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As leaders wrestle to guide their organizations through the Covid-19 pandemic, decisions running the gamut from where to sell to how to manage supply chains hinge on expectations about the future of globalization. The pandemic has prompted a new wave of globalization obituaries, just the latest data and forecasts imply that leaders should program for — and shape — a globe where both globalization and anti-globalization pressures remain enduring features of the business environment.

The crisis and the necessary public wellness response are causing the largest and fastest decline in international flows in modern history. Current forecasts, while inevitably rough at this phase, phone call for a 13-32% decline in merchandise trade, a xxx-40% reduction in foreign straight investment, and a 44-80% drib in international airline passengers in 2020[i]. These numbers imply a major rollback of globalization's recent gains, merely they practise not indicate a fundamental collapse of international marketplace integration.

The volume of global goods exports in 2022 could autumn to a level last seen in the mid-to-belatedly 2000s, according to the latest WTO forecast. That would be a tremendously painful drop, especially in the context of today'southward larger and more circuitous globe economic system. Just even the well-nigh pessimistic merchandise forecasts do non imply a retreat to a world of disconnected national markets. Most of the run-up in merchandise integration since the end of World War II should remain intact.

If plummeting merchandise flows are unlikely to undo globalization, what about the even steeper decline predicted in foreign direct investment (FDI)? Similar other capital flows, FDI tends to be volatile, and then a double-digit turn down is not as shocking equally ane might presume. FDI flows, for example, fell 38% during the global financial crisis. Nor practise shrinking FDI flows necessarily augur a real retreat from corporate globalization. The foreign business concern activity of multinational firms does non ever closely track FDI trends.

The collapse of international travel, in contrast, stands out confronting a much steadier growth trend, and its damage is indisputable. Tourism contributes more to global output than automotive manufacturing, and business travel facilitates international trade and investment. Every bit of tardily Apr 2020, every country had imposed restrictions on international travel, and 45% of countries had partially or completely closed their borders to foreign visitors. Airlines were flight 90% fewer seats on international flights, as compared to 62% on domestic flights. This unprecedented collapse does, however, follow an international travel smash. Even if international airline passengers fall by ii-thirds, there would yet be more people flight abroad than at that place were in 2003.

What Are Globalization's Post-Coronavirus Prospects?

Current forecasts phone call for international flows to start growing again equally the pandemic comes under control. Thus, 2022 is likely to exist a low point for many globalization metrics. But how deep will the plunge really be? How fast tin can we expect global flows to rebound? And how might future menstruum patterns look different from the past? None of these questions can be answered definitively nevertheless, but leaders tin detect clues virtually the future and actionable implications for their companies by focusing on five primal drivers of globalization's trajectory:

1. Start with global growth patterns, where the key lesson is that international flows tend to swing dramatically with macroeconomic cycles. In skilful times, they usually grow faster than Gdp, and in bad times they shrink faster, too, as people and firms hunker down behind borders.

This time effectually, robust growth can simply be restored once the pandemic is clearly brought under command. But remember that globalization tin besides be a powerful contributor to growth and wellness. Countries with higher scores on the DHL Global Connectedness Index tend to enjoy faster economic growth. And there is some bear witness that more connected countries, even after controlling statistically for levels of economical evolution, are less vulnerable to communicable diseases outbreaks, in office because of their stronger wellness care systems.

Farther Reading

This ways global business leaders can go beyond just watching illness trends and economic information — they can assistance tilt the remainder from negative to positive feedback loops by contributing to health, growth, and international cooperation. Companies across industries have already swung into activeness to industry urgently needed medical supplies. Large corporations tin can likewise soften the pandemic's economical impact, for instance, by following Unilever's lead in paying suppliers faster and extending support to employees, contractors, and customers. And they can back up open markets, as 3M did when it resisted a proposed block on its mask exports from the U.S. to Canada and Latin America.

2. Supply chain policies have come dorsum to the top of the agenda, and shifting approaches take the potential to reshape merchandise and FDI flows. The fundamental globalization-related debate here is redundancy versus reshoring. Will companies and countries seek greater safety in international diversification, or will they try fostering domestic self-sufficiency? Economical logic almost e'er favors the former approach, coupled with national stockpiles for true essentials, but politics volition sometimes strength the latter.

Research by NYU Stern Professor Pankaj Ghemawat highlights several characteristics of politically sensitive industries, such as production of necessities for wellness or national security, sales to government rather than private buyers, and the size of an industry's domestic workforce.

If back-up becomes the norm and reshoring the exception, expect just a pocket-size long-run drag on global trade growth, coupled with greater diversification of countries' trade partners.

3. Superpower frictions and fragility had already destabilized the international business environment before Covid-19, and the pandemic adds new layers of complexity. It has led to a vast expansion of state power, while introducing pandemic command as yet some other arena for ideological competition. In this environment, where companies come up from and how well their home land governments go forth volition thing even more than before to decisions about where to raise capital letter, which markets to prioritize, and which supply bases to cultivate.

Many have predicted that Covid-19 will hasten a fracturing of the global economy forth regional lines, with competing blocs centered on Mainland china, the United States, and perhaps Europe. Simply the fact that Europe, the world's nearly continued region, has struggled to mount a unified response to the pandemic is just one reason that a resurgence of regions should not exist a foregone conclusion. Most international flows already take identify within regions, and curt-distance trade has non grown faster than long-distance trade over the by few years. Be gear up for the possibility of a more than regionalized world, but don't count on it.

4. Ongoing technological shifts such as the adoption of eastward-commerce, videoconferencing, and robots have all been supercharged by Covid-19. Before the pandemic, many focused on how new technologies could reduce global flows, eastward.m. via manufacturers substituting robots at domicile for low-cost labor abroad. But many pandemic-induced shifts could also strengthen globalization if they are not curbed past protectionist policies. Cross-border e-commerce expands export opportunities, especially for smaller companies. Forced experimentation with remote work, where successful, could spur more services offshoring. And fifty-fifty 3D-printing sometimes leads to more rather than less trade.

Business leaders tin think productively about Covid-19, engineering science, and globalization, by taking a structured approach to considering both internal and external implications. Internally, retrieve how individual functions can harness opportunities afforded by new technologies, while managing organizational change with sensitivity to the heightened stress employees and teams are facing. Externally, think well-nigh how technological trends could potentially alter a company's standing vis-à-vis its competitors, customers, suppliers, and then on. For most companies, technological trends should lead to more globalization in some areas and less in others, rather than a uniform shift in 1 direction or the other.

v. Public opinion near globalization may take some other negative turn due to Covid-19, scaling back the surprisingly strong support for trade and immigration reported in contempo polling. More international travel does accelerate the spread of infectious diseases, and economic stress could boost calls for trade protectionism. While robust public health strategies do not require ongoing barriers to globalization, nationalist politicians volition indicate to the pandemic and failures of international coordination in the response to fortify opposition to globalization.

Customers and employees increasingly expect corporate leaders to take a stand on social issues, making public opinion well-nigh globalization a potential management result. The blending of anti-globalization and anti-capitalist movements farther complicates the part of business organization in the public fence virtually globalization. And leaders of multinational corporations face up the special claiming of public and regime appointment beyond national divides. Focusing on facts, condign more sensitive to inequality, and emphasizing real economical contributions can help to support a healthier globalization debate.

In conclusion, Covid-xix looks like a "bend simply won't break crunch" for globalization. International flows are plummeting, but globalization — and opposition to globalization — will keep to present business opportunities and challenges. Conscientious attending to the drivers of globalization's future tin help companies navigate through and even profit from globalization'southward turbulence. A volatile world of partially connected national economies expands possibilities for global strategy even as it complicates the direction of multinational firms. Now is the time for global corporations to show their value past harnessing the best of the world's capabilities to end the pandemic and bolster the recovery.

[i] FDI forecast pertains to 2020/21.

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