As business owners, you are likely feeling the effects of Covid-19 on globalization. Every advanced economy is in a recession or depression, and all emerging economies are in a recession. This has also caused travel restrictions and quarantines, national lockdowns, high unemployment, and business closures.
Entrepreneurs understand that businesses are closing their doors, and workers are losing their jobs. The lack of communication and travel restrictions have made it difficult to do business. Even though some countries are beginning to relax their travel restrictions, the global economy is still in a recession.
Stalls on Globalization Pre-Covid
As the world grapples with the Covid-19 pandemic, it is worth taking a step back to examine how we got here. For years, globalization has been driven by key geopolitical events, like the gradual opening of China in 1979 and the fall of the Berlin Wall in 1989. However, this process has been slowly reversing in recent years. Many factors, like electing protectionist and anti-internationalist leaders in the United States and the United Kingdom and the rising cost of oil, have led to this. But what you may not know is that this trend was already well underway before the outbreak of Covid-19. To help your business stay afloat during these uncertain times, it is important to understand how globalization has been stalling and what this means for your company’s future.
The first sign that globalization slowed down came in 2016 with the Brexit vote. This sent shockwaves through the business world as it called into question the stability of the European Union. The referendum showed that a significant portion of the population was unhappy with the status quo and wanted to see their country take back control. This sentiment was also seen in the election of Donald Trump in the United States, where he ran on a platform of bringing jobs back to America and renegotiating trade deals. Since taking office, Trump has followed through on his promises, pulling out of various international agreements and imposing tariffs on imported goods.
Effects On Globalization Efforts
Globalization is an important concept for businesses, but the reality of globalization can be difficult to understand. To help you better understand what globalization is and how it affects your business, you should look at four mechanisms that affect globalization efforts: national governments, consumer attitudes, executives’ mindsets, and economics. Before COVID-19 (a new drug), many countries considered adopting a freer trade attitude. However, now they have changed their minds due to COVID-19’s influence on them.
National Governments
The role of national governments in globalization has been traditionally significant because most international agreements are negotiated by states rather than private companies or NGOs, so if one country refuses to sign, then nothing happens, which can stunt the growth of globalization.
However, in recent years, trends toward deregulation and liberalization have weakened the role of national governments. The current pandemic has seen a reversal of this trend as governments have introduced new barriers to trade such as taxes, quotas, and subsidies to protect their domestic industries.
It’s uncertain how Covid-19 will affect globalization, but some national governments may use it as an excuse to pull back from multilateralism and free trade. This could leave them in a difficult position with their voters. Although voters may be against free trade in theory, they support it with their wallets when they shop. The largest retail chain in the United States, Walmart continues to source 70-80 percent of its products from Chinese suppliers. Occasional calls for boycotts have gone nowhere, and this is unlikely to change when people’s sole focus for purchasing is price and value.
Consumer Attitudes
The current pandemic has had a mixed effect on consumer attitudes. On the one hand, people are becoming more aware of the global supply chain and the importance of sourcing products from different countries. On the other hand, there is a growing trend of nationalism and protectionism, leading people to buy local products to support their economy.
Executives’ Mindsets
The mindsets of corporate executives also influence the globalization process. In general, executives have supported globalization because it provides new markets for their products and opportunities to reduce costs by sourcing inputs from low-wage countries.
However, the current pandemic has led to a change in mindset as executives are becoming more risk-averse and focused on short-term goals. This leads them to reassess their globalization strategy and move production closer to home to reduce supply chain disruptions.
Global supply chain trade-off
The globalization of business brought many benefits but also some challenges. The main advantage was increased efficiency as companies could specialize and source inputs from around the world. This led to lower costs and higher quality products for consumers.
However, the global supply chain also created vulnerabilities exposed to the current pandemic. Businesses are now faced with balancing the need for efficiency with the need for resilience.
Anglo-Saxon versus Europe and Asian models
The short-term interests of shareholders typify the Anglo-Saxon model of globalization. This means that companies are often more concerned with making a profit than ensuring the long-term stability of their business.
While this approach can be beneficial in some ways, it also has drawbacks. For example, Anglo-Saxon companies are often less prepared for unexpected events such as pandemics. This is because they typically don’t have the same level of risk management as companies in other parts of the world.
The long-term interests of companies typify the European/Asian model of globalization. This means that businesses in this part of the world are more likely to take a cautious approach to expansion. They are also more likely to have contingency plans for unexpected events. While the European/Asian model may not be as profitable in the short term, it is often more sustainable in the long run.
Final Thoughts
The Covid-19 pandemic has had a significant impact on globalization. The main effect has been to make businesses more risk-averse and focused on the short-term. This has led to a reassessment of globalization strategy, with many companies moving production closer to home to reduce supply chain disruptions.
The long-term effects of the pandemic are still uncertain, but globalization will never be the same again. Businesses will need to adapt their strategies to survive in the new normal.
