Implications Of A Borderless World – Interview with Pankaj Ghemawat
The mirage of a borderless world tempts businesspeople with false promises of unbounded opportunities for profit. But when such ambitions hit up against the reality of distances and differences, products and services don’t quite hit the target with customers, marketing messages fall flat, local cultures are offended, and large swathes of the public come to see multinational corporations as evil, writes Pankaj Ghemawat, Anselmo Rubiralta Professor of Global Strategy at IESE Business School in Barcelona.
In this PEX Network interview, Ghemawat talks why he believes the world is only semi-globalized, calls for a better understanding of the state of globalization and its implications on jobs and companies, and discusses what he means when he refers to "World 3.0" in his latest book, published in May by Harvard Business Press.
PEX Network: You don't believe that we're as globalized as we may think. Indeed, I think the term you use is semi-globalized. What do you mean by that?
P. Ghemawat: Looking at data on trade, capital flows and immigration levels - and comparing them with people's intuitions - shows that actual levels of globalization are far lower than many of us think. The one piece of data that most people are familiar with is the ratio of international trade to gross domestic product (GDP), which in recent years has generally exceeded 25%. But even this figure has a great deal of double- and triple-counting built into it, correcting for which probably pushes the true export-to-GDP down to 20% or lower. And many other measures of the average extent of globalization are significantly lower:
- People: First-generation immigrants represent only 3% of the world’s population.
- Money: Foreign direct investment (FDI) is about 10% of global fixed capital formation.
- Information: Only about 2% of of phone calls--and less than 20% of the bits transmitted on the Internet--cross national borders.
If the world really were completely globalized or flat, one would expect to see values in the 80-100% range rather than the 0-20% range!
There is also no evidence that a flat world is on the horizon. Immigrant-intensity actually peaked before World War I. FDI-intensity bounces around with merger and acquisition activity, but has never exceeded 20%. And the international and particularly the intercontinental component of Internet traffic is decreasing rather than increasing.
PEX Network: Why does this matter?
P. Ghemawat: Recognition of the incomplete level of cross-border integration matters a great deal from the standpoint of both public and business policy. To start with the former, my major reasons for highlighting 10 to 20 percent globalization are, firstly, to call attention to the potential for additional integration and the gains that can thereby be unlocked, and secondly, to reduce and in some cases reverse fears about globalization that might make some sense if one believed, that globalization was already complete. Note, for instance, that the potential for reducing risks through international diversification depends on integration not being complete. World 3.0 discusses how realistic assessments of current levels of globalization can alleviate and even eliminate fears about job losses, concentration of business in the hands of a few giant companies, and the loss of political independence, to name just a few hot-button issues.
PEX Network: What are the implications for companies?
P. Ghemawat:The mirage of a borderless world tempts businesspeople with false promises of unbounded opportunities for profit. But when such ambitions hit up against the reality of distances and differences, products and services don’t quite hit the target with customers, marketing messages fall flat, local cultures are offended, and large swathes of the public come to see multinational corporations as evil. World 3.0 prompts companies to strive toward the ideal I call the "The Cosmopolitan Corporation." Cosmopolitan Corporations can actually improve their own performance and bolster the overall business climate by understanding, respecting, and leveraging more deeply the differences that persist between and among countries.
PEX Network: Where does the term World 3.0 come from?
P. Ghemawat: Let me begin to explain World 3.0 by referring first of all to the analogy that prompted the title. So if you think about the Web, Web 1.0 was the old model of us looking up information, but without direct interactions with others. Web 2.0 is supposed to be the new model, involving social networking, and mass collaboration without regard to borders, etc. And some people are starting to talk about Web 3.0 as something that improves on Web 2.0 because it uses machine-based learning and natural language processing as a way of adding some context, for instance, to online queries. So the idea behind Web 3.0, is that of not just communication, but communication with context and hopefully more understanding.
By analogy, World 1.0 is nationally-focused and neglects cross-border interactions, while World 2.0 lurches to the opposite extreme and assumes that national borders don't impede cross-border interactions at all, and World 3.0 recognizes that cross-border integration matters but is limited, and that the lion’s share of cross-border activity still happens between countries that share borders, and cultural and historical ties
I should add that the analogy only goes so far: there is a historical progression that underlies my characterization of different worldviews, and very distinct implications for governments, businesses and individuals. So the different worldviews are much wider in their ambitions than different views of the web!
Pankaj Ghemawat’s book WORLD 3.0: Global Prosperity and How to Achieve It was published by Harvard Business Review Press in May.