sensible, sustainable business matters

You can poke holes in anything if you pick the right stats. I guess that's the great thing about statistics, isn't it, that it can be used so elegantly and persuasively in support or attack of an idea. For example many believe that lowering trade barriers and increasing world connectivity (both of which are patently true - it really has happened, if not yet to the "nth" degree) has resulted in a more level playing field for both individuals (that's you and me) and businesses (big and small) to compete on a global scale. On the face of it that's surely true.

Indeed there are many, many examples of small "local" businesses operating on the web and staking a global market share which would otherwise take major investment in distribution effort. Think of the marketing, sales reps, call centres, support staff, wholesalers and distributors required for a small business to expand beyond its local area. Now think of all the small ebay businesses that have prospered globally, the small shops that garner 10, 20 or 30% of their trade now from a global reach, the companies that leverage Amazon's computer services and back end distribution services. It doesn't take much looking to see new forms of distribution and profit-taking that takes advantage both of lower trade barriers and the near-frictionlessness of global Internet commerce.

Well maybe that's all wrong, or out of proportion, anyway. Apparently Harvard Business School professor Pankaj Ghemawat calls that vision of the early 21st century “globaloney” and has written a book about it. Now you could say right up front that he is saying "it's not so" when he's (a) leveraging the Internet to promote and sell his book and (b) taking advantage of the breakdown of international book distribution cartels by promoting and selling his book globally. But I'm being glib, aren't I?

He has been quoted as saying that international trade today represents less than 10% of most economies. He's criticising a popular "25%" figure but here in Australia I have seen figures for exports alone ranging from 12% in the 1950s to 22% in 1996, and back to 18% of Australian GDP in 2006. Which would indeed support around 25%, if you add in imports, surely? Maybe he's working on some global average when he gets the 10% figure? Even so, surely trade varies by country and fluctuates with exchange rates and commodity prices, so a net exporter of commodities (things like oil, iron ore and coal, notoriously hard to shift over the Internet) will need to look very closely at the figures and do some breakdowns by type of transaction to really draw conclusions that stick. I'm not sure even the OECD has done the sort of work needed to truly even out the stats globally, but probably they have (I'll look it up when I get a chance).

In any case his stance is that most economic activity happens locally, and you can hardly argue with that. Most of us shop at local supermarkets, buy most of our day to day goods and services locally and if we buy a car or build a house - well, there's a global connection with the car but for most of us it involves local trade. Indeed the highest price is paid by the end user and the global component is diminished substantially by margins added along the way.

So I guess I agree with Pankaj Ghemawat, in that local still rules overall. But that doesn't mean that the world hasn't changed, only that some things are more resistant to change than others. It's still hard to beat shopping at a local store where you can examine and receive the goods (especially food and clothing) immediately. However as real-time Internet commerce improves on static images and provides a more immersive shopping experience I'm sure it will garner a bigger share of these 'resistant' products.

And trade barriers have lifted and I can buy imported cars far more easily and cheaply than ever before. I know that's true. Ghemawat also writes of immigration rates falling as some proof that we aren't globalising like we think we are, whereas I know that that my personal contact with the greater world community is at an all-time high. Email, online chat and Web 2.0 has brought us all closer, surely? As well, tourism is at an all-time high. People may not be moving to another country to live, but maybe moving to another country is not so necessary now? Perhaps the drivers of population movement are different in the 21st century? Which is also in agreement with Ghemawat's view, but what actually is he saying by this? That because (for example) Europe hasn't suffered another World War recently and has been at relative peace and prosperity for some time we aren't globalising like we think we are? Is Ghemawat comparing the immigration stats for one period of history with another and drawing weird conclusions? Maybe.

To my mind Pankaj Ghemawat is stating the obvious and making some rather unprofound motherhood statements. Yes, it's true, people are not driven to relocate from country to country like they were. However tourism is up. Yes, it's true, local transactions beat global ones by volume and value. But the types and numbers of transactions made globally have certainly changed and bear some examination. And trade barriers are down and the patterns of world trade have changed.

If that's not enough change to mean we've 'globalised' then that's fine. It just means that what we don't actually have is clear and agreed definition of 'globalisation'. The BNET story that sparked my rave is here by the way.

Labels: Ghemawat, globalisation, world trade