World's current level of globalization still lower than pre-crisis peak, DHL Global Connectedness Index reveals
- Global connectedness has yet to recover from its steep drop at the onset of the financial crisis
- Europe still world's most connected region, Netherlands on top individually; Sub-Saharan Africa averages largest increase from 2010 to 2011
- Even the most connected countries can benefit from deeper integration; potential gains can reach trillions of dollars
- The world's shifting economic center of gravity is reshaping industry connectedness
The report offers lessons on how companies can adapt their strategies to benefit from the changing geography of production and consumption.
DHL today released the second edition of the DHL Global Connectedness Index (GCI), a comprehensive analysis of the state of globalization around the world. The report, drawing on over one million data points from 2005 to 2011, concludes that the world today is less globally connected than it was in 2007. It documents how global connectedness, measured by international flows of trade, capital, information and people, grew robustly from the report's baseline year of 2005 to 2007, and then dropped sharply at the onset of the financial crisis. Despite modest gains since 2009, global connectedness has yet to recapture its pre-crisis peak.
"The GCI 2012 indicates that today's volatile and uncertain business environment bears the lasting impact of the financial crisis," remarked Frank Appel, CEO Deutsche Post DHL. "Especially in this period of slow growth, it's important to remember the tremendous gains that globalization has brought to the world's citizens and to recognize it as an engine of economic progress," he added. "Above all, governments must resist protectionist measures that hinder cross-border interactions."
Changes in connectedness: Sub-Saharan Africa improves; Netherlands still on top
While the world as a whole experienced only a very modest increase in global connectedness from 2010 to 2011, some individual countries had large gains. The countries with the largest increases in their global connectedness scores from 2010 to 2011 are Mozambique, Togo, Ghana, Guinea and Zambia - all of which are located in Sub-Saharan Africa. While this region remains the world's least connected, it averaged the largest connectedness increases from 2010 to 2011.
The Netherlands retained its 2010 position as the world's most connected country. Of the top ten most connected countries in 2011, nine of them are located in Europe. This is the world's most connected region.
"Europe's high level of global connectivity points to one of the greatest achievements of European integration," commented Appel. "We have to remember this as talk of fragmentation enters the debate over the continent's future."
Although it tops the 2011 ranking, the Netherlands has surprising headroom to further increase its integration with the world, as revealed in a new case study in the 2012 edition of the GCI.
"Investigating the actual extent of globalization on a country-by-country and regional basis reveals two critical things," explains Professor Pankaj Ghemawat, author of the GCI. "First, cross-border flows are significantly lower than commonly perceived, and second, every country - even the Netherlands - has untapped possibilities to benefit from more connectedness. At a time of economic weakness, this represents one of the most powerful levers available for boosting growth."
Connectedness and prosperity strongly linked
The 2012 edition of the GCI also includes case studies on Mexico and Vietnam and offers eight recommendations to help countries enhance or expand their connectedness with the rest of the world. This new chapter also highlights evidence that the depth of global connectedness - the proportion of flows that cross national borders - contributes to economic development and prosperity.
"The benefits of expanding merchandise trade are much larger than traditional models indicate," explains Professor Ghemawat. "Adding to that the gains from services trade and other kinds of cross-border flows, the estimated economic benefits double to at least 8% of global GDP."
Industry connectedness impacted by the rise of emerging markets
A further key enhancement to the 2012 edition of the GCI is an analysis of industry-level connectedness. The report concludes that the world's shifting economic center of gravity is reshaping industry connectedness. The migration of production and consumption to emerging markets has specific implications for the three industries highlighted in the report: pharmaceuticals, passenger cars and mobile phones. The report offers lessons on how companies can adapt their strategies to benefit from the changing geography of production and consumption.
CEO Frank Appel and Professor Pankaj Ghemawat on the results of the Global Connectedness Index.
Some surprising facts from the GCI 2012
- Along most dimensions, the world is less than 20% globalized - often even less than 10%
- Of the international flows that do take place, 50-60% occur within regions
- The world's center of economic gravity shifted thousands of kilometers to the east in the past decade, and continues to do so
- The most connected country, the Netherlands, is hundreds of times more connected than the least, Burundi
About the authors of the DHL Global Connectedness Index 2012
- Pankaj Ghemawat is the Anselmo Rubiralta Professor of Global Strategy at IESE Business School in Barcelona, Spain. He served for more than twenty years on the faculty of Harvard Business School, where in 1991, he became the youngest person in the school's history to be appointed a full professor. Ghemawat's latest book, World 3.0, won the Thinkers 50 Book Award for the best business book published in 2010-2011.
- Steven A. Altman is Senior Research Associate and Lecturer in Strategic Management at IESE Business School in Barcelona, Spain.