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Globalization 3.0: Digital flows and the new economy

Globalization 3.0: Digital flows and the new economy

In Copenhagen, Steffen Hedebrandt, Head of Growth and Marketing at Airtame, and a digital globalization evangelist settles into a call through an app.

“The Internet means you don’t have to do anything you don’t find interesting. You can always find people to help you. We are the first generation where globalization is truly global,” said Hedebrandt.

Hedebrandt, who previously ran a vintage musical instruments web platform employing workers from Pakistan, India, Copenhagen, Romania, Austria, the US and the UK, found his new job by posting on LinkedIn. He says within a few days 20 people contacted him to discuss work opportunities.

“Two years ago, my employer ran one of the biggest crowdfunding campaigns in Europe, raising 1.3 million euros overnight. That’s globalization: you put an idea on a crowd funder and people from everywhere support you.”

In Ottawa, Shopify, which started with a team of five employees working from a coffee shop, helps retailers build online sales platforms. It now has about 250,000 small businesses under its banner and has rung up over 14 billion dollars’ worth of product through its registers. 

Both Shopify and Hedebrandt are two different sized cogs in digital globalization.

According to US-based management consultancy McKinsey & Company’s recent study Digital globalization: The new era of global flows, which dissects the growth of cross-border “flows” in the global economy — breaking them down to goods, services, finance, people and data and communications – digital information more than doubled between 2013 and 2015.

It estimates that flows of capital, goods, services and data pumped an extra $7.8 trillion to the global economy in 2014 and for the first time, data flows accounted for slightly more than the actual global trade in goods.

“THIS IS NOT YOUR FATHER’S GLOBALIZATION,” SAID JAMES MANYIKA, DIRECTOR OF MCKINSEY GLOBAL INSTITUTE AT THE REPORT’S LAUNCH IN MARCH. “THE WORLD CONTINUES TO BE MORE CONNECTED. A LOT HAS CHANGED IN THE LAST TWO YEARS ABOUT HOW WE SHOULD THINK ABOUT HOW GLOBALIZATION (IS BEING) DRIVEN BY THESE FORCES.”

 

McKinsey says the trade and finance growth that built the 20th Century’s global economy has stalled. Last year was the sharpest dip in the value of goods, services and finance traded since the apex of the global financial crisis in 2009.

But its not all bad. That dip has been met at the nexus of surging cross border data. And that, experts say, is an economic signpost that the digital economy is structurally transforming the old order.

In 2012, nearly half of the $26 trillion of global cross-border flows were knowledge-intensive — goods and services that are built through substantial R&D investments or highly skilled labor that transmit information, ideas, or expertise. What’s telling is that they are growing at 1.3 times the rate of labor-intensive flows.

Bandwidth has grown 45 times over the past decade and is estimated to surge nine fold by 2020 as digital flows of commerce, information, searches, video, communication, and traffic continue to explode.

While change is rapid, the writing has been on the wall for years.

In 1996, preeminent Spanish sociologist Manuel Castells, a leading voice on the information society, communication and globalization, published The Rise of the Network Society, where he identified new ways global economic activity was being organized around the networks that new telecommunication technologies provided.

The Balzan Prize winner highlighted the massive builds of Internet infrastructure during the dot-com boom, when telecommunications companies laid thousands of miles of fiber-optic cable all over the world, turning network communications into a commodity.

Later, New York Times’ columnist Thomas Friedman’s 1999 book The Lexus and the Olive Tree: Understanding Globalization focused on the replacement of the abruptly irrelevant Cold War system. The globalization that Friedman was talking about revolved around the outsourcing of labor-driven manufacturing to the Third World and resources and commodities trading.

By the time the three-time Pulitzer winner released international best seller The World Is Flat: A Brief History of the Twenty-First Century in 2005, he was arguing that we had entered a new structural change and countries, companies, and individuals would need to be global “flatists” to remain competitive in a market where “historical and geographical divisions are becoming increasingly irrelevant.”

Friedman rightly believed the container age was being replaced by the convergence of the personal computer, fiber-optic Internet connections, and software, which created a “flat-world,” ushering the advent of small groups and individuals going global.

But just six years later, Friedman self-deprecatingly trumpeted changes from the book’s release: “I said the world is flat. Yeah, we’re all connected. Facebook didn’t exist; Twitter was a sound; the cloud was in the sky; 4G was a parking place; LinkedIn was a prison; applications were what you sent to college; and Skype, for most people, was a typo.”

Irving Wladawsky-Berger knows more about structural changes than typos.

His parents fled the persecution of 1930s Eastern Europe, only to land in Cuba, which underwent its own seismic political shift when Fidel Castro’s communist forces swept from the mountains and into Havana’s halls of power in 1959.

Shortly after, Castro nationalized his family’s business and they were on the move again. This time to New York, where he embarked on a 37-year career with IBM as a worldwide oracle identifying emerging technologies and marketplace developments critical to the future of the IT industry.

The former co-chair of the US President’s Information Technology Advisory Committee says the world is a very different place today. The constant advances of digital technologies such as mobile devices, cloud computing, Internet of Things, social networks and Big Data coupled with the long march of surging Internet access globally means each technology isn’t in a vacuum, but interacts with the others and amplifies itself and the rest combined.

“Every time you have a major technological based revolution there is a group of people left behind. The next generations adapt, do well and create new jobs, but that doesn’t mean that everybody benefits, says Wladawsky-Berger via Skype from the confines of his New York apartment.

“The technology is developing faster but the impact on society is still taking time. A lot of (the economic structural changes) we think we’ve never seen before, we actually have. The reality, however, is that most of the trade around the world now takes place through digital flows.”

Today, about 12 percent of worldwide trade is shuffled through e-commerce properties such as Alibaba, Amazon, Shopify and eBay. Facebook says 50 million SMEs use its platform, doubling in number from a few years ago. It’s a staggering figure given a World Bank estimate that there were only 125 million SMEs in 2010. 

Facebook alone has more users than China has people. If Internet and social media properties counted users the way countries conduct a census, then only China, India and United States would crack the top 12. About 44 million people find work on freelancer platforms and over 400 million have LinkedIn profiles.

“It’s huge to have digital infrastructure up to par. To not have that is to be outside the global economy. Its absolutely critical, and even more so in the world of cloud. The companies that have the best cloud data centers are incredibly professional from an engineering point of view along with their scalability, security and efficiency. There is a tremendous opportunity now for the right firms that can provide bandwidth,” says Wladawsky-Berger, who works with former IBM CEO Samuel Palmisano to mentor young tech entrepreneurs from places as far flung as Kathmandu, Dar Es Salaam, Lagos and Yangon.

“Cloud has revolutionized the production of services and apps in the same way Toyota revolutionized manufacturing after World War II. The applications are very intuitive, very easy to use, and are a boom in emerging economies because it allows them to skip a generation of business efficiencies.”

But interconnectivity in the age of digital globalization requires networks to communicate inherently. Elastic networks are the clarion call of today and business applications hosting in their own premises, third-party data centers, and SaaS provider domains need hooks into other networks.

Elasticity allows global businesses of today and tomorrow to leverage virtual servers to enable services and apps to be moved and scaled up or down on without affecting the end user.

“To turn connectivity into a competitive advantage, you need an elastic network that’s flexible, adaptable, scalable and easy to manage,” said Wilfred Kwan, Chief Operating Officer of Reliance Communications (Enterprise) & Global Cloud Xchange from Hong Kong.

Kwan says the network needs to support on-demand creation of Network Functions Virtualization (NFV) and its ability to deploy them without human interaction.   

“Global Cloud Xchange has begun to interconnect our large capacity backbone to multiple third-party clouds and created a scalable orchestration engine that will soon interconnect network services, and NFV services coming to our Cloud X IaaS platform. You will be one step closer to a smarter network that gives you an advantage over your global competitors.”