Globalization is the expansion of products, services, money and data across national borders– and the impact of those forces on local life. In recent years, the growth of these exchanges has seemingly slowed down. While global goods trades have flattened and cross-border capital flows have declined since 2008, this does not mean that globalization is on the outs; instead, globalization has reinvented itself in digital form.
Merely 15 years ago, cross-border digital flows were nearly non-existent. Today, digital flows generate a more significant impact on GDP growth than the traditional, physical trade of goods, according to McKinsey Global Institute (MGI) report, Digital globalization: The new era of global flows. The global flow of goods has increased the GDP to more than 10% higher in the past ten years, worth $7.8 trillion in 2014. $2.8 trillion of that is accounted for by data flows alone. Over the next five years, the flow of data is predicted to increase by another nine times.
The digitalization of globalization differs from traditional expectations in nearly all aspects. Rather than labor-intensive, globalization is now knowledge-intensive. The most influential element, however, is that anyone with an internet connection can get involved with digital flows and the global economy, changing the “rules” about how business is done and reduces barriers to entry in the field.
While this shift in globalization will have consequences, such as job loss, digital platforms have opened up the opportunity for small businesses and small-scale entrepreneurs to compete globally and connect directly with customers and suppliers around the world. For example, companies based in developing countries can now look outside of their local markets and connect with global customers, suppliers, financing, and workers that may have been constrained within their physical communities.
Here are some key differences between traditional globalization versus digital globalization:
- Dominant world power is English speaking: 100 years ago it was England; today it is the United States.
- Dominant world power behavior: England was a saver of last resort; the United States is the spender/consumer of last resort.
- Currency: Gold was the primary currency; today there are currencies with floating exchange rates.
- Institutions: There was no global framework for international trade 100 years ago. Today organizations, such as the World Trade Organization and the World Bank, work to facilitate global trade.
- Foreign direct investment: Today, FDI is an essential part of companies doing business in international markets; 100 years ago, it was seen as far less important.