Does Digital Globalization Really Make The World Flat?

Ajitabh Das

After visiting the Indian call centers in Bangalore in 2005, Thomas Friedman, in his best-selling book The World is Flat, famously declared that the connectedness of globalization has made the world as level playing field in terms of competition.

When the term globalization comes into mind, it flashes with a big ship leaving the harbor for another distant country to deliver the loaded goods. That’s because mind relates globalization primarily with international trade.

But the horizon of globalization has gone far beyond the realm of international trade. In the last 50-60 years, globalization has become a process of constant flow of goods, services, finance, and people. In the last 10-15 years, the rapid transfer of data and information via modern communication technology has been added to that list.

According to Susan Lund of the McKinsey Institute, we’ve entered into an era of digital globalization where unprecedented global flows of data and information transfer are occurring. Observers like Susan Lund and Laura Tyson (professor at the University of California) believe that the world is more connected than ever before.

So, will digital intervention help to flatten the global business playing field?

How digital intervention altered the face of globalization

Digital intervention has opened new doors for businesses by enlarging the plateau of competition. In the last ten years, numerous medium and small businesses have popped up and transformed themselves into exporters by joining the e-commerce marketplace. The e-commerce marketplace has allowed the small companies to compete with big global giants. According to McKinsey, around 12% of global goods are sold via e-commerce.

McKinsey also reports that global digital flows support and accelerate the economic growth. In fact, the digital flow of data and information brings more economic value than the trade of physical goods, and the countries that participate in digital globalization happen to grow their economy faster. The digital flow of data and information raised the world GDP growth rate by 10% in 2014.

Chinese Internet tycoon and CEO of Alibaba Jack Ma points out that in the last 30 years, “the rules of globalization were decided only by certain number of big global corporations (60,000) but now, thanks to ongoing digital transformation, the power will not stay in the hands of big enterprises only, but it’ll be shared with small and medium size firms as well.”

Can digital globalization bring a global renaissance?

If the balance of power will be adjusted amongst the big and small actors of globalization, then the global flows of data and goods could become an agent for the common good. In their book The Age of Discovery, Ian Goldin and Chris Kutarna present a glorified picture of the present state of globalization, saying that due to ultra-connectedness, we might be moving towards a global renaissance. Analysts like Goldin think that changes to the physical flows will not interfere with the continuous growth of digital flows.

The fact remains that data flows are controlled by states. Although globalization has diluted the power of state sovereignty, the states still remain the legal custodian of their territory. And since all multinational corporations physically stand in a territory that is governed by a state, the functioning of a foreign company does depend upon the institutions dealing with law, politics, and culture of the host country. So, like physical goods, the successful flow of data depends on the cooperative attitudes of national governments.

Recent political events like Brexit and Donald Trump’s U.S. election win are seen as part of a growing trend of expressing nationalism and discontent towards globalization. Large populations in the developed world believe that globalization has stolen their jobs and their governments are unable to protect their livelihood. To restore the faith of the disenchanted, we need to make globalization more inclusive by encouraging the growth of small and medium-sized companies. At Davos, 2017, Alibaba’s Ma spoke passionately about inclusive globalization in which not only big actors (global corporations) can participate, but small and medium size enterprises can also thrive and grow.

Digitalization has added a new chapter in the life of globalization. We should celebrate it and adapt ourselves to this momentous change, because through digitalization we can make globalization more inclusive and thus more acceptable. Only then will Friedman’s thesis of calling the world a level playing field appear to be true. The actors of globalization still have many miles to travel to make the world flat.

For more on the effect of digital technology on the global economy, see How Startups Are Using Technology To Go Global.

Ajitabh Das

About Ajitabh Das

Ajitabh Das is a fellow for the SAP News Center editorial team at SAP.