A new paradigm for our connected world?

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A new paradigm for our connected world?

By Michael Birshan | McKinsey & Company | November 22, 2023

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The world today is deeply interconnected. The cross-border flows of trade, services, capital, people, data, and ideas that have marked the global economy for the past four decades and more—hitherto known collectively as “globalization”—have enriched the world, lifted more than a billion people out of poverty, and brought us to an unprecedented level of interconnectedness. But as CEOs and boards everywhere can now sense, these connections are fraying. This is in large part because of growing rivalries and tensions among nations, but also because of supply chain disruptions and a backlash against globalization in some parts of advanced economies. Yet global cooperation remains essential, especially in the face of challenges like climate change that require nations to work together. A new paradigm for global connection—and probably a new name—is needed.

Global cooperation had seen net-positive growth in the decade preceding 2020 (and the onset of the COVID-19 pandemic). However, given the events of the past several years, cooperation has begun to plateau, and the world finds itself at a potential inflection point. Geopolitical tensions, including the rivalry between China and the United States and the Russian invasion of Ukraine, are a major factor, while renewed war in the Middle East could also lead to broader disruptions in the region, particularly to energy resources, and threaten peace and stability. Other concerns include the resilience of supply chains (which the COVID-19 pandemic tested), considerable discussions about the winners and especially the losers from trade, and migration. Such grievances have contributed to the rise of nationalism in some countries.  Whatever happens to globalization, continued global cooperation will be essential not just for the economy but also beyond it. 

What can business leaders do and where could they place their bets to deliver value for stakeholders and help foster global cooperation in the world? Three starter ideas.

1. Raise the capabilities of leadership teams.  An understanding of global connections and geopolitical realities—and their ramifications for the business—should be a core competency for C-suite executives in every multinational corporation and a regular and systematic focus for the board, with implications for board membership and governance.  
2. Build dynamic strategic options.  The old paradigm of globalization largely depended on businesses taking the lead. Now, governments are playing a greater role, and this is likely to be a core consideration for every multinational going forward. A starting point here will be a careful and clinical diagnosis of each firm’s interconnectedness—where, with whom, how—combined with a rigorous risk assessment of potential points of weakness. That understanding will form the basis for detailed scenario planning, including resilient alternatives for supply chains, and the elaboration of new strategy options that take into account dynamic world events.
3. Think diversifying, not decoupling.  Companies that thoughtfully manage their concentrated exposures are likely to be more resilient—not only able to absorb a supply disruption but also able to bounce back better.

2 key takeaways from the article

1. The world today is deeply interconnected. The cross-border flows of trade, services, capital, people, data, and ideas that have marked the global economy for the past four decades and more—hitherto known collectively as “globalization”—have enriched the world, lifted more than a billion people out of poverty, and brought us to an unprecedented level of interconnectedness. 
2. But as CEOs and boards everywhere can now sense, these connections are fraying. This is in large part because of growing rivalries and tensions among nations, but also because of supply chain disruptions and a backlash against globalization in some parts of advanced economies. Yet global cooperation remains essential, especially in the face of challenges like climate change that require nations to work together. A new paradigm for global connection—and probably a new name—is needed.
3. What can business leaders do? Three starter ideas:  raise the capabilities of leadership teams, build dynamic strategic options, and  think diversifying, not decoupling.

Full Article

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Topics:  Globalization, Trade, Competence