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It’s a Semiglobalized World

Is the world economy as integrated as most people perceive it to be?

November 16, 2007

Is the world economy as integrated as most people perceive it to be?

A quarter of a century after the first bold pronouncements, the initial excitement about the globalization of markets has given way to excitement about the globalization of production. But what has remained constant is the vision of a globalization apocalypse. And this apocalyptic vision leads to a focus on strategies for a post-apocalyptic, integrated world — strategies that inevitably have a one-size-fits-all character.

In my view, differences between countries are larger than generally acknowledged. As a result, companies’ strategies that presume complete global integration tend to place far too much emphasis on international standardization and scale expansion.

While it is, of course, important to take advantage of similarities across borders, it is also critical to address differences. In the near and medium term, effective cross-border strategies will reckon with both — that is, with the reality that I call semiglobalization.

According to the U.S. Library of Congress catalog, we are positively awash in books on globalization. More than 5,000 such books were published between 2000 and 2004, compared with fewer than 500 in the whole of the 1990s.

In fact, between the mid-1990s and 2003, the rate of increase in globalization-related titles — more than doubling every 18 months — surpassed the celebrated Moore’s Law!

Amid all this clutter, the books on globalization that have managed to attract significant attention have done so by painting visions of a “globalization apocalypse.”

These volumes tend to exhibit what scholars cite as general characteristics of apocalyptic argumentation: emotional rather than cerebral appeals, reliance on prophecy, semiotic arousal (i.e., treating everything as a sign), an emphasis on creating “new” people and — perhaps above all — a clamor for attention.

The Flattening of the Earth is the globalization apocalypse that still occupies center stage. But other visions of the globalization apocalypse have been propounded as well: The Death of Distance, the End of History or the Convergence of Tastes.

Some writers in this vein view the apocalypse as a good thing — an escape from the ancient tribal rifts that have divided humans, or an opportunity to sell the same thing to everyone on earth.

Others see it as a bad thing: A process that will lead to everyone eating the same fast food. But they all tend to assume (or predict) nearly complete internationalization.

This is where I disagree strongly. Most types of economic activity that can be conducted either within or across borders are still quite localized by country.

The levels of internationalization for many economic activities considered prime drivers of globalization all cluster much closer to 10% than to 100%.

The biggest exception in absolute terms — the trade-to-GDP ratio — probably recedes most of the way back toward 20% if you adjust for double-counting.

So if I had to guess the internationalization level of some activity about which I had no particular information, I would guess it to be much closer to 10% than to 100%. I call this the “10% presumption.”

The 10% presumption notwithstanding, I prefer to talk of semi-globalization rather than “deciglobalization.”

One reason is that 10% is not meant to be any kind of global constant. My best guess is that the next few decades will witness increased internationalization of many of the categories and a (slow) upward drift in their average.

Second, if internationalization levels are setting new records in many respects, international activity probably warrants a share of attention that exceeds its current share of total economic activity. It is increasingly important, and its surge is taking it into uncharted territory.

Third, business interest in internationalization may also exceed general internationalization levels because businesses have some distinct advantages — as well as disadvantages — compared with other channels for cross-border coordination.

Thus, the largest companies are significantly more internationalized than the 10% level. The 100 largest nonfinancial corporations, for example, have, on average, one-half their sales, assets and employment overseas. And many smaller companies aspire to increase their internationalization levels.

The point is not that we should neglect cross-border issues — but that we should see them from a semiglobalized perspective. From this perspective, the most astonishing aspect of various announcements of the globalization apocalypse is the extent of exaggeration involved.

Editor’s Note: This feature is adapted from REDEFINING GLOBAL STRATEGY by Pankaj Ghemawat. Copyright 2007 by Harvard Business School Press. Reprinted with permission of the publisher.