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 / Spring 2013 / Issue 70(originally published by Booz & Company)


Strategies for Global Connectedness

There are signs that the Dutch are interested in more connectedness. In the September 2012 national parliament elections, the two winning parties (Liberal and Labour) were pro–European Union. Nonetheless, there is still some major opposition to connectedness in the Netherlands. This is represented by the Socialist party on the left, and on the right by Geert Wilders’s nationalist Party for Freedom, which tied for third place.

India: Distant Markets

India is much less connected than the Netherlands, ranking 62nd overall and 119th in depth. But it ranks 20th in breadth. The low depth score is not as alarming as it might seem; large countries, with vast internal markets, tend to have lower depth scores, and countries with lower per capita income score lower in both depth and breadth.

India’s high breadth score, on the other hand, is cause for concern. It derives, in part, from the country’s troubled relationships with its closest geographical neighbors. For example, Indian trade with Pakistan, according to one study, is only 2 to 4 percent of what it might be under friendlier circumstances. The rest of India’s neighbors are relatively small and poor, presenting limited opportunities compared with, for example, the benefits China realized by tying into Japanese and Korean production networks. It is neither exaggerated nor xenophobic to say that one of India’s key structural problems is that it is located in a difficult neighborhood. Therefore, although India should lead regional integration with the long-term aim of reducing its breadth, it will be forced to focus on more distant markets than would normally be optimal.

China is the one large close neighbor with which India can trade; indeed, China recently overtook the U.S. as India’s top trading partner. But caution is in order. India runs a huge trade deficit with China and exports mainly primary products there: Copper and iron ore account for nearly one-half of the total. Given the limited progress the U.S. has made in rebalancing its trade with China, it’s hard to see what India might accomplish in the near to medium term. And concerns about India’s trade with China are reinforced by historical tensions and the inevitable competition between rising powers.

India has a lot to gain, however, from increasing trade within its own borders. Trade among Indian states represents an underexploited opportunity; sales taxes favoring in-state producers are just one example of the internal trade barriers that could profitably be reduced. Another point of high leverage would be to invest in improving India’s notoriously bad domestic infrastructure. Tackling corruption must also be a priority. There is striking evidence in the 2012 DHL Global Connectedness Index that improving the domestic business environment not only helps domestic businesses, but boosts international connectedness as well, because foreigners tend to be sensitive to such domestic problems.

Finally, Indian policymakers and business executives should take advantage of the country’s historical bridges to the rest of the world, particularly its people’s English-language proficiency. More than 80 percent of India’s IT services exports, for instance, are to English-speaking countries. The Indian diaspora and the Commonwealth can also be tapped, along with “South–South” connections that leverage common interests between Indian enterprises and their counterparts in Southeast Asia, Central Asia, and Africa.


Mexico: Beyond the U.S.

Mexico ranks even lower than India (84th overall, 93rd in depth, and 68th in breadth), but unlike India, Mexico has too little breadth. Between 2007 and 2011 (a time span chosen to smooth out the impact of the financial crisis), 81 percent of Mexico’s merchandise exports went to the United States. It’s natural that the U.S. should be Mexico’s top export partner, but models indicate that its share ought to be lower. That doesn’t mean that Mexico should decrease its exports to the U.S.; instead, the country needs to increase its exports to the rest of the world.

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