Press release by the AGN International – A key theme of the World Economic Forum in Davos was the impact on the world of economic and corporate globalisation. President Xi of China opened the Davos with a speech praising the merits of global free trade. But on Friday, US President Trump finished the week calling for a protectionist approach for American businesses.
We sought the views of the AGN Global Business Voice panel on these themes, and in particular their views on the impact on national businesses (those whose markets are mainly within national boundaries).
Globalisation in crisis?
In 2008 the financial crisis spread rapidly around the world largely due to globalisation, and now much of the world’s capital has withdrawn to nation states to support formerly globalised but now asset poor banks. World trade figures have been on the rise but are yet to reach the levels of 2006.
And now just over half our international panel thinks that there is a crisis in the phenomenon of globalisation. In Europe that rises to 60% and in the North American the panel is split 50/50. Malcolm Ward CEO for AGN said “Businesses of many types have long benefitted from reduced trade barriers and increased access to suppliers and markets that have been the perceived rewards of globalisation. It shows the enormity of recent events that more than half of the AGN Global Business Voice panel now see a crisis in globalisation.”
Immigration of labor gives globalisation a bad name.
The AGN Global Business Voice panel was asked to identify why globalisation has apparently become the recipient of poor publicity. The panel ranked the issues in the following order;
1st Migration of jobs abroad
2nd Stagnating living standards
3rd Technologies replacing jobs
4th Income disparity
5th Loss of cultural identity (eg. global brands)
The biggest single issue here for the panel is the migration of domestic jobs overseas. There is no doubt a perception that if an organisation creates jobs in a market where labour is cheaper, this equals the displacement of domestic jobs. In addition, it is thought that where free movement of labour is possible, low cost labour migrating from lower income countries into the domestic market fuels competition for those jobs at a lower wage point.
Echoing the calls from many business leaders at Davos, Malcolm Ward said “Offshoring can lead to greater business efficiency, but the consequences domestically can be many fold. We need global leaders and policy makers need to find a fix. Globalisation has helped many communities climb out of poverty, but it has to work for everyone or protectionism will continue to increase”.
Globalisation is good for national business
But what does all this mean for national business? Have they suffered as a consequence of incoming global players? Has their market been swallowed up by a globalised giant? Far from it. Over 90% of the AGN panel believe that globalisation has been positive for national businesses, because it has provided business opportunities.
Niche markets and nimble players beat global competition.
The panel was asked to rank the top 3 most important strategies for a national business to adopt when being confronted with global competition entering its market.
1st Identify niche domestic and international markets not serviced by the global player.
2nd Seek sub contract opportunities to supply the global players.
3rd Collaborate with other industry players to enhance market power.
As Malcolm puts it “Pragmatism is a key theme here. National businesses should be able to move quickly to find opportunities and gaps that larger global players either lack the agility to address or do not perceive as important”.
Of course, there might also be opportunities to sub contract to the global company, but if head-on competition is inevitable national businesses can boost their position by collaborating with other smaller players. Economies of scale or combined purchasing power might deliver cheaper supplier prices.
Going global national businesses still face the traditional barriers
How true is it that the internet makes it easy for businesses to go global? The AGN Global business voice panel ranked the primary barriers and it turns out there are some familiar issues: No 1 ‘Compliance with foreign countries regulation and law’. Closely followed by finding reliable offshore business partners or distributors.
1st Overseas regulation and legal compliance
2nd Reliable offshore business partners or distributors
3rd Funding foreign investment
4th Unfamiliar business culture and business practices
Malcolm observed; “The fact that the funding isn’t at the top of the list is encouraging in that perhaps capital is now available in the way it wasn’t a few years ago. The top two issues are the ‘traditional challenges’ of globalising a business. The internet provides a sales channel, but you still have to comply with local taxes, customs duties, quality and safety regulations. And it has always been a challenge to find reliable offshore business partners – someone who isn’t going to leave you high and dry – but members of an organisation like AGN are ideally placed to help a business navigate exactly these challenges. In addition, there is usually destination government support and advice for companies entering their markets.”
And if protectionism carries the day?
Finally – perhaps the opportunity for national businesses is within a protectionist national framework. Business people like a deal and, if the incentives are available, then could it work? Trump is proposing large import tariffs for offshore produced goods, balanced against a dramatically reduced rate of corporation tax, reduced typically from 35% down to 15%, to encourage domestic investment.
However, the AGN Global Business Voice panel mostly disagree; 73% think such a move would be negative for national business. But perhaps in a reflection of the times, not everyone sees it that way; 20% of the European panel members think such a move could benefit national businesses, and the North American panel members are split almost 50/50.
Malcolm observed “Protectionism has historically been associated with increased costs and reduced consumer choice – opinions clearly vary, but there is little to suggest that this isn’t still the case. And if globalisation has benefitted business, increased choice and reduced costs for the better off, as well as contributed wealth and development elsewhere, it is difficult to see the globalisation genie going back in the bottle.
And assuming globalisation is here to stay, perhaps national businesses have the key opportunity to be a positive counterbalance. Their pragmatism, agility and entrepreneurialism, driving domestic growth on the back of global business, that provides employment and wealth creation at a local level”.
It is an indication of how the world has changed that we conclude with a quote from President Xi’s speech at Davos. “It is true that economic globalisation has created new problems, but this is no justification to write economic globalisation off completely. Rather, we should adapt to and guide economic globalisation, cushion its negative impact, and deliver its benefits to all countries and all nations”.