In the 1950s, over two-thirds of the globe was in extreme poverty1. As of 2018, that number has fallen to one-tenth. Globalization and multi-later systems of trade cooperation have helped destroy the barriers to success and achievement for billions of humans. Yet, globalization isn’t holistic. Groups are dislocated from supply chains, resulting in bubbles of extreme poverty driven by a failure to adequately establish a role within the value chain. Until now, globalization has largely leveraged trade based on labor-cost arbitrage — a system that doesn’t only facilitate global inequalities; it requires them.
But, we’re turning a corner. Fueled by the ICT revolution and service-based solutions, Globalization 4.0 promises to dismantle the errors of the past in favor of a more holistic and locally-charged economy. Cross-border transfer and cross-cultural standards are the levers that will unlock the next era of Globalization. With them, we have a real opportunity to improve the quality-of-life for virtually every human on the globe.
Over the past few years, speed-to-fit and localized trading have intensified. Due in part to automation, the way we think about production is being disrupted by purchasing
habits and a complete retooling of labor intensity. Technology now plays a significant role across the entire trade stream, and vendors that relied on labor capital are at risk of finding themselves irrelevant in the face of automation, IoT, and machine learning.
While this certainly presents challenges to industries and countries across the globe, it also enables competition in areas largely left out of Globalization 2.0 and 3.0. Already, Globalization 4.0 is improving the quality-of-life for humans across the globe. As we continue to shape the new trade streams that will define this next era of Globalization, emphasizing open, cross-border trade and innovation can drastically reduce wealth inequalities and create tangible value for billions of more people.
Understanding Globalization 4.0
The term “Globalization 4.0” is mystified by a layer of complex trade systems, value chains, and political and social relationships. But, at the core, the next globalization is a
shift from production-based value to knowledge-based value. According to McKinsey, investments in R&D for intangible assets (i.e., services and their value chains) have now
outpaced investments in physical goods2. Even in largely physically-driven industries like automotive, 80% of innovation comes from software — not hardware3. In fact,
McKinsey estimates that software alone will drive 30% of the overall value of cars by 20504.
As a whole, services account for 45% of value in trade flows, despite only accounting for 23% of global trade2. The majority of value in trade flows happens in the intermediary — the steps between ideation and production. As services continue to expand, this intermediary layer is growing. Suddenly, we’re seeing a shift. The flow of ideas and services isn’t solely bound to upper-tier economies. Everyone can participate. Of course, there are barriers. 12 countries account for 75% of exports, and investing in technology requires resources, education, and social structures that spark cross-skilling and re-skilling5. However, there’s light shining at the end of the tunnel.
The share of advanced-economy technology exports to developing economies has increased by 17% over the past 12 years2. Digitization and digital transformation unlock new opportunities for developing countries.
But, to excel in Globalization 4.0, we need a unified framework that promotes sharing and an open economy. While that may have been a pipe-dream ten years ago, the looming disruption of automation and knowledge-based services is fundamentally changing the way we think about value chains. And, perhaps more importantly, the way we think about “value.” Intraregional trade is growing, and its bringing value to all participants in the value chain.
Globalization 4.0 At a Local Level: Value-driven & Holistic Changes
In the past, we’ve seen publications echo concerns over Globalization 4.0 and a perceived diminishment of white-collar jobs. Since Globalization 3.0 resulted in a total loss of blue-collar work in the United States, many consider Globalization to be a term that threatens work and ways-of-life6. Fortunately, that’s not an intrinsic component of Globalization — it’s a simplification of very complex and fruitful cross-border collaborations.
Globalization isn’t globalism by definition. Reactions to the supply chain can become globalist in nature, but the best way to enable the next wave of Globalization is by breaking down those globalist policies, legislature, and trade agreements that plague modern trading flows. To be clear, the world is at stake. Protecting the environment, reducing inequality, eliminating gender gaps, and degrading the barriers for resources is intrinsically tied to trade flow. The bottom line is intraregional trade are powerful tools that create economies but enforce poverty norms.
As we create an ecosystem based on knowledge distribution and localized goods and services based on speed rather than labor cost, we wield the power to create a better world for everyone. Trade intensity may be decreasing, but production is ramping up as a whole. Innovation is the new currency of trade. And knowledge is cheaper than parts. Interestingly, SaaS, IoT, and robotics have the real potential to surge emerging economies and those disproportionately left out of Globalization 3.0. In the 1990s, companies would invest millions of dollars to create internal legacy sales tools and marketing platforms. Solutions like Salesforce and MailChimp bring years of R&D to your doorstep for a small subscription fee. Those without the resources for significant
R&D still have the opportunity to participate in the global value chain — so long as trade agreements, local legislation, and political climates afford them the opportunity.
The Role of Cross-Border Transfer in Globalization 4.0
We’re living Globalization 4.0. Cross-border transfer is surging, and with it, we’re all reaping the fruits of collaboration. Obviously, trade tensions, COVID-19, and economic downturns are creating additional complexity. But the seed has been planted. It is happening, and how we choose to frame it will impact each and every one of our lives. Fintech solutions rub against border frictions by expanding the range of money transfer, lending and borrowing solutions. eCommerce has revitalized and shifted logistic networks to perform globally. And cloud computing has shown us that we can allocate server resources to virtually any corner of the globe so long as the physical networks can support it.
These cross-border data flows are difficult to track. McKinsey notes that there’s no known statistic for the raw value of this data flow, but they estimate data flow in the value chain to be worth $8.3 trillion2. Establishing a shared global-governance architecture for this data flow, the value chains that it touches, and the people it engages is difficult. Socioeconomic tensions threaten to weaken the stability of Globalization, which could be disastrous to all of us. This cross-border flow is critical to humankind. If knowledge and services are given a framework to spread, we could be looking at the end of rampant disparity. But if they’re not, Globalization 4.0 could quickly transform into the “same old” Globalization we’re used to. And, for those who
are locked outside of the value chain, Globalization is equivalent to exclusion.
The flow of goods, services, and people helps us understand each other, facilitate peace, and ease some of the negative impacts of overpopulation. Involving emerging markets, established markets, and yet-to-emerge markets in the global goods conversation doesn’t just positively impact every neighborhood on earth, but it preserves established qualities-of-life.
A Globalization Framework for Today Will Create Meaningful Changes Tomorrow
Despite Globalization 4.0 being all around us, we’re entirely unprepared to deal with it. There’s no shared global-governance framework to enable, drive, and empower this next wave of trade. We’re not the first to call for a globalization framework. The World Economic Forum, McKinsey, and others have all put out extensive materials to urge politicians, manufacturing leaders, services leaders, and workers to unite under the banner of this new era of trade flow7.
From the micro-level to the macro-level, people, neighborhoods, and countries will reap the rewards of free trade. It drives innovation, reduces costs, and breeds participation. As the world continues to deal with crisis, poverty, climate change, war, and inequality, building a value chain of goods and services that benefits everyone is an ace-in-the-hole. There’s a real opportunity for meaningful change staring us in the face. Will we dismantle the errors of Globalization 2.0 and 3.0? Or will we continue to put nationalism, globalism, and elitism before well-being?
So the real question is, who gets invited? How do we create a framework that rewards meritocracy and innovation — not nationalism and regionalism? The answer is complicated. But given what’s at stake, every local, regional, and national company on the planet should be invested in the outcome. Let’s learn to share knowledge and goods. It doesn’t only just benefit our neighbors; it helps us. And that’s something that virtually everyone can get behind.