
2. Economics of scale
3. Development of logistics and transport
4. Technology change and
5. Growth strategies of multinational companies.
As the import laws were relaxed, businesses with established products and global strategies, stated selling in multiple countries and the demand increased substantially over a very short period. For low technology consumer products, companies invested heavily and created processes for economies of scale and lowering cost of production. For high technology, capital intensive products it was more about availability of skilled labour and capital.
During this period, global production was shifting. Global corporations moved their production from first to third world countries. Large investments were made to set up massive production facilities. First world countries as it stands today, became major consumers of goods produced in third world countries. For eg. Bangladesh has come up as a major textile manufacturing hub, exporting about $5billion to the US and Europe. It employs 20 million people and contributes to 20% of its GDP (2018). Traditionally Bangladesh has been agrarian economy.
Emergence of new wealth in the third world
During this period two countries that emerged as powers and wealth generators were China and India. China, focussed on its ability to manufacture low technology product. China could do this, as it had a large young and hardworking population and the government focussed on manufacturing. However, it had poor human rights record which may have helped them to keep the cost low.
Indian on the hand specialised on the service delivery and technology sector. India has a very progressive English speaking population which is not only educated but also progressive in its outlook. Some of the global IT and Back-office integrating companies are based in India.
All research based, high technology industries stayed with the first world countries.
Growth of consumerism
As we focussed on going global and reducing the cost of our production, “consumerism” gently grew and was embraced by economies — rich and poor, developing and developed. We wanted to acquire all the latest products as it was more affordable and a measure of status for certain groups of people.
We all want to buy the latest phones and the best outfits and brands because things have become more affordable. Technology revolution spearheaded this change. Durability and quality were not important but features and version were.
As China and India began converting itself into manufacturing and service hubs respectively, the section of people that constituted the “middle income group” grew substantially. Some people got really very wealthy. In fact today China has more than 300 billionaires and India has 30. Over the period countries that were production based economies became consumers themselves.
Economic Wealth changing psychology of nations
As economic wealth grows, the social status of its people changes. “Maslow’s hierarchy of needs” a theory in psychology proposed by Abraham Maslow in 1943. Even though the theory was proposed for individual human beings, it holds true for nations and societies. The theory categorises 5 sets of needs i.e. Physiological (lowest need), safety, love/ belonging, esteem and self-realisation (highest need). The lower level need must be satisfied to move to the higher ones. Nations follow the same hierarchy as far its needs a concerned. Once nations have taken care of food, clothing and housing needs of its people, it strives to give them a good life. Eventually, comes esteem, recognition, expansion and military power.
China’s ambition to be an economic global leader, has seen China investing globally in seaports and logistical projects such as OBOR and CPEC. China has also invested heavily in US Treasury bonds and some prime revenue generating real estate all around the globe.
Economic power and control
The current Trade war between China and US has seen tariffs being re-imposed on imported goods and have seen them flex their economic muscles. Economic bipolarity has become quite obvious.
The factors that are playing a key role are in this economic battle:
1. Growing economic influence all over the world
2. High economic growth rate
3. Permanent membership at the UN
4. Large investment in all over the word.
5. Control of global manufacturing.
6. Control of logistics and movement of goods
“Globalisation” has taken a big hit. Our journey started with the objective of free movement of products and services, economic and political integration. The concept seems to be falling apart. We don’t seem to trust each other and don’t treat each other fairly. Intentions of global leaders are being questioned.
Are we going to see an end to globalisation efforts? Are we going to see more location or geographical alliances? Are alliances going to formed on equal capacities and have equal powers? Do we see an end or some sort of restructuring of global organisations such as WHO and UN. Are we becoming less friendly with each other!! Would love to know your views.
Written by Partha Mazumdar, Founder of Vertical Bricks — a company that facilitates investment based migration.
