World events seem to be driving exceptionally rapid change, as political strife, the changing landscape of international trade, and disruptive technologies might lead one to assume that globalization is in a fragile state. However, according to new research from DHL, the facts tell a very different story.
The fifth edition of the DHL Global Connectedness Index (GCI) reveals that globalization, or the connectedness among nations, reached an all-time high in 2017, as the flows of trade, capital, information and people across borders all intensified for the first time since 2007. The research was based on the most recent complete data, and although it predates the U.S.-China trade war, it comes after the UK vote to leave the European Union, and overall suggests that the economic and social foundation for beneficial globalization is strong.
For small and medium-sized business owners and executives concerned about the future strength of international trade, the GCI presents positive news on two fronts. First, trade is solid and growing, as is the movement of capital and information. Second, the opportunity for future growth is immense, because current levels of globalization, while increasing consistently, are still relatively low. For U.S. companies, the untapped potential of global markets is vast. According to the GCI, at the global level, only 20% of economic output around the world is exported. In addition, roughly 7% of phone call minutes (including calls over the internet) are international, and only 3% of people live outside the countries where they were born.
In other words, the world has a long way to go before it is truly interconnected, and future progress could have real implications for your business. Take a closer look at some of the key findings of the GCI:
Europe is the most connected region in the world
The index shows that the world’s top five most globally connected countries in 2017 were the Netherlands, Singapore, Switzerland, Belgium and the United Arab Emirates. Eight of the top 10 most connected countries are located in Europe, helping make it the world’s most connected region, in particular for trade and people flows. North America, the leader in capital and information flows, ranked second among world regions, followed by the Middle East and North Africa in third place.
Importantly, the report also shows that most countries are more connected to their neighbors than to distant nations, debunking the idea that distance is becoming irrelevant in trade relations. For U.S. companies, this fact suggests that there may be a competitive advantage in trading beyond North America, but it also demonstrates the interconnected nature of the continent.
Southeast Asian nations are exceeding expectations
The five countries where international flows exceed expectations the most are Cambodia, Malaysia, Mozambique, Singapore, and Vietnam. Four of these top five countries are located in Southeast Asia. As we have discussed before in the pages of DHL Expressed, growth in this region means that your company should certainly examine what role it might play in your global strategy. In addition, as tensions with China continue, many U.S. businesses are looking to Vietnam in particular for its manufacturing potential.
Southeast Asian countries benefit from linkages with wider Asian supply chain networks as well as ASEAN policy initiatives promoting economic integration. This is positive news for the region, because deeper global connectedness can help accelerate economic growth.
Emerging economies remain less connected than advanced economies
For small and medium-sized companies in the U.S., emerging economies present an important field for trade, but require careful examination. The GCI shows that there are clear differences between levels of globalization in advanced versus emerging economies. While this fact demonstrates potential for trade growth, it also suggests the presence of certain barriers. Emerging economies trade almost as intensively as advanced economies, but advanced economies are more than three times as deeply integrated into international capital flows, five times for people flows, and almost nine times with respect to information flows.
Commissioned by DHL and authored by Steven A. Altman, Pankaj Ghemawat, and Phillip Bastian of the New York University Stern School of Business and the IESE Business School, the GCI report analyzes over 3 million data points relative to the flow of goods, capital, people and information across 169 countries and territories. These nations jointly account for 99% of the world’s GDP and 97% of its population.
Is your business globally connected and ready to take international trade to the next level in 2019? Let us know on Twitter @DHLUS.