How the Pandemic Affected Market Globalization and What Organizations Need to Know
Market globalization refers to the sale and promotion of goods and services on a global scale. It's commercial integration that creates an interconnected global ecosystem, enabling companies to access a market overseas and do business across borders.
Although economies have had access to goods and services across borders for centuries—with ventures such as silk roads and spice routes—the term globalization wasn't coined until the early 19th century. Although its roots are in early human migrations, trading, and military invasions, globalization is a distinctly modern process that resulted in the development of a world economy. It's a complex integration process that grew and evolved rapidly throughout the 1900s. And by 2008, trade (one aspect of globalization) had grown to a third of the U.S. economy and about half of the world's economy.
From 2008 to 2019, we continued to see the evolution of transnational commercialization with open capital flows, direct investment in emerging markets by multinational corporations, along with an increase in the digital economy and trade of digital goods and services with other countries. But in 2020, the economic internationalization of our planet hit a plateau. The COVID-19 pandemic caused the flow of cross-border trade, investments, information and content, and travel to plummet as the world tried to navigate the deadly health crisis. Many economists and global economy prognosticators thought we were seeing the end of globalization.
The Effect of the Pandemic on Market Globalization
The pandemic highlighted how much humanity has come to depend on worldwide commercial interconnectivity, culturally and economically. Due to our economic interdependence, at the beginning of the pandemic, many countries experienced major disruptions in the movement of people and goods, causing seismic shifts in markets around the world. New rules, regulations, and endless restrictions on travel, capital mobility, and supply chains made it difficult to do business as usual.
At the same time, the pandemic also highlighted how resilient many of these market processes have become. Organizations, businesses, and governments worked quickly to adapt their economic strategies to meet the shifting international economics. Medical research scientists cooperated across borders to develop treatments and vaccines at a historically unprecedented pace. And international internet traffic skyrocketed as knowledge work, education, and much of social life moved online.
Although operations looked different, the flow of trade, investments, information, and intellectual content rebounded rather quickly and in some cases proved highly beneficial in solving the challenges of the pandemic. The flow of people is still making a slow comeback, and although it is changing before our eyes, international travel is sure to rebound and persist as medical and technological innovation progress and pent-up demand manifests.
Global trade experienced enormous loss in early 2020. Trading in goods dropped faster in March and April than during the Great Depression and the global financial meltdown of 2008 and 2009. However, unlike these other two crises, trade rebounded much faster from the Covid crash. By November, global trade was all the way back to pre-pandemic levels and has been steadily climbing since, thanks in part to historically low interest rates.
This quick trade recovery was due in large part to the implementation of new policies and regulations, a shift in consumer spending from local services to imported goods, and the need for medical products and electronics.
Global investment flows were hit even harder by the pandemic. Investors withdrew record amounts of portfolio capital from emerging markets at the onset of the pandemic and foreign direct investment (FDI) flows, which involve companies buying, building, or reinvesting in operations abroad, fell 42% in 2020, a level not seen since the 1990s.
While the recovery of international corporate investment and capital access is still subdued in 2021, international mergers and acquisitions started to pick up in late 2020. The flow of foreign investments stabilized even faster and rallied in late 2020. The implementation of bold fiscal and monetary policies has arguably prevented the pandemic from causing another long-term global financial crisis.
Information and Content
Pre-pandemic, the globalization of information and content had stabilized after monumental growth since 2008. But as the pandemic sent life online, digital flow exploded. International internet traffic grew 48% from mid-2019 to mid-2020 and international telephone call minutes increased by 20% in March compared to 2019. According to one research study, cross-border e-commerce sales of discretionary goods spiked 53% in the second quarter of 2020. In general, the online export eventually found its consumer.
The flow of people was the hardest hit economic sector and the slowest to recover. In order to stop the spread of the virus, people were restricted from international (and in some cases, domestic) travel. The number of people traveling to foreign countries fell 74% in 2020 and isn't expected to return to its pre-pandemic level until 2023.
Now that global markets are settling into a spectrum of "new normals," the question is, "what does globalization look like moving forward?" "Will it continue?"According to our research and understanding, the answer is "yes." Globalization of markets will continue and should help with economic recovery from the pandemic. However, multinational economics will look a lot different than it did in the 19th century and will continue to evolve.
Success in the New Era of Globalization
Success in this new era of post-pandemic globalization and unpredictable financial markets will require organizations to be more agile, learn from the past and prepare for an ever-changing potential future, test, embrace and integrate new technologies, and make corporate social responsibility (CSR) a real priority.
Agility - The only certainty in global business is uncertainty. Organizations that successfully globalize understand flexibility's importance for resilience. Whether it's a transnational financial institution or a family business, agile enterprises lean into risk and have strategies in place for adapting to the inevitable challenges that will arise.
Learn from the Future, Not Just the Past - (No crystal ball needed!) Lessons learned from the pandemic and other challenges are important to remember and take into the future. However, it's vital that organizations don't solely rely on these past lessons. AI and other transformative big-data technologies like machine learning can help companies analyze data and predict future consumer trends, for example.
Embrace and Integrate New Technologies - Technology is a very powerful force in shaping financial markets and economics in general. When integrated appropriately, new tech can enable organizations to be more productive, automate processes, stay competitive, stay connected globally, and innovate. Most importantly, adopting proven tech allows organizations to focus on their people, customer experience, achieving business goals such as sustainability benchmarks, and other critical organizational tasks.
Make CSR a Priority - Social responsibility is more important than ever even as nations continue to industrialize. Achieving the UN's 17 Sustainable Development Goals (SDGs) relies heavily on the support and action of all global organizations in every sector. More and more people want to work for, purchase from, and partner with organizations that prioritize CSR. Going beyond marketing rhetoric and addressing the needs of workers and the environment that supports all life helps improve employee attraction and retention. This social well-being approach can boost sales and profits and improves the world for a prosperous tomorrow.
While the pandemic irrevocably altered the trajectory of globalization, its economic fallout didn't put an end to humans engaging in commerce across borders and continents. As we enter this next phase of worldwide interconnection, Thunderbird is here to support students, professionals, and organizations in achieving personal and financial success.