Michael Zetser is the former CEO of different fintechs. This article will look at how recent global geopolitical events have had an impact on globalization.
The free movement of goods, labor, technology, capital, and innovation throughout the world has had the impact of improving goods and services while simultaneously driving down prices. Globalization has had a transformative impact on start-ups harnessing new technology, as well as small businesses keen to get on the international stage. However, in recent years, various factors have had a significant impact on globalization trends – chief amongst them the arrival of COVID-19 in countries all over the world.
The COVID-19 pandemic triggered disturbances in global supply chains in a variety of different industries, from semiconductors to automotive. The pandemic’s negative impacts on global value chains highlighted weaknesses in international supply chains, and the vulnerabilities of economies based on them. Nevertheless, this is not a death knell for globalization by any means, according to data from the OECD.
The OECD’s TiVA database is widely regarded as the most reliable source of substantiated statements on fluctuations in global value change. Looking at TiVA database figures published in November 2021, it is clear to see that global value chains have constantly fluctuated for decades, long before the arrival of COVID-19. Rather than being a one-way street headed in one direction only, globalization is dependent on a wide range of economic, social, and geopolitical conditions.
As seen at the start of the pandemic, Russia’s invasion of Ukraine pre-empted a flurry of predictions of a looming end of globalization. In spite of this, cross-border flows rebounded strongly. Although the war in Ukraine has undoubtedly curtailed many types of international business activity, a report from the Harvard Business Review suggests that those who predicted it would trigger a collapse of international flows were far wide of the mark.
In arriving at this conclusion, the Harvard Business Review analyzed a variety of different aspects including trade flows, noting that by the end of 2020 world trade bounced back to above pre-pandemic levels, setting new records in early 2021. In addition, despite capital flows plummeting at the start of the pandemic, they have also seen a healthy recovery – surging back above pre-pandemic levels in 2021.
The war in Ukraine prompted the withdrawal of over 400 foreign firms from Russia. Nevertheless, this has not yet triggered a wave of divestments of assets, which would lower FDI. Since Russia hosts just 1% of global inward FDI stocks, analysts suggest that although the war in Ukraine has caused a predictable pullback of portfolio investment from emerging markets, these have been relatively modest. To conclude, the evidence is clear: although geographical reach and growth of international flows can rise and fall over time, the fundamental drivers of success in global strategy remain largely unchanged.