Globalization– Global Connectedness Index: We’re Not As Connected As We Think– Global Connectedness Really Matters…

Connectedness is the enabler for globalization, which is the world’s engine for economic progress– companies must adopt strategies to benefit from the migration of production and consumption and changing geography and geopolitical world…

Globalization around the world, today, is less connected than it was five years ago. The world’s shifting economic center of gravity is reshaping industry connectedness, and connectedness is the enabler for globalization; the world’s engine for economic progress. Companies must adopt strategies to benefit from migration of production-consumption and changing geography-geopolitical world.

The ‘DHL Global Connectedness Index’ (GCI) developed by Pankaj Ghemawat and Steve Altman is comprehensive analysis of the state of globalization around the world, and draws on over one million data points from 2005 to 2011; it concludes that the world today is less globally connected than it was in 2007. It documents how global connectedness, measured by; international flows of trade, capital, information and people, grew robustly from the report’s baseline year of 2005 to 2007 then, it dropped sharply at the onset of the financial crisis. Despite modest gains since 2009, global connectedness has yet to recapture its pre-crisis peak.

According to Frank Appel, CEO Deutsche Post DHL; it’s important to remember the tremendous gains that globalization has brought to world’s citizens and to recognize it as an engine of economic progress. Above all, governments must resist protectionist measures that hinder cross-border interactions. While the world as a whole experienced only very modest increase in global connectedness from 2010 to 2011, some individual countries had large gains. The GCI index covered 125 countries, accounting for 98% of the world’s GDP and 92% of population.

The top 10 overall spots went to, descending order, the Netherlands, Singapore, Ireland, Switzerland, Luxembourg, UK, Sweden, Belgium, Hong Kong, and Malta… For ‘depth’ alone, the leaders were small countries: Hong Kong, Singapore, and Luxembourg topped the list. Large countries had greater ‘breadth’ in their connectedness patterns; U.K., France, and U.S. led the list. The countries with the largest increases in their global connectedness scores from 2010-to-2011 are; Mozambique, Togo, Ghana, Guinea and Zambia– all of which are located in Sub-Saharan Africa.

While this region remains the world’s least connected, it averaged the largest connectedness increases from 2010 to 2011. The Netherlands retained its 2010 position as the world’s most connected country. Of the top ten most connected countries in 2011, nine of them are located in Europe. According to Professor Pankaj Ghemawat; investigating the actual extent of globalization on a country-by-country and regional basis reveals two critical things; first, cross-border flows are significantly lower than commonly perceived; second, every country has untapped possibilities to benefit from more connectedness.

At a time of economic weakness, this represents one of most powerful levers available for boosting growth. The report concludes; the world’s shifting economic center of gravity is reshaping industry connectedness…

The DHL Global Connectedness Index (GCI) measures both the ‘depth’ of a country’s connectedness (i.e., how much of its economy is internationalized) and its ‘breadth’ (i.e., how many countries it connects with). The economic crisis of 2008 made connections both; shallower and narrower. The ‘depth’ measure has rebounded since 2009, and is now 10% higher than it was in 2005– though it remains below what it was in 2007. But the breadth of connectedness has continued to slip, and is now 4% lower than in 2005.

At first, as the economic crisis took hold, both trade and capital flows became less globalized, but since 2009 trade has bounced back, whereas; capital flows have continued to become less globalized. This seems to reflect a fall in the number of places into which companies from any given country are willing to put their foreign direct investment. According to Pankaj Ghemawat;  people consistently assume the world is much more interconnected than it really is. This is why they underestimate the gains that could be made by further globalization… Here are some of its most striking report findings:

  • Global connectedness declined sharply at onset of the financial crisis from 2007-2009, and despite modest gains has yet to recapture 2007 peak.
  • World’s most globally connected country (the Netherlands) is hundreds of times more connected than least connected country (Burundi).
  • Countries’ levels of global connectedness are impacted both by their domestic and their foreign policies.
  • Industries vary widely in levels and patterns of globalization, contrary to popular notion that every kind of business is rapidly integrating across national borders.

In the article Why Global Connectedness Matters by Frank Appel writes: Globalization is crucial for economic growth. It has lifted millions of people out of poverty. Citizens of global countries enjoy access to a wider variety of goods and services, lower prices and more and better-paying jobs. Global countries maintain a competitive edge, and their populations enjoy more prosperity.

According to the GCI index; Europe is the world’s most connected region leading in– international flow of trade, information, and people. As the study notes; this is an important reminder of what EU integration has managed to achieve – and what its fragmentation might put at risk.

Five years into the global financial crisis,  some might argue the risks of globalization outweigh benefits, however there is convincing evidence to contrary. GCI concludes; every country has untapped possibilities to benefit from more connectedness, and that potential gains can reach trillions of dollars. While the economic dimension of globalization tends to dominate today’s debate, it’s important to remember that a global world is also about advances in human development; education, health, environment…

Cross-border flow of information and people– manifest themselves in greater cultural understanding among nations. Shared information enables innovation, and more cooperation often leads to less conflict…

In the article Is Globalization Still The Answer? by Delphi Dialog V writes: We don’t trade nearly as much as we could with other countries. We don’t read news sites from other countries. And, the news we read is dominated by domestic issues– despite disasters abroad. We prefer giving money to less fortunate people nearby, rather than those in distant countries. We trust people who live far abroad ten-times-less than those nearer to home.

According to Pankaj Ghemawat; despite the fact that trillions of dollars could be generated through greater connectedness, we still aren’t improving; global integration is still quite limited. We tend to see globalization chiefly from a trade perspective… Possible limiting factors are; language, culture, politics, and educational equality.

Is language the culprit for lack of connectedness? It’s always easier to connect with colleagues in language they share, rather than needing an interpreter… But what of children– poorest in most of the world– how will they fare; since socioeconomic background is an important predictor of people’s success. We must increase education equality for all people and especially poor children. Otherwise, globalization will exacerbate the inequalities we see today. We tend to view education as a local issue. Education is one of best ways to combat fears about globalization, and make it safe….

In the article Track Connectedness Today Deliver Better Tomorrow by Pankaj Ghemawat writes: We cannot simply take for granted that future generations will enjoy benefits of a more connected planet. Rather, decisions taken today exert powerful but not necessarily positive influence on what the world will look like in 2050. The world is less global than is commonly presumed. An understanding of extent of globalization today is prerequisite for an informed position about whether it should be increased or scaled back, and yet hard facts about how connected the world really is seldom enter into the heated debates that take place on this topic.

To cite just a few examples; only 2% of telephone calls are international, immigrants make up only 3% of the world’s population, foreign direct investment (FDI) comprises only 10% of gross fixed investment around the world, and roughly 20% of economic output is traded across national borders. Business executives tend to overestimate these and other measures of globalization by three-times or more: common place notions of globalization are far off base, and it’s fair to call it ‘globaloney’. The fact that the world is less connected than most people think helps calm many fears about globalization…

Why does all of this matter? Because deepening global connections has potential to contribute to trillions of dollars in economic gains, as well as various non-economic benefits. According to ‘Global Trade Alert’; there are three-times more discriminatory, than liberalizing or transparency-enhancing trade policy measures implemented since November 2008. We cannot simply take for granted that future generations will enjoy benefits of a more connected planet.

Perhaps greatest value of the GCI lies in its detailed country-by-country profiles with its hard data and analysis on virtually every country’s level of globalization. Why?

Because those profiles reveal limited extent of globalization, and where it really matters to people: That can go a long way toward putting fears about globalization into perspective. According to Randy Buday; in this period of slow growth, it’s important to remember tremendous gains globalization has brought to world and recognize it as an engine of economic progress. It’s crucial that governments around the globe resist protectionist measures that hinder cross-border interactions.

As Walter Lippmann wrote in 1922; the world that we have to deal with politically is out of reach, out of sight, out of mind. The world must be explored, reported, imagined. Opportunities for gains from global connectedness in many cases are not obvious.

Most of us need to adjust our world view to see the headroom for gains– we need to reach out to form new connections before specific opportunities come into view. We still have room to benefit enormously from expansion of our circles of human cooperation, especially done in a deliberate way, capturing tangible gains while avoiding potential pitfalls…