Globalization and new opportunities for growth

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Tech drivers

A recent research report based on Ernst & Young’s 2012 Globalization Index and Survey reveals that the changing face of globalization will present new challenges for companies in the coming years. Malaysia ranked 26th out of 60 nations, just behind Norway, Australia and the US.

While Malaysia was not highlighted as among the three most promising markets after the BRIC countries, likely because of its small market size, it was mentioned as a promising location.

Not surprisingly, the report reveals a business landscape of uncertainty and ambiguity, set against a backdrop of slowing cross-border integration. In this uncertain world, companies will need to look for growth in new ways and from new places.

Interesting enough, many executives interviewed see advances in technology as a main driver for globalization (see table). In response to this, they acknowledge that they have to transform their companies into “learning organizations” to better manage this change. This is where the power of technology really comes into play. Applications such as business intelligence and analytics, mobility solutions, and social networking allow businesses access to a wealth of data that they can feed into future strategic planning and use to become lean and flexible organizations that are well positioned to thrive in the global economy of the future. The executives feel that an organization with a mindset of continuous learning will be best equipped to manage successfully in a turbulent and ever-shifting business landscape.

The search for growth in new places means that it is critical for businesses to look for alternatives. Increasingly, non-BRIC rapid-growth markets are emerging as hot spots for global business. These markets are more globally integrated than the BRICs on a range of trade, investment, cultural and technological criteria, and this is set to continue through 2016, as E&Y’s Index data shows.

Many of these markets also show consistently high economic growth close to that of the leading BRICs. For example, Turkey, Mexico and Indonesia closely shadow China and India in terms of GDP growth from 2000 through 2015. Other promising locations include Peru, Colombia, Venezuela, Malaysia and Vietnam, as well as several countries and regions in Africa that are shaping up to be among the most dynamic parts of the world for investment.

 

E&Y also highlights the trends and issues that organizations must consider:

 

Globalization continues, but it’s different this time around

Although globalization — the cross-border integration of business — will continue in the years ahead, its pace will slow, with the financial crisis and subsequent recessions providing a tipping point. Trade, technology, culture, labor and capital will integrate at different rates across the 60 countries measured in the Index.

 

Companies must make “big bets” on markets they may not have considered before

To stimulate the global economy, head off competitors and ride the next wave of opportunities, businesses will need to bet on markets or regions of the world that may 2not be obvious choices today. This may mean considering not only rapid-growth markets outside Brazil, Russia, India and China (BRIC) but also developed markets, as well as creating nuanced and customized strategies for different markets, sectors, areas, regions and countries. Taking “big bets” on carefully chosen markets, categories or technologies — those that match a business’s existing competencies — offers the best chance of securing a sustainable competitive advantage.

 

The BRICs are still reliable options — for now …

For many multinational companies, Brazil, Russia, India and China were the big bets of the past decade. And there’s no question that these powerhouses will continue to be major players in the world economy. But as their growth slows over the next few years and their operating environments become more challenging, companies must look for  additional engines of growth.

 

… But the momentum is shifting to other hot spots

Increasingly, non-BRIC rapid-growth markets are emerging as attractive locations for global business. Despite their risks, these markets are more globally integrated than the BRICs on a range of trade, investment, cultural and technological criteria, and in the past three years have improved markedly in terms of ease of doing business, infrastructure, government policies and labor productivity. In particular, several countries and regions in Africa are shaping up to be among the most dynamic parts of the world for investment.

 

Ernst & Young’s Globalization Index was developed in 2009 by the Economist Intelligence Unit for E&Y to measure the 60 largest countries/territories by GDP according to their degree of globalization. The Index is based on a comprehensive understanding of the underlying drivers for globalization across five main pillars: openness to trade, capital flows, exchange of technology and ideas, labor movements, and cultural integration. With these key categories, the Index incorporates a broad range of sub-indicators for 60 countries and spans a 20-year time horizon from 1995 to 2016.

As globalization evolves, in 2012 E&Y introduced revisions to the Globalization Index scoring system and included several new sub-indicators to better reflect the state of play in the global economy, technology and markets.

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