Globalization

Global Markets
“Globalization constitutes integration of National economies into the
International economy through trade, direct foreign investment (by
corporations and multinationals), short-term capital flows, international
flows of workers and humanity generally, and flows of technology”
Jagdish Bhagwati, In Defence of Globalization (Oxford, 2006), p. 3.

“[Globalization] is a reality that now affects every part of the globe and
every person on it, even though in widely differing local contexts.”.

Bruce Mazlish, “Comparing Global History to World History,” Journal of Interdisciplinary History 28/3 (1998),
p. 387.

“A progressive increase in the scale of social processes from a local or

regional to a world level”

C.A. Bayly, ‘“Archaic” and A-Modern Globalization in the Eurasian and African Arena, c. 1750-1850',
in A.G. Hopkins, ed., Globalization in World History (2002), pp. 48-9.
 What Is Globalization?
• Globalization - the shift toward a more
integrated and interdependent world economy
• The world is moving away from self-contained
national economies toward an interdependent,
integrated global economic system
• The process of integration and convergence of
economic, financial, cultural and political
systems across the world
•Economic Globalization

The increasing integration of national economic systems through

growth in international trade, investment and capital flows.

•Financial Globalization

The liberalization of capital movements and deregulations, especially

of financial services that led to a spurt in cross-border capital flows.

• Cultural Globalization

Convergence of cultures across the world.

• Political Globalization

Convergence of political systems and processes around the world.

 Parts Place
Semi cond uctors Germany & Taiwan
Memo ry Korea & Japan
Disp lay Korea
Circuit Taiwan
Chips Euro pe
Rare metals Africa, Asia
Glass Kentuky
• Globalization of competition
• Globalization of technology
• Globalization of corporations and industries
When did Globalization Begin?
Phase 1: “Humanising” the globe (first 190,000 years)
• Consumption moves to production.
• Trade is rare.

Phase 2: “Localising” the world economy (12,000 BCE - 1820)

• Bundling of production and consumption
• Agriculture allows people to move production to consumers.
• Trade is rare but regular.

Phase 3: The Old Globalisation (1820 - 1990)

• Production & consumption separate geographically.
• Trade increases massively.

Phase 4: The New Globalisation (1990 - Now)

• Factories separate geographically (offshoring).
• Trade and international knowledge flows increase massively.
1. Pre-1500

Andre Gunder Frank in his well known Re-

Orient (1998) argued that globalization was
there well before 1500. This is because:

- Single world economy before 1500

- trade (Silk roads and later European trade in
Asia)
-Centrality of China
2. When did Globalisation Begin?
In the Early 19th Century: Bayly

Type of time features

globalisation
A. PROTO 1500-1750 - European exploration
- Role of silver
- importance of slavery

B. MODERN 1750-1900 - Revolutions (political and

economic)
- colonialisms and imperialism
- free trade
C. PRESENT 1950- - Business and corporations
- Personal communication
C.A. Bayly, ‘“Archaic” and “Modern “Globalization in the Eurasian and African Arena, c. 1750-1850', in
A.G. Hopkins, ed., Globalization in World History (2002) [HY 100.G5]
2. When did Globalisation Begin? Phases
1914-1945: De-globalisation?

-moribund empires, and the confrontation

between the US and the Soviet Union

The interwar period saw:

-economic protectionism and autarky

-economic and monetary instability

-stagnation of the economies

- lack of innovation
 2. When did Globalisation Begin? Phases
1945-2013: Contemporary Globalisation

The key force of globalization after 1945 was

the action of institutions and governments

And of markets after 1973:

- Liberal economic policies and regimes

- Growth of world trade and financial
transactions
-Advances in Information Technologies
and easier access to information
- Performance of services remotely
-New business organizations
- A high degree of convergence in
consumer culture
 What Is Driving Globalization?
• Economic Liberalization
– Declining barriers – free trade of G&S
– Average tariff is now just 4%
– FDI – India/World
• Technological breakthroughs
– Microprocessors, telecommunications
– Internet, 365*24/7 markets
• Multilateral institutions
• International economic integrations
 Emerging trends in demographics
of the global economy
• The changing world output and world trade
picture
• The changing foreign direct investment picture
• The changing nature of the multinational
enterprise
• The changing world order
2. When did Globalisation Begin? Phases
7. Post 2014: A second de-globalisation?

Is it possible that we are going towards de-

globalisation once again?

- the 2008 financial crisis

- the US is overstretched

- great power rivalry (US-China) and a

sclerosis of Europe

- global alliances not working; and

rogue regimes

- revolutionary terrorism
Niall Ferguson, “Sinking Globalization,” Foreign Affairs, 84/2 (2005), pp. 64-77.
 The Myth of Globalization
Alan Rugman (Prof IB, Kelly school of Business & Sr. fellow, Templeton, Oxford

• Three dominant “clusters” — the European Union, Japan and

North America

• Templeton Global Performance Index (a measure of the

profitability of a company's foreign operations)
– 1 of 49 world’s largest MNE truly global
• 35% home base EU, 31.3% in Asia and 26% in North America
– Only five other MNEs have more than 1/5th of their sales in a region
beyond their home location
Global powers of Retailing 2018 - Deloitte
• 2017: 82 out of 250 from Europe
• Nearly 41 % combined revenue from foreign operations. Almost 85 percent of the
region’s companies operated internationally
• 3rd out of 250 from NA
• Retail operations spanned 9 countries on average, only 13.6 percent of the region’s
FY2016 combined retail revenue came from foreign operations
• 1/4th from Asia Pacific
• On average, they
– operated in just 3.6 countries, compared with 10.0 countries for the
entire Top 250 group.
– Nearly half of the companies operated only within their own borders.
– About 90 percent of the composite revenue for the region’s 63 retailers
revenue is domestic
 Questions to ponder…

• If current trends continue, China may emerge

as the world’s largest economy by 2020.
Discuss the possible implications for such a
development for (a) the world trading system;
(b) the world monetary system; (c) the
business strategy of today’s European and
U.S.-based global corporations; and (d) global
commodity prices.
 GEOPOLITICS
• Study of power relationships – past, present and future
– Changes in polity due to geographical factors
• Branch that considers strategic value of land, sea area in
the context of national economic and military power and
ambitions
• Geopolitical history undergone spatiotemporal analysis
– political history as the causation of geographical
factors
• Alfred Thayer Mahan: 1890: Conflict between land and
sea power – the influence of sea power upon history
• 1904 essay, “The Geographical Pivot of
History.” - Sir Halford John Mackinder
• Heartland=Eastern Europe
1. Pivot Area=Heartland
2. World Island=Europe, Asia and Africa
3. Periphery=Rest of the world (including the
Americas)
• Eastern Europe holds some of the greatest
resources in the world in terms of raw
materials and agriculture – the basic
ingredients you need to control a large
military.
• A large military would make it easy to
gradually take over the rest of the world.
• Mackinder thought that after gaining control
of the Heartland and all its resources, one
could easily gain the World Island by
controlling the coasts and warm water ports,
or the key areas that made international
trade possible
• USSR tried this during the Cold War.
 Modified strategic heartland - 1919
• Democratic ideals and reality – modified the pivot
area to heartland
• Much larger and included Volga basin, Steppes,
Himalayas, Baltic sea, Black sea, Asia minor etc
• Rise of USSR – South-Western Ukrainian steppes
as the only gateway to heartland.
– Who rules East Europe commands the heartland
– Who rules heartland commands world island
– Who rules world island commands the world
• Modified -1943 – Midland basin
– Western Europe (France, Britan, Beligum and NA)
• Who controls the rimland rules Eurasia; Who
rules Eurasia controls the destinies of the world;”
• The Geography of Peace” in 1944.
• Rimland, a combination of land and sea powers,
is destined to manage the “control of the world”
or “balance of power of the world” in the current
strategic connotation.
• littoral states or coastal regions surrounding
Eurasia stretching between North West Europe to
coastal China.
• The Rimland has three key sectors, the European
littoral States, the Middle East and the Asiatic
Monsoon lands which include India and China.
• In addition to natural resources and topography,
the Rimland had the advantage of connectivity to
both the major land and sea transit routes.
• Spykman’s conflict is two dimensional, first,
between Heartland and sea power, and the second,
between the different power centres of the
Rimland with or without allies or friends. The
interpretation of the second postulation is all
about the shifting balance of power, the rise of
multilateralism, and greater fluidity in strategic
maneuvering within the key power centres of the
Rimland, which seems close to the current
geopolitical scenario.
• 40% of world resources – Oil & continental shelf resources
• Countries having huge populations – China, India
• Era of colonization
• Formation of Indian ocean rim (Nz & Aus) – BIMSTEC, IOR-ARC,
ASEAN
• USA intervention in the middle east/west Asia
• After 1950 all major wars fought in the rimland
– North-South Korea
– Sino-India
– Arab-Israel war
– Indo-Pak
– Gulf crisis
– Afghanistan, Iran-Iraq
• Geography is not only about the description of the earth’s
surface,
• Contemporary geography is also about region, interactions, and
movements.
• It deals with the spatial distributions and connections of various
socio-economic phenomena.
• Connectivity, natural or man-made, has always been the
cornerstone of geography, beside the politico-economic benefits
it is also linked with the changed behaviour of the states.
• Whether it is India Middle East Europe Economic Corridor or
China’s Belt and Road initiative, carries the potential to at least
alter the regional balance of power.
• Natural resources are important, but in a globalized world
– movement of resources is equally important,
– and that can only be assured by the two key elements of geography-
connectivity and technology.
Modern Geopolitics: A Race Through Chaos to Stability
• The age of disruption is here, countries that thrive on disorder may do well in
the short term, while nations who invest in stability may well define the
future of globalisation and, indeed, the new world order
• Readjustment: as countries are grappling with the impact of the rise of new
regional and global actors.
– Easing control of USA – global institutions - Pax Sinica’ – Europe’s existential
crisis
– Rise of Asian century
– China – Russia?
• Restructuring: 2008 crisis, COVID-19 exposed fragility of economic
interdependence
– Growth of hyper nationalism, populist policies access globalization and
multilateralism as arrangements that impinge sovereignty
– Gated globalization – that is less free and less open than before
– Economic policies are no longer solely dictated by economic principles; they are
now guided by strategic considerations, political trust, climate, health and
technological threats
– Smaller groupings to forge fluid, issue-specific partnerships, which can expedite
cooperation between like-minded countries.
• Amid this churn, geopolitics has been reoriented to accommodate new
actors, and emerging factors and considerations.
• Modern geopolitics is increasingly influenced by geoeconomics and
geo-technology.
• War by Other Means, talk of the systemic use of economic instruments
to achieve geopolitical objectives—a form of statecraft that was present
during the Marshall plan, and is present today as well through
– China’s ‘chequebook diplomacy’ and more generally the BRI.
• Medium is the message – technology is the future of politics
– US leader – now China investing heavily AI, Quantum, Biotech
• ‘GeoTech’ opens a new realm of interstate competition, where concerns
of national security and strategic autonomy implicate technology
choices and arrangements.
• In an increasingly digital world, the capture of data—and not territory—
and the compromise of critical information infrastructure—and not state
borders—are the new security challenges for nations.
• As an individual’s attention, eyeballs and personal data become the
coveted political prize, will the next domain of conflict be the human
form and how we will protect it?
 New actors, New geographies
• 2008, COVID hearkened return of nation states, but
communities across borders represent a robust challenge to this
primary unit of Westphalian sovereignty.
• The concentration of economic resources and power in global
technology companies, from Twitter to Tencent, has driven
home the fact that states are no longer the primary actors in the
world.
• Technology giants are now the arbiters of economic and
political choices and are challenging the writ of the older
political systems.
• The emergence of new geographies, such as the Indo-Pacific,
Eurasia and the Arctic—in which all regional and global powers
have stakes—demand the genesis of new norms, institutions and
partnerships.
 3 new geographical orders
• For the past seven decades, the world has been molded by a strong,
transatlantic relationship with the US and EU underwriting the terms of peace,
stability and economic prosperity.
• John Ikenberry described the liberal world order as a “hub and spoke” model
of governance,
– West at its centre, but now the peripheries of the system are developing wheels and
engines of their own.

• Rise of Asia

• Proliferating transnational relationships and new flows of finance, trade,

technology, information, energy and labour have created three new strategic
geographies which are already escaping the shadow of transatlantic
arrangements
• They essentially represent the collision of erstwhile political constructs – and
their management requires new ideas, nimble institutions and fluid
partnerships.
The Indo-Pacific
• The union of the Indian and Pacific Oceans.
Popularly defined as the Indo-Pacific,
• It is a construct encouraged by the rise of China
but defined in equal measure by regional actors
responding to Beijing’s proposition.
– Not just Eastern Indian Ocean
• From Nantucket to Nairobi, conversations on
security, development and trade in this region
will now include actors from three continents.
Eurasia:
• conflation of Europe and Asia into one coherent strategic system:
Eurasia.
• This is an old idea, steeped in history, but it has a new vocabulary.
• The interaction of markets and communities from these once
separated geographies is creating a new super-continental-sized
interdependence.
• Yet this interdependence is not without friction: China’s shadow
looms large over Europe and its promise to underwrite the
continent’s prosperity has proved too difficult to resist.
• Moscow, meanwhile, is exhibiting a new zeal to reclaim its place as
the archetypical Eurasian player and members of NATO continue to
bicker over their future role in the region.
• As these geopolitical tectonic plates both clash and merge, it is clear
that East and West will set new terms of engagement.
Arctic
• Born as an unintended consequence of climate change, this
geography will, for the first time, merge the politics of the Atlantic
and the Pacific, even as it stimulates a clash between the
arrangements that exist in these regions.
• The Northern Sea Route has been a tantalizing theory;
– global warming is renewing it as reality.
• The global shipping giant Maersk, for example, completed its first
voyage unassisted by ice-breakers this August (even though the
company expresses skepticism about the near-term viability of the
route).
• The emergence of this geography, however, will be far from
frictionless and may well create a new distribution of wealth and
power in the region.
• Moscow and China are investing heavily in building commercial
infrastructure, naval capacity and military capabilities.
• As part of its Polar Silk Road ambitions, in fact, Beijing now
actively encourages its enterprises to utilize the Northern Sea
Route.
• Additionally, de-facto control over shipping routes in the
region currently rests with Moscow, which has arrogated the
power to grant shipping permits – a position that American
officials have already warned might contravene the UN
Convention of the Law of the Seas.
• The collision of these three geographies will shape the 21st-
century world order.
• Yet this process has no historical parallels. The post-war
order and its predecessors were born after a revolutionary
and catastrophic churn in global politics – and devastating,
large-scale conflicts.
• Trends/Risks
• Multiple cold wars across geographies:
different motivations, actors – Himalayan cold
war, Arctic chill, Mediterranean melee
• More coalitions of convenience
 Why Business need to understand Geopolitics?

• Constantly evolving international environment

– New trends: emerging economies, globalization, rise of
populism – opportunities and threats
• Changes in regulation, disrupted trade flows or conflict
• Study how geography affects politics and IR
– analysts study actors
• Individuals, organizations, companies and national govts that carry
political, econ, fin activities – how they interact with one another
• Relations matter for business as contribute to important
drivers of
– Investment performance, (eco growth), business performance,
market volatility, transaction costs
– Geopolitical risks
• Geopolitical risk is the risk associated with tensions or actions
between actors that affect the normal and peaceful course of
international relations.
• Geopolitical risk tends to rise when the geographic and
political factors underpinning country relations shift.
• A shift could arise from a change in policy, a natural disaster, a
terrorist act, a theft, or war.
• Investors study those risks as it has tangible impact on
investment outcomes
• risks impact capital markets conditions, including economic
growth, interest rates, and market volatility
– influence on asset allocation decisions, including an investor’s
choice of geographic exposure
– Portfolio: influence the appropriateness of an investment security or
strategy for an investor’s goals, risk tolerance, and time horizon.
• Higher likelihood rise/lower asset class expected returns or
• Impact sector/company’s operating environment affecting its attractiveness
for further strategy
 Tools of Geopolitics
1. national security tools:
– Most extreme tool is war/armed conflict
– Indirect tool (espionage)
– Military alliances
2. economic tools
– Cooperate or non-cooperate
– Multilateral trade agreements, harmonization of tariff
rules
– Nationalization
3. financial tools
– Free exchange of currency
– Foreign investment
 Types of geopolitical risks
• Event risk
– evolves around set dates known in advance. Political events,
– often result in changes to investor expectations related to a
country’s cooperative stance.
• Brexit
• US election
• Exogenous risk
– sudden or unanticipated risk that can impact either a
country’s cooperative stance, the ability of non-state actors
to globalize, or both.
• Uprisings, invasions, aftermath of natural disasters
• Thematic risks
– evolve and expand over a period of time
• Climate change, cyber threats, AI, terrorism
• consider geopolitical risk in terms of the following three
areas
– likelihood it will occur,
– velocity (speed) of its impact, and
– size and nature of that impact.
• Geopolitical risks seldom develop in linear fashion, making
it difficult to monitor and forecast their likelihood, velocity,
and size and nature of impact on a portfolio.
• As a result, many investors deploy an approach that
includes scenario building and signposting rather than a
single point forecast.
– process of evaluating portfolio outcomes across potential
circumstances or states of the world.
– Scenarios can take the form of qualitative analysis, quantitative
measurement, or both.