Why globalisation is passe

Between war and peace is a place of rivalry, conflict and pervasive insecurity for most of history. We are emerging from what has been by historic standards a long period of peace — one which encompassed the working life of most business leaders. During this period, the world was benign, with minimal conflict, rising average prosperity, and growing global physical and digital linkages.

On the other hand, rising tariffs, trade wars, and instability in the eurozone and Brexit have undercut the dominant consensus that global trade benefits all. After seven decades managing in a world of rising average prosperity and minimal conflict and growing global linkages — physical and digital — business leaders are asking whether globalisation is dead, and if so, what will replace it?

Globalisation is not dead yet, but it is hardly healthy. Rising nationalism and a retreat from global alliances signal a profound restructuring of the geopolitical order. As a new era dawns, it will bring change to nearly every aspect of the global economy, from trade and finance to the state’s role in the market. Leadership teams can no longer assume that national leaders will continually seek to improve the climate for global trade. 

Since the end of World War II, and even more pointedly during the past 40 years, “business strategy” was shorthand for how businesses competed with each other for market share, for cost position and for market access. As we move toward a post-global order, macro conditions in many regions will become an obstacle to business. To cope with this fundamental shift, companies are beginning to develop a macro strategy as part of their business strategy.

While geopolitical changes can be sharp and sudden, often the underlying causes are clear and known well in advance. The core challenge that companies today face is around understanding how and when they should adjust their business strategy, to reflect changing geopolitical conditions. Companies will be forced to rethink supply chains (already the subject of discussions in many boardrooms), talent and its mobility, access to goods and capital markets, and their ability to conduct business across different regions. Changes that once seemed unimaginable may rapidly alter the business environment. For example, the US government is discussing capital controls as a potential means of controlling the dollar exchange rate. In a post-global world, US capital controls could seem a relatively minor adjustment.

As a new era dawns, it will bring change to nearly every aspect of the world economy. Leadership teams can no longer assume that national leaders will continually seek to improve the climate for global trade
Over the next two decades, we expect that powerful rival economic blocs (and in some cases, security blocs) will form, creating a global divide that may have parallels with the divided world of the cold war. A shift in that direction would lead to fragmented talent pools and capital markets. Consequently, businesses may find that a company’s nationality determines where they can raise capital or hire talent. In a post-global economy, today’s multinationals may find their relatively free rein being circumscribed by politics much more explicitly.

Senior executives across markets will be forced to rethink business assumptions and certitudes that have framed their thinking for the past 40 years. Societies may question the primacy of business and wealth creation, as they confront new threats to national security alongside economic insecurity. Governments will loom large over the marketplace, and more may start to view businesses as instruments of the national interest, the way China already does today — an echo of the state of the world long before the current era of shareholder primacy.

India too will be impacted by these developments. As an example, geopolitical relationships and the rising influence of China has led India to cultivate new friends, even as it keeps warm relations with long-term ally, Russia. The Indian pivot to the US is a reflection of the shared need for both countries to retain relevance in the Indo-Pacific. Japan could play an important role as the third arm in this emerging troika. All of these geopolitical moves will have important implications for companies in India — far more than in the past. The current debate on India choosing between Western or Chinese vendors for 5G Technology, perfectly illustrates these challenges.

In the past, strategy was often about “perfect anticipation” — drawing a straight line to project the target performance for a company, in industries that were following a relatively stable evolutionary path. We believe the future for most industries will now focus much more on “fast adaptation”. Companies need to deal with a much more complex and volatile geopolitical environment, along with fast moving technological disruptions and evolution of consumer needs. As a result, five-year plans are passé.

Companies need to develop a “strategy in uncertainty” by creating an agile and nimble operating model, which can rapidly adapt to challenges and opportunities thrown up by key changes in their respective industries. The importance of creating option value as business leaders take important capex-related decisions will be critical. For instance, the longer-term trend of increasing China-US trade tensions leading to a reconfiguration of global supply chains represents an attractive opportunity for India, and the COVID-19 outbreak simply increases the urgency of the ask. Speed, agility and quick action will define the leaders of the next decade.    

Harris is managing director, Bain & Company’s Macro Trends group. She is based out of the firm’s New York office. Sarin is a partner in the firm’s New Delhi office. He is a leader in Bain’s global strategy, organisation and technology practices.

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