By Anil Gupta and Haiyan Wang
The rise of economic nationalism has led many observers to announce that globalization is not just in retreat, but near death.
The Brexit vote and the election of Donald J. Trump (as well as the popularity of various far-right European politicians) raise questions about the future of free trade. But the outlook for multinationals is good—so long as they adapt to the new realities.
By every important measure other than trade in goods, globalization is thriving. And the decline in merchandise trade long predates any changes in political sentiment.
Casual observers make the mistake of looking at global economic integration almost solely through the lens of merchandise trade. In reality, economic integration is a multidimensional phenomenon encompassing merchandise trade, services trade, cross-border investments and data flows. By every one of the latter three measures, global integration continues to thrive.
Its structure, however, is morphing. It was once led by trade; it’s now led by investment. Trump’s call for Toyota to produce more within the US, rather than import more from elsewhere, is emblematic.
The strategic implications for multinational corporations are clear. They need to double down on localizing their operations in every major market. The design and specifications of products may remain largely standardized (think of smartphones and MRI scanners) or may not (think of entertainment and food). Regardless, the actual production of goods and services will need to become more local.
Political leaders are almost always willing to let market forces dictate how global or local the design and features of products and services are. However, they do care whether a company brings investment and creates jobs, or whether foreign companies become contributing citizens of their country, instead of operating as tourists.
In his 2016 commencement speech at New York University, General Electric (GE) then-CEO Jeff Immelt noted that the company’s global future rests on a drive to deepen localization. This doesn’t mean that GE needs to reinvent its digital strategy for every market. But GE must invest and produce domestically more than it currently does within every major market. Every large company should be thinking along similar lines.
Anil Gupta is the Michael D. Dingman chairman in Strategy and Entrepreneurship at the University of Maryland’s Robert H. Smith School of Business. Haiyan Wang is a managing partner of the China India Institute.