Globalization

The Second World War brought a renewed life to globalization and the quantum of world trade increased upto 20 times since 1950 and so did the flow of foreign investment from 1980. China opened up in 1978, India in 1990....the trend was in favour of globalisation. The globalisation craze peaked in 2006-07, just before the sub-prime crisis. But ever since the crisis, the rate of globalisation has taken a hit. Also predicting the future is difficult considering the history has not been linear nor a natural science governed by rules and regulations.

* Globalisation will continue helping mix of cultures, knowledge and best practices.

* The world's centre of economic gravity will shift toward emerging markets as they are redesigning entire business processes to do things better and faster than their rivals in the West. The rich world is losing its leadership

* The developing nations will take advantage of economies of scale and manage to reduce costs but not quality. The cheaper goods and services will also be a blessing for the western customers who are likely to face years of slow income growth.

* The global meltdown coupled with the strong resistance showed by emerging economies like China, left an impression that state-backed or state-supported enterprises was the way ahead.

* With states such as China using their power to promote their own businesses ( For eg. The contolling of exchange rates, not allowing intellectual property rights for foreign companies investing etc), most liberal countries like USA already gripped with high unemployment etc, have themselves turned protectionist.

* Labour mobility from the young nations to the ageing nations could be liberalised

* Emergence of state capitalism, has also contributed to the slowdown of Globalisation.

But it is only in the last 5 years or so, the future of state capitalism has become clearer. Even though it benefitted a few nations, it's not so benefitting factors are coming to the table. The fundamental flaws include

* The restriction of competition by the state,

* The contradiction of the state being the promoter as well as the regulator,

* The promotion of cronyism and corruption etc.

* The loss of jobs in the developed nations

* The global environmental and climate change that threatens the very survival of the human species cannot be meaningfully abated with the nation-state framework.

* The efficiency of regional supply and production chains is constrained by market failure in funding and managing inter-operable cross-border networks like roads, railways and energy. This can be overcome only through greater integration.

Even though the latest uprising of state-capitalism was an improved version (professionals running the show rather than bureaucrats etc.), its flaws are too many for it to sustain.

* Restriction of competition has led to lesser innovations, poorer quality of goods and services. Cronyism and corruption has left majority of people cheated and looted.

* Lax labour laws to allow manufacturing to grow, has lead to huge labour unrest and revolts.

The merits of free markets, free trade are again re-surfacing and we are headed for a path similar to the one that existed pre-sub-prime crisis of 2008. It seems in another decade or too, state-backed enterprises will be on the decline, and once again give way to the privately owned and managed companies.

Path Making

1) Anticipate bumps and detours even if you do believe that the world will eventually become much more integrated

* Businesses should be aware of the dimension of cyclicality, there are going to be booms and troughs, no matter whatever business is being talked about.

* It is very important, to understand the trends to know the right time to invest and where.

* A correct knowledge of what business to do in which nation and how to do it also assumes importance. A trend should be analysed and forecasted

For eg. The BRIC nations have been the star attraction for investment in the past decade, but it is possible that in the coming years the side-effects of state capitalism might hit a few of them

2) Pay attention to other predictable surprises

* The business leaders must ensure to act upon situations where they can predict forthcoming economic trouble.

* Crisis arising due to changing public opinion, liquidity