Digital globalization: The new era of global flows
Soaring
flows of data and information now generate more economic value than the global
goods trade.
Conventional
wisdom says that globalization has stalled. But
although the global goods trade has flattened and cross-border capital flows
have declined sharply since 2008, globalization is not heading into reverse.
Rather, it is entering a new phase defined by soaring flows of data and
information.
Exploding digital flows in a deeply connected world
Remarkably, digital flows—which were
practically nonexistent just 15 years ago—now exert a larger impact on GDP
growth than the centuries-old trade in goods, according to a new McKinsey
Global Institute (MGI) report, Digital globalization: The new era of
global flows. And although this shift makes it possible for companies to
reach international markets with less capital-intensive business models, it
poses new risks and policy challenges as well.
The world is more connected than ever, but
the nature of its connections has changed in a fundamental way. The amount of
cross-border bandwidth that is used has grown 45 times larger since 2005. It is
projected to increase by an additional nine times over the next five years as
flows of information, searches, communication, video, transactions, and
intracompany traffic continue to surge. In addition to transmitting valuable
streams of information and ideas in their own right, data flows enable the
movement of goods, services, finance, and people. Virtually every type of
cross-border transaction now has a digital component.
Trade was once largely confined to
advanced economies and their large multinational companies. Today, a more
digital form of globalization has opened the door to developing countries, to
small companies and start-ups, and to billions of individuals. Tens of millions
of small and midsize enterprises worldwide have turned themselves into
exporters by joining e-commerce marketplaces such as Alibaba, Amazon, eBay,
Flipkart, and Rakuten. Approximately 12 percent of the global goods trade is
conducted via international e-commerce. Even the smallest enterprises can be
born global: 86 percent of tech-based start-ups surveyed by MGI report some
type of cross-border activity. Today, even the smallest firms can compete with
the largest multinationals.
Individuals are using global digital
platforms to learn, find work, showcase their talent, and build personal
networks. Some 900 million people have international connections on social
media, and 360 million take part in cross-border e-commerce. Digital platforms
for both traditional employment and freelance assignments are beginning to
create a more global labor market.
In this increasingly digital era of
globalization, large companies can manage their international operations in a
leaner, more efficient ways. Using digital platforms and tools, they can sell
in fast-growing markets while keeping virtual teams connected in real time.
This is a moment for companies to rethink their organizational structures,
products, assets, and competitors.
Global flows of all types support growth
by raising productivity, and data flows are amplifying this effect by
broadening participation and creating more efficient markets. MGI’s analysis
finds that over a decade, all types of flows acting together have raised world
GDP by 10.1 percent over what would have resulted in a world without any
cross-border flows. This value amounted to some $7.8 trillion in 2014 alone,
and data flows account for $2.8 trillion of this impact. Both inflows and
outflows matter for growth, as they expose economies to ideas, research,
technologies, talent, and best practices from around the world.
Although there is substantial value at
stake, not all countries are making the most of this potential. The latest MGI
Connectedness Index—which ranks 139 countries on inflows and outflows of goods,
services, finance, people, and data—finds large gaps between a handful of
leading countries and the rest of the world. Singapore tops the latest
rankings, followed by the Netherlands, the United States, and Germany. China
has grown more connected, reaching number seven, but advanced economies in
general remain more connected than developing countries. In fact, each type of
flow is concentrated among a small set of highly connected countries.
Lagging countries are closing the gaps
with the leaders at a very slow pace, and their limited participation has had a
real cost to the world economy. If the rest of the world had increased its
participation in global flows at the same rate as the top quartile over the
past decade, world GDP would be $10 trillion, or 13 percent, higher today. For
countries that have been slow to participate, the opportunities for catch-up
growth are too substantial to ignore.
By James Manyika, Susan Lund, Jacques Bughin, Jonathan Woetzel, Kalin Stamenov, and Dhruv Dhingra
https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/digital-globalization-the-new-era-of-global-flows
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