Winning in a Polycentric World: Globalization and the Changing World of Business

Overview

A new chapter in globalization.

In his 2005 book, The World is Flat, Thomas Friedman argued that globalization was "flattening" the world and creating an increasingly level playing field of global competitiveness. In many respects, he was right. Recent decades have undoubtedly seen greater integration of trade, capital, culture and labour across borders. Cross-border investment flows are broadening and deepening, and opportunities and competition are now spread more evenly between developed and emerging markets.

This convergence of market potential between East and West, along with a gradual economic recovery and growing interdependencies between sovereign states and multinationals, will ensure that globalization continues to deepen over the coming years. Our second annual Globalization Index shows that, after a brief pause in 2009, the overall average score for the world's 60 largest economies will increase steadily between 2010 and 2014.

But in some other respects, the "flat world" theory now seems wide of the mark, especially from the vantage point of the post-crisis world. The economic fortunes of developed and developing countries are diverging, with growth rates in China and India nearing double-digit levels, while growth in the US remains tentative, and some parts of Europe are struggling to sustain a recovery. This is prompting different policy responses, from the tightening of monetary policy in some emerging markets to further stimulus and tax measures in the US.

Current account balances are heading off in different directions, with key emerging markets amassing huge surpluses while many developed countries plunge further into deficit. And, despite the emergence of the G-20 as a more inclusive "steering committee" for the global economy, the growing assertiveness of emerging economies and a gradual loss of primacy for the US could herald growing
geopolitical tensions.

Business environments and customer needs also vary considerably from one market to the next. Spending power is an obvious example of this. Although the gap is narrowing, per capita incomes in the world's largest economies range from around US$3,700 in China to US$46,000 in the US. This means that products and services created for one market are unlikely to be suitable for the other.

In essence, the story of business today is one of a tension between the flattening effect of globalization and significant variation across international markets. While the former encourages companies to roll out business and operating models globally, differences between markets demand a more localised approach. The future challenge for business will be to strike the balance between these opposing forces and achieve both scale and local relevance at the same time.