7. Seek strong flows in both directions: inward and outward. Mexico’s problem of insufficient merchandise export breadth does not carry over to its merchandise imports, nearly half of which come from outside North America. India’s recent rise in the connectedness rankings was powered by outward FDI, masking the fact that it still ranks in the bottom 20 percent of countries in the depth of its inward foreign direct investment.
8. Recognize the importance of imports. Don’t mistake an export-only development strategy for a true global connectedness strategy. Imports of capital goods—machinery, equipment, and infrastructure-related products—boost productivity by facilitating the adoption of new technologies. New evidence suggests that imports might accelerate productivity growth faster than exports. Importing is also usually the first step in the internationalization of small and medium-sized businesses that later go on to export.
9. Recognize the long-term shift in world demand. It can take years, if not generations, to build robust international connections; they are often based on indigenous factors like the proportion of a country’s population that speaks a particular foreign language. For this reason, the shift in the world’s economic center of gravity is vitally important to every country. It has already shifted quite a bit—from the mid-Atlantic in 1980 to around Izmir, Turkey, by 2008; forecasts suggest that it will move to the China–India border by 2050. To participate in the world’s fastest-growing markets, most Western countries will need to increase their breadth by dealing more effectively with cross-country differences and distances.
10. Resist protectionism. Finally, the case for global connectedness needs to be articulated much more clearly—and loudly. Too often, business and political leaders, even those who know better, find it more comfortable to follow public opinion, which is increasingly protectionist in many countries, than to argue forcefully for more integration. To provide just one illustration of why it is so important to correct globaloney, respondents to a recent public survey in France estimated that immigrants make up 24 percent of the country’s population. The correct figure is only 10 percent. Would anti-immigrant rhetoric have been so prominent in the 2012 French elections if the public had a more accurate read on the present extent of globalization?
As the U.S. journalist Walter Lippmann wrote in 1922, “The world that we have to deal with politically is out of reach, out of sight, out of mind. It has to be explored, reported, and imagined.” The opportunities for gains from more global connectedness are not obvious. Most of us need to adjust our world view to see the headroom for gains, and we need to reach out first to form new connections before specific opportunities come into view. We can still benefit enormously from further expansion of the circles of human cooperation, especially when it is done in a deliberate way, capturing tangible gains while avoiding potential pitfalls.
Reprint No. 00139
- Pankaj Ghemawat is the Rubiralta Professor of Global Strategy at IESE Business School in Barcelona. His books include World 3.0: Global Prosperity and How to Achieve It (Harvard Business Review Press, 2011) and Redefining Global Strategy: Crossing Borders in a World Where Differences Still Matter (Harvard Business School Press, 2007).
- Steven A. Altman is a senior research associate and lecturer at IESE Business School and a former senior associate at Booz & Company.