Globalisation marches on

by: Prof. Yeah Kim Leng, Director of Economic Studies Program at Jeffrey Cheah In­stitute on Southeast Asia

While United States President Donald Trump’s threats of border taxes, immigration curbs and America First policies are seen as a roll-back of globalisation, the digital revolution is redefining and reinvigorating globalisation in several ways.

Through digital platforms that are global in nature, businesses in any country are able to connect with customers and suppliers worldwide. As these platforms have very low communications and transaction cost, the minimum economic scale needed to start a business is much smaller.

Small companies and individual entrepreneurs are now presented with unprecedented opportunities to participate in international businesses that were once the domain of large multinational companies.

Another salient feature of the digital marketplace is that countries and companies cannot ignore the threats and opportunities outside their borders as competitors can spring up in any part of the world.

As businesses can enter any market, there will be greater pricing pressures, a larger array of domestic and foreign competitors and the pervasive threats and opportunities for disruptive digital business models and technologies.

Digitisation and digital platforms driving new globalisation era

Digitisation can be defined as the mass adoption of connected digital technologies and information and communications technology (ICT) applications by consumers, enterprises, and governments.

A game-changer in the digital era is the emergence of public internet platforms that ‘connects anyone, anywhere’. Examples include social networks, digital media platforms, e‑commerce websites, and various online marketplaces.

Through clever use of automation and algorithms, platforms such as Facebook, YouTube and WhatsApp support hundreds of millions of global users, all of whom can obtain and share information on products, services, prices, and alternative choices. By bridging the information gap between buyer and seller, new online markets are created and existing markets can function more efficiently.

A study by McKinsey Global Institute estimated that about 12 percent of the global goods trade is conducted via international e‑commerce through platforms such as Alibaba, Amazon and eBay.

The study also found that half the world’s traded services are already digitized. These trends will accelerate in the coming years as bandwidth, communication and transaction costs are driven closer to zero.

Digitisation enables immediate exchanges of virtual goods such as e-books, apps, online games, music files and streaming services, software, and cloud computing services. These virtual goods can be delivered to customers anywhere in the world through the Internet.

Many media websites are going regional or global. Publications such as The Guardian and Vogue, as well as the BBC, already generate more than half of their online traffic from foreign countries.

Rising digital commerce and individual participation

It is foreseeable that the digital commerce will extend to other product categories, including 3D printing. Other digital applications include the use of sensors, data, and software by logistics firms to track physical shipments, thereby reducing transit losses. The close tracking technology also allows high value merchandise to be transported.

Increasingly, consumers are making use of online user-generated reviews and ratings to make cross-border transactions, such as buying a consumer product or booking a hotel room overseas.

The silent digital revolution has facilitated the increase in international travellers to close to half a billion, a quarter billion diaspora living outside their countries, close to 50 million cross-border online workers and more than 10 million cross-border online students.

The new era of globalisation is also marked by increased participation of individuals who form their own cross-border connections through the social media and other Internet platforms.

There are significant business and economic implications, as digital platforms constitute a huge base of potential customers, one where marketing strategies can be deployed more effectively.

Besides providing individuals with new ways to learn, collaborate, and acquire new skills, the digital platforms can be harnessed to pitch their talents to potential employers, business partners or investors.

Digital challenges for businesses and government

Digital technology has increased the options for business leaders seeking to reconfigure their operations and strategy. They can establish global hubs for certain functions such as production, logistics, and research and development to capture economies of scale and agglomeration benefits, while maintaining distributed centres for sales and marketing teams to be in real-time contact with local customers.

It is recognised that the full potential benefit of digital globalisation cannot be achieved by merely investing in IT systems or building Internet infrastructure. The other necessary conditions, as pointed out in a recent World Bank report, include fundamentals such as education, good governance, and a supportive business environment.

A healthy business environment is essential to nurture start-ups, allow inefficient firms to exit, support research, and provide a solid legal framework for intellectual property and property rights.

Given that small firms now have new avenues for participating in digitally facilitated global trade, there is a need to raise awareness of these growth opportunities by making information, mentoring, and financing more readily available to them.

The government, in collaboration with the private sector, will need to bring the digital economy up to speed by investing in digital infrastructure, revamping policy regulatory frameworks, upgrading education and training delivery systems, tackle cybercrime and security, as well as meet the increasingly demanding workplace and work-from-home expectations of the younger generation, who are already attuned to social media and have instant global access to information.

By Prof. Yeah Kim Leng | 10 Feb 2017 

Professor Yeah Kim Leng is the Director of Economic Studies Program at Jeffrey Cheah In­stitute on Southeast Asia at Sunway University and Professor of Eco­nomics at Sunway University Business School. He is also an external member of Bank Negara Malaysia’s Monetary Policy Committee. The views expressed in this article are his own.

First appeared in the New Straits Times

Modified by Low Wai Sern