Are businesses ready for deglobalization? It is increasingly understood that this ever-more siloed world directly impacts three key pillars of global corporations.

As we enter a new decade, characterized by rising economic complexity and geopolitical divisions — U.S.-China tensions, populism and nationalism in Europe, and the looming risk of a global recession — forward-thinking business leaders are developing strategies to mitigate the longer-term risk of deglobalization. They are concerned about trade protectionism, and the revenue a company could lose in any tariff wars.

However, there is a more hidden risk associated with deglobalization: that global corporations are not structured in a way that is fit for the purpose to compete in a deglobalizing world. It is increasingly understood that this ever-more siloed world directly impacts three key pillars of global corporations: technology, global recruiting, and the finance function.

The “Splinternet”

In recent years corporate leadership has rightly prioritized cyber risks, the threat of technological obsolescence, and the rise of the jobless underclass stemming from increased automation. However, there are now mounting concerns about the emerging “splinternet” — an increasingly fragmented internet with competing China-led and U.S.-led platforms.

Such a technological fragmentation would disrupt global supply chains — which enable global corporations to gain a competitive edge by selecting the most cost-effective solution at each stage of the production process. And the move away from such centralized procurement raises the costs of and reduces the efficiency gains from shared global services.

Furthermore, a balkanized internet promises to increase the complexity of a company’s operations, which erodes a corporation’s ability to respond quickly to market forces. In such a world, companies will need to choose between the U.S. and China camps or bear the costs of operating in two adversarial technological worlds, each with their own regulatory and operating standards.

Already, the first signs of such divergence are being felt across corporations concerning the issue of data privacy. Most western companies make every effort to protect individual privacy — a stance that arguably places U.S. and European corporations at a distinct disadvantage versus their Chinese competitors, who are able to operate in a less stringent data privacy regime. The relatively light data-privacy rules in China enable access to large data sets with more individual information. This can speed up innovation, including cutting-edge drug discovery, which in turn helps push costs down for the end consumers and drive higher company values.

The Intensifying War for Talent

Greater immigration controls are another offshoot of the move toward a more siloed world. The recent shift in the political mood in the U.S. and Europe toward more stringent immigration intensifies the war for global talent. The risk of further restrictions on immigration has climbed in importance on the leadership agenda as it threatens the corporation’s ability to hire across borders.

Recruitment, particularly at senior levels, depends on access to global pools of talent, as those executive teams that draw on different nationalities and backgrounds are widely seen as a source of competitive advantage. In the wake of President Donald Trump’s April 2017 executive order to “Buy American and Hire American,” the U.S. Citizenship and Immigration Services (USCIS) has held up record numbers of H-1B visa petitions, so that the denial rate for first time H-1B applications has increased from 10 percent in 2016 to 24 percent in 2018 and 32 percent in the first quarter of 2019.

Mounting restrictions on immigration limit the opportunity for tomorrow’s business leaders to learn how to navigate across cultures and differing social norms. Some might argue that these skills will matter less in a more siloed world, but a more fragmented world also means fewer opportunities to share and transfer best practices and transformational ideas.

More Complicated Corporate Finances and Regulatory Regimes

A more fragmented world also makes managing corporate finances globally more complicated and adds considerable costs to corporate treasuries. Global companies derive enormous benefits from a centralized finance function. Today many companies raise capital relatively cheaply in financial hubs, such as New York or London, and distribute the proceeds as investment across their global operations. In most cases, this more centralized model means corporations are able to borrow at a lower cost than they would if their regional and national subsidiaries had to confine themselves to local currency markets, which tend to carry greater risk and volatility. A more siloed world means corporations will struggle to extract their investment capital and return profits to shareholders.

The shift from a more centralized to a more federated model brings additional complexity, as business leaders must contend with the move from a harmonized rule-making business landscape towards an increasingly complicated web of independent processes and regulations in different jurisdictions. To reasonably manage or mitigate threats in a siloed world will require extraordinary levels of highly specialized knowledge at the local level — making it near impossible to understand the necessary risk budget, let alone adequately hedge these local risks.

As power continues to move away from multilateral organizations such as the EU, WTO, and NATO and devolves to local governments, global corporations will likely find it harder to maintain effective government relations across a myriad of different countries. Growing complexity on matters of taxation, tariffs, quotas, and environmental regulations, for example, will force global corporations to contend with the question of whether their organization structure ought to follow the power shift and become more diffused.

Of course, multinationals already need to abide by the various regulations of the markets in which they operate, and therefore require deep local knowledge in order to be effective. However, as protectionism leads governments to subscribe less to global rules and regulations, and business rules become less systematized, national regulatory bodies will become paramount. In turn, local knowledge requirements will almost certainly become more demanding as corporations will need ever more detailed and specific know-how to operate and succeed.

Do We Need to Rethink Org Structures?

At its core, the rationale for global corporations is that such a structure would increase the opportunity of those that sit atop these organizations to observe the world and arbitrage capital, labor, and production in ways that lower costs, increase efficiencies, and thereby enhance the inherent value of the corporation. As it is becoming increasingly difficult to transfer these factors of production across borders, it’s reasonable to ask whether a global corporation is the right structure in a deglobalizing world. Furthermore, global corporations across such sectors as consumer goods and finance are seeing their fiercest competition come from large local country or regional competitors rather than other traditional global companies.

One alternative to a global structure is for businesses to operate as a collection of independent, loosely affiliated, locally run companies. These “subsidiaries” would garner the benefits of knowledge transfer from being affiliates to a larger network of companies, but most capital allocation and human capital decisions are delegated to the local entities. Perhaps these independent companies could even list and trade as independent entities on local as well as global exchanges.

Ultimately, the way forward will depend on whether a company’s leadership views deglobalization as an enduring phenomenon or a passing fad. If business leaders believe deglobalization is here to stay, then real consideration must be placed on upending the prevailing global corporate structure to make it better match the deglobalized world. If, however, corporate leaders believe that the push toward a more fragmented world is temporary and will soon pass, then their responsibility is to navigate the deglobalization risks, even while retaining their global structure. Nevertheless, business leaders should be alert to the idea that if they are wrong, the corporations they serve may not survive.

The pandemic will change the world forever. We asked 12 leading global thinkers for their predictions.

BRIAN STAUFFER FOR FOREIGN POLICY

Like the fall of the Berlin Wall or the collapse of Lehman Brothers, the coronavirus pandemic is a world-shattering event whose far-ranging consequences we can only begin to imagine today.

This much is certain: Just as this disease has shattered lives, disrupted markets and exposed the competence (or lack thereof) of governments, it will lead to permanent shifts in political and economic power in ways that will become apparent only later.
To help us make sense of the ground shifting beneath our feet as this crisis unfolds, Foreign Policy asked 12 leading thinkers from around the world to weigh in with their predictions for the global order after the pandemic.

A World Less Open, Prosperous, and Free – by Stephen M. Walt

The pandemic will strengthen the state and reinforce nationalism. Governments of all types will adopt emergency measures to manage the crisis, and many will be loath to relinquish these new powers when the crisis is over.
COVID-19 will also accelerate the shift in power and influence from West to East. South Korea and Singapore have responded best, and China has reacted well after its early mistakes. The response in Europe and America has been slow and haphazard by comparison, further tarnishing the aura of the Western “brand.”
What won’t change is the fundamentally conflictive nature of world politics. Previous plagues did not end great-power rivalry nor usher in a new era of global cooperation. Previous plagues—including the influenza epidemic of 1918-1919—did not end great-power rivalry nor usher in a new era of global cooperation. Neither will COVID-19. We will see a further retreat from hyper globalization, as citizens look to national governments to protect them, and as states and firms seek to reduce future vulnerabilities.
In short, COVID-19 will create a world that is less open, less prosperous, and less free. It did not have to be this way, but the combination of a deadly virus, inadequate planning, and incompetent leadership has placed humanity on a new and worrisome path.

The End of Globalization as We Know It – by Robin Niblett

The coronavirus pandemic could be the straw that breaks the camel’s back of economic globalization. China’s growing economic and military power had already provoked a bipartisan determination in the United States to decouple China from U.S.-sourced high technology and intellectual property and try to force allies to follow suit. Increasing public and political pressure to meet carbon emissions reduction targets had already called into question many companies’ reliance on long-distance supply chains. Now, COVID-19 is forcing governments, companies, and societies to strengthen their capacity to cope with extended periods of economic self-isolation.

The coronavirus pandemic could be the straw that breaks the camel’s back of economic globalization.

It seems highly unlikely in this context that the world will return to the idea of mutually beneficial globalization that defined the early 21st century. And without the incentive to protect the shared gains from global economic integration, the architecture of global economic governance established in the 20th century will quickly atrophy. It will then take enormous self-discipline for political leaders to sustain international cooperation and not retreat into overt geopolitical competition.
Proving to their citizens that they can manage the COVID-19 crisis will buy leaders some political capital. But those who fail will find it hard to resist the temptation to blame others for their failure.

A More China-Centric Globalization by Kishore Mahbubani

The COVID-19 pandemic will not fundamentally alter global economic directions. It will only accelerate a change that had already begun: a move away from U.S.-centric globalization to a more China-centric globalization

It will only accelerate a change that had already begun: a move away from U.S.-centric globalization to a more China-centric globalization.

Why will this trend continue? The American population has lost faith in globalization and international trade. Free trade agreements are toxic, with or without U.S. President Donald Trump. By contrast, China has not lost faith. Why not? There are deeper historical reasons. Chinese leaders now know well that China’s century of humiliation from 1842 to 1949 was a result of its own complacency and a futile effort by its leaders to cut it off from the world. By contrast, the past few decades of economic resurgence were a result of global engagement. The Chinese people have also experienced an explosion of cultural confidence. They believe they can compete anywhere.
Consequently, as I document in my new book, Has China Won?, the United States has two choices. If its primary goal is to maintain global primacy, it will have to engage in a zero-sum geopolitical contest, politically and economically, with China. However, if the goal of the United States is to improve the well-being of the American people—whose social condition has deteriorated—it should cooperate with China. Wiser counsel would suggest that cooperation would be the better choice. However, given the toxic U.S. political environment toward China, wiser counsel may not prevail.

Democracies Will Come out of Their Shell by G. John Ikenberry

In the short term, the crisis will give fuel to all the various camps in the Western grand strategy debate. The nationalists and anti-globalists, the China hawks, and even the liberal internationalists will all see new evidence for the urgency of their views. Given the economic damage and social collapse that is unfolding, it is hard to see anything other than a reinforcement of the movement toward nationalism, great-power rivalry, strategic decoupling, and the like.
Just like in the 1930s and ’40s, there might also be a slower-evolving countercurrent. But just like in the 1930s and ’40s, there might also be a slower-evolving countercurrent, a sort of hardheaded internationalism similar to the one that Franklin D. Roosevelt and a few other statesmen began to articulate before and during the war. The 1930s collapse of the world economy showed how connected modern societies were and how vulnerable they were to what FDR called contagion. The United States was less threatened by other great powers than by the deep forces—and Dr. Jekyll and Mr. Hyde character—of modernity. What FDR and other internationalists conjured was a postwar order that would rebuild an open system with new forms of protection and capacities to manage interdependence. The United States couldn’t simply hide within its borders, but to operate in an open postwar order required the building of a global infrastructure of multilateral cooperation.
So the United States and other Western democracies might travel through this same sequence of reactions driven by a cascading sense of vulnerability; the response might be more nationalist at first, but over the longer term, the democracies will come out of their shells to find a new type of pragmatic and protective internationalism.

Lower Profits, but More Stability – by Shannon K. O’Neil

COVID-19 is undermining the basic tenets of global manufacturing. Companies will now rethink and shrink the multistep, multicountry supply chains that dominate production today.
Global supply chains were already coming under fire, both economically and politically. Global supply chains were already coming under fire—economically, due to rising Chinese labor costs, U.S. President Donald Trump’s trade war, and advances in robotics, automation, and 3D printing, as well as politically, due to real and perceived job losses, especially in mature economies. COVID-19 has now broken many of these links: Factory closings in afflicted areas have left other manufacturers—as well as hospitals, pharmacies, supermarkets, and retail stores—bereft of inventories and products.
On the other side of the pandemic, more companies will demand to know more about where their supplies come from and will trade off efficiency for redundancy. Governments will intervene as well, forcing what they consider strategic industries to have domestic backup plans and reserves. Profitability will fall, but supply stability should rise.

This Pandemic Can Serve a Useful Purpose – by Shivshankar Menon

It is early days yet, but three things seem apparent. First, the coronavirus pandemic will change our politics, both within states and between them. It is to the power of government that societies—even libertarians—have turned. Government’s relative success in overcoming the pandemic and its economic effects will exacerbate or diminish security issues and the recent polarization within societies. Either way, the government is back. Experience so far shows that authoritarians or populists are no better at handling the pandemic. Indeed, the countries that responded early and successfully, such as Korea and Taiwan, have been democracies—not those run by populist or authoritarian leaders.
This is not yet the end of an interconnected world. The pandemic itself is proof of our interdependence.
Secondly, this is not yet the end of an interconnected world. The pandemic itself is proof of our interdependence. But in all policies, there is already a turning inward, a search for autonomy and control of one’s own fate. We are headed for a poorer, meaner, and smaller world
Finally, there are signs of hope and good sense. India took the initiative to convene a video conference of all South Asian leaders to craft a common regional response to the threat. If the pandemic shocks us into recognizing our real interest in cooperating multilaterally on the big global issues facing us, it will have served a useful purpose.

American Power Will Need a New Strategy – by Joseph S. Nye, Jr.

In 2017, U.S. President Donald Trump announced a new national security strategy that focuses on great-power competition. COVID-19 shows this strategy to be inadequate. Even if the United States prevails as a great power, it cannot protect its security by acting alone. As Richard Danzig summarized the problem in 2018: “Twenty-first century technologies are global not just in their distribution, but also in their consequences. Pathogens, AI systems, computer viruses, and radiation that others may accidentally release could become as much our problem as theirs. Agreed reporting systems, shared controls, common contingency plans, norms, and treaties must be pursued as means of moderating our numerous mutual risks.”

Even if the United States prevails as a great power, it cannot protect its security by acting alone.

On transnational threats like COVID-19 and climate change, it is not enough to think of American power over other nations. The key to success is also learning the importance of power with others. Every country puts its national interest first; the important question is how broadly or narrowly this interest is defined. COVID-19 shows we are failing to adjust our strategy to this new world.

The History of COVID-19 Will Be Written by the Victors – by John Allen

As it has always been, history will be written by the “victors” of the COVID-19 crisis. Every nation, and increasingly every individual, is experiencing the societal strain of this disease in new and powerful ways. Inevitably, those nations that persevere—both by virtue of their unique political and economic systems, as well as from a public health perspective—will claim success over those who experience a different, more devastating outcome. To some, this will appear as a great and definitive triumph for democracy, multilateralism, and universal health care. To others, it will showcase the clear “benefits” of decisive, authoritarian rule. To some, this will appear as a great and definitive triumph for democracy. To others, it will showcase the clear “benefits” of authoritarian rule.
Either way, this crisis will reshuffle the international power structure in ways we can only begin to imagine. COVID-19 will continue to depress economic activity and increase tension between countries. Over the long term, the pandemic will likely significantly reduce the productive capacity of the global economy, especially if businesses close and individuals detach from the labor force. This risk of dislocation is especially great for developing nations and others with a large share of economically vulnerable workers. The international system will, in turn, come under great pressure, resulting in instability and widespread conflict within and across countries.

A Dramatic New Stage in Global Capitalism -by Laurie Garrett

The fundamental shock to the world’s financial and economic system is the recognition that global supply chains and distribution networks are deeply vulnerable to disruption. The coronavirus pandemic will therefore not only have long-lasting economic effects but lead to a more fundamental change. Globalization allowed companies to farm out manufacturing all over the world and deliver their products to markets on a just-in-time basis, bypassing the costs of warehousing. Inventories that sat on shelves for more than a few days were considered market failures. Supply had to be sourced and shipped on a carefully orchestrated, global level. COVID-19 has proven that pathogens can not only infect people but poison the entire just-in-time system.

The coronavirus pandemic will therefore not only have long-lasting economic effects, but lead to a more fundamental change.

Given the scale of financial market losses the world has experienced since February, companies are likely to come out of this pandemic decidedly gun-shy about the just-in-time model and about globally dispersed production. The result could be a dramatic new stage in global capitalism, in which supply chains are brought closer to home and filled with redundancies to protect against future disruption. That may cut into companies’ near-term profits but render the entire system more resilient.

More Failed States – by Richard N. Haass

Permanent is not a word I am fond of, as little or nothing is, but I would think the coronavirus crisis will ​at least for a few years lead most governments ​to turn inward, focusing on what takes place within their borders rather than ​on what happens beyond them. I anticipate greater moves toward selective self-sufficiency (and, as a result, decoupling) given supply chain vulnerability; even greater opposition to large-scale immigration; and a reduced ​willingness or commitment to tackle regional or global problems (including climate change) given the perceived need to dedicate resources to rebuild at home and deal with economic consequences of the crisis​.Many countries will have difficulty recovering, with state weakness and failed states becoming even more prevalent.I would expect many countries will have difficulty recovering from the crisis, with state weakness and failed states becoming an even more prevalent feature of the world. The crisis will likely contribute to the ongoing deterioration of Sino-American relations and the weakening of European integration. On the positive side, we should see some modest strengthening of global public health governance. But overall, a crisis rooted in globalization will weaken rather than add to the world’s willingness and ability to deal with it.

The United States Has Failed the Leadership Test – by Kori Schake

The United States will no longer be seen as an international leader. The United States will no longer be seen as an international leader because of its government’s narrow self-interest and bungling incompetence. The global effects of this pandemic could have been greatly attenuated by having international organizations provide more and earlier information, which would have given governments time to prepare and direct resources to where they’re most needed. This is something the United States could have organized, showing that while it is self-interested, it is not solely self-interested. Washington has failed the leadership test, and the world is worse off for it.

In Every Country, We See the Power of the Human Spirit – by Nicholas Burns

The COVID-19 pandemic is the greatest global crisis of this century. Its depth and scale are enormous. The public health crisis threatens each of the 7.8 billion people on Earth. The financial and economic crisis could exceed in its impact the Great Recession of 2008-2009. Each crisis alone could provide a seismic shock that permanently changes the international system and balance of power as we know it. That provides hope that men and women around the world can prevail in response to this extraordinary challenge.
To date, international collaboration has been woefully insufficient. If the United States and China, the world’s most powerful countries, cannot put aside their war of words over which of them is responsible for the crisis and lead more effectively, both countries’ credibility may be significantly diminished. If the European Union cannot provide more targeted assistance to its 500 million citizens, national governments might take back more power from Brussels in the future. In the United States, what is most at stake is the ability of the federal government to provide effective measures to stem the crisis.
In every country, however, there are many examples of the power of the human spirit—of doctors, nurses, political leaders, and ordinary citizens demonstrating resilience, effectiveness, and leadership. That provides hope that men and women around the world can prevail in response to this extraordinary challenge.

Is the Coronavirus Crash Worse Than the 2008 Financial Crisis?

John Allen is president of the Brookings Institution, a retired U.S. Marine Corps four-star general, and former commander of the NATO International Security Assistance Force and U.S. Forces in Afghanistan.

Nicholas Burns is a professor at the Harvard Kennedy School of Government, and a former under secretary for political affairs in the U.S. State Department.

Laurie Garrett is a former senior fellow for global health at the Council on Foreign Relations and a Pulitzer Prize winning science writer.

Richard Haass is the president of the Council on Foreign Relations and the author of The World: A Brief Introduction, to be published in May by Penguin.

Kishore Mahbubani, a distinguished fellow at the National University of Singapore’s Asia Research Institute, is the author of Has China Won? The Chinese Challenge to American Primacy.

Shivshankar Menon is a distinguished fellow at Brookings India, a former national security advisor to Indian Prime Minister Manmohan Singh, and a visiting professor at Ashoka University, India.

Robin Niblett is the director and chief executive of Chatham House.

Joseph S. Nye Jr. is a university distinguished service professor at Harvard University and the author of Do Morals Matter? Presidents and Foreign Policy from FDR to Trump.

Kori Schake is the deputy director general of the International Institute for Strategic Studies.

Stephen M. Walt is the Robert and Renée Belfer professor of international relations at Harvard University.

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