The Backlash to Going Global

As economic uncertainty and accusations of protectionism rise, how should companies approach their expansion into new countries and industries?

The following dimensions will be addressed:

• Likelihood for crisis to get worse
• Action required by companies
• Expected winners and losers

The World Economic Forum hosted this debate in partnership with CNBC.

Key Points

• Leadership is needed to avoid a worsening of the crisis.
• Companies need to continue to embrace globalization.
• The winners will be represented by those who change with the times, using innovation and technology to continually revolutionize their markets.

Synopsis

The session addressed three questions:

1.  What is the potential for the global economic crisis to get worse?
2.  If it does get worse, what should companies do?
3.  Winners and losers: what kind of company is going to win in this era of uncertainty?

The potential for the global economic crisis to get worse was discussed from two angles. One focus was on the measures that would avoid a worsening of the crisis, including stronger and better leadership, and tackling problems now as opposed to delaying and avoiding protectionist policies.

The second was that there is more of a backlash for countries than there is for companies. Indeed, multinationals have become even more multinational as a response to the global economic shift. The movement of resources is hard to stop and, therefore, while globalization continues for companies, there is certainly a backlash for countries as more and more countries are considering protectionist policies. This is particularly true for the non-tradable sector and for trade that is not covered by the rules of the World Trade Organization (such as government procurement).

It is important for companies to do a few things. First, a company must not compare itself to companies in the local economy; it is important to compare its growth rate to the fastest growing companies in the industry globally. Secondly, a company needs to invest in and participate in global growth. Third, the leadership of a company has to decide where to be located: it is important for companies to consider being headquartered in economies or countries that are growing.

Decoupling is an illusion and all countries and all sectors are in this crisis together. And then, even if globalization continues for companies, they cannot survive if governments do not handle the backlash properly. Policy-makers must focus on doing what is right for the global economy, and thereafter figure out how to make it work politically domestically. Thus, it is inexcusable for policy-makers to focus on the short term.

On the question of winners and losers, there was agreement that certain features would be common among the companies marked as winnes in this period. These companies would explore new markets and harness new technologies; they would be less pyramid-structured organizations, more networked and more flexible; they would be more centralized in their ability to channel information to the top, but at the same time more localized in the decentralization of decision-making. They would embody balanced growth, whereby they invest in and pay attention to the people and the markets that provide their growth. They would scan the globe for innovations, as opposed to scanning only in their own countries. And their leadership would reflect their growth markets.

There is still much work to do to reform international institutions where leadership and global governance institutions are far from providing all people with a voice. The winners – both countries and companies – will have to retain open minds. They will have to understand the trends globally to position themselves strategically. Concretely, leaders are expected to face the challenges by seeking global solutions to the debt crisis, leading reforms to secure growth, supporting reforms to stabilize the financial sector, encouraging trade and tackling climate change. And, finally, the electorate should exercise patience, as none of these issues can be resolved in the short term.

Other Key Takeaways

Companies are being challenged to change their thinking as they realize that the delta that represents their growth is increasingly accounted for by non-traditional markets.

It is no longer possible for government policy to follow the old model of focusing on growth in the tradable sector and then, once stable, turning to the non-tradable sector; today, this strategy has shown that there would be problems already awaiting policy-makers. It is clear that governments need to bolster the non-tradable sector in order to promote trade in the tradable sector.

Disclosures

This summary was written by ADB. The views expressed are those of certain participants in the discussion and do not necessarily reflect the views of all participants or of the World Economic Forum.

Copyright 2011 World Economic Forum

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