Conventional wisdom says that globalization has stopped. But although global merchandise trade has stabilized and cross-border capital flows have fallen sharply since 2008, globalization is not heading in the opposite direction. Rather, it is entering a new phase defined by the escalating flows of data and information.
21:45
the sound
Bursting digital flows in a deeply interconnected world
Remarkably, digital flows - which were practically non-existent only 15 years ago - now have a greater impact on GDP growth than centuries-old trade in goods, according to a new report by the McKinsey Global Institute (MGI), Digital Globalization: The New Age of Flows. Globalism . Although this shift makes it possible for companies to access international markets with less capital intensive business models, it poses new risks and policy challenges as well.
The world is more connected than ever, but the nature of its connections has changed in a fundamental way. The amount of cross-border bandwidth used has grown 45 times more since 2005. It is expected to increase an additional nine-fold over the next five years as the flow of information, searches, communications, video, transactions and traffic within the company continues to rise. In addition to conveying valuable flows of information and ideas in their own right, the flow of data enables the movement of goods, services, finance, and people. Almost every type of cross-border transaction now has a digital component.
We strive to provide individuals with disabilities equal access to our website. If you would like information about this content, we would be happy to work with you. Please email us at: [email protected]
Trade was once confined largely to advanced economies and their large multinational corporations. Today, a more digital form of globalization has opened the door to developing countries, small businesses, startups, and billions of individuals. Tens of millions of small and medium businesses around the world have turned themselves into exporters by joining e-commerce marketplaces such as Alibaba, Amazon, eBay, Flipkart, and Rakuten. Approximately 12 percent of global merchandise trade is conducted through international e-commerce. Even the smallest companies could be born global: 86% of technology-based startups surveyed by MGI reported some type of activity across borders. Today, even the smallest companies can compete with the largest multinationals.
Would you like to know more about the McKinsey Global Institute?
Visit our Technology and Innovation page
Individuals use global digital platforms to learn, find work, showcase their talents, and build personal networks. About 900 million people have international contacts on social media, and 360 million participate in cross-border e-commerce. Digital platforms for both traditional hiring and freelance assignments have begun to create a more global job market.
In this increasingly digital age of globalization, large companies can manage their international operations in smaller and more efficient ways. Using digital platforms and tools, they can sell in fast-growing markets while keeping virtual teams connected in real time. This is a moment for companies to rethink organizational structures, products, assets, and competitors.
Global flows of all kinds support growth by increasing productivity, and data flows amplify this impact by broadening participation and creating more efficient markets. MGI analysis found that over a decade, all kinds of flows operating together led to a 10.1 percent increase in global GDP over what would have resulted in a world without any cross-border flows. This value was about $ 7.8 trillion in 2014 alone, and data flows account for $ 2.8 trillion of this effect. Both inflows and outflows are important to growth, as they expose economies to ideas, research, technologies, talents, and best practices from around the world.
Although great value is at stake, not all countries are making the most of this potential. The latest MGI Connectivity Index - which ranks 139 countries in inflows and outflows of goods, services, finance, people and data - finds large gaps between a handful of leading countries and the rest of the world. Singapore leads the last standings, followed by the Netherlands, the United States and Germany. China has grown more connected, reaching seventh place, but advanced economies in general remain more connected than developing countries. In fact, each type of flow is concentrated between a small group of highly interconnected countries.
The lagging countries are closing the gaps with leaders at a very slow pace, and their limited engagement has had a real cost to the global economy. If the rest of the world increased its participation in global flows at the same rate as the top quarter over the past decade, then global GDP would be $ 10 trillion, or 13 percent, higher today. For countries that have been slow to participate, the chances of catching up are too great to be ignored.
About the authors)
James Manica, Jack Pugin, and Jonathan Watzel are directors of the McKinsey Global Institute, with Susan Lund as the director. Kalin Staminov and Druff Dhingra are consultants in McKinsey's New York office.
Talk to us
Related articles
Report - McKinsey Global Institute
Digital America: The Story and Norms of Owners
Report - McKinsey Global Institute
Unleash the potential of the Internet of Things
Excerpt from the book - McKinsey Global Institute
The four global powers are breaking in all directions
