The Threat to Globalization
Until September 11th, many experts considered the process of globalization to be as tough and resilient as a force of nature. Then a small group of box-cutter-wielding terrorists taught us that the fabric of globalization might be more delicate than we knew. In the long run, the current crisis may serve to strengthen globalization, but for now the process has been slowed down, potentially changing strategic people-management assumptions about the future.
To be sure, many business leaders vow that recent events won't cause them to retreat from their global plans. "This hasn't changed the way I feel about the need to globalize," says Jeffrey R. Immelt, General Electric's new chairman. Yet, if the "war on terrorism" winds up being as long and difficult as U.S. government leaders warn, then the cost of doing global business may rise significantly. And the flow of labor as well as products could slow substantially.
Federal Reserve Chairman Alan Greenspan notes that, as a result of greater business uncertainty, investors are taking bigger risks and so requiring greater returns on their investments. This drives up the cost of capital and could reduce overall levels of investment. "That, in turn, could mean that even when the U.S. emerges from recession, it will be hard-pressed to return to the 4% baseline growth rate it achieved during the go-go years of the 1990s," according to a BusinessWeek magazine analysis.
Another driver of higher costs is the added security that firms must provide to employees in other nations as well as in the U.S. It may also become harder – and therefore more expensive – to convince people to travel or take jobs abroad, especially in regions that have demonstrated hostility toward the U.S. or other Western nations. "Obviously, we have business executives now taking a step back and asking whether it is imperative to go to Indonesia, the Philippines and Malaysia. There is political risk there most of the time and September 11 has only exacerbated the problem," says Tim Davies, regional director of risk consultant Kroll Associates, quoted in the South China Morning Post.
Restrictions on immigration are also likely to take their toll, reducing the availability of both skilled and unskilled workers that, during the 1990s, helped U.S. companies meet labor needs while holding down costs. Legal immigrants were responsible for about a third (34%) of labor force growth in the 1990s, with ethnic Chinese and Indians playing a huge role in Silicon Valley entrepreneurship. "The economic boom of the late '90s probably never would have happened if not for the immigrant flows," says Mark M. Zandi, chief economist at consulting firm Economy.com.
Some nations are worried that conflict, security concerns and immigration restrictions could hurt their participation in the global economy. The Reuters news service reports a draft declaration from the 21-member Asia Pacific Economic Cooperation (APEC) forum meeting as reading, "Terrorism is ... a direct challenge to APEC's vision of free, open and prosperous economies, and to the fundamental values that APEC members hold." India, with the world's second largest population, is especially concerned that political and military conflict could harm its economy. BusinessWeek reports, "In India, execs fret that a U.S. clampdown on visas for the nation's software engineers, plus a new wariness of outsourcing sensitive work to foreigners, could severely damage the nation's thriving information-technology services industry."
The danger is that reduced globalization will result in less investment, less labor mobility, and rising poverty rates in many nations, resulting in a vicious cycle of political instability that leads to more terrorism. The hope is twofold: that the international integration of markets that occurred in the 1990s will act as "stitches" that hold together the fabric of globalization despite today's conflicts, and that the global community of public- and private-sector leaders will gain a better understanding of how to create a global environment inhospitable to future terrorists. Determining how to help build such a world is likely to become one of the chief strategic concerns of managers – including experts in culture and people management – in the early 21st century.
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To read "Terrorism and the Global Economy," please see
http://www.businessweek.com/bwdaily/dnflash/oct2001/nf20011012_6644.htm
To read "Fighting a Spreading Anti-U.S. Fire," see
http://www.businessweek.com/bwdaily/dnflash/oct2001/nf20011012_8025.htm
To read about APEC's initial response to terrorism, see
http://dailynews.yahoo.com/h/nm/20011017/wl/apec_dc_12.html
To be sure, many business leaders vow that recent events won't cause them to retreat from their global plans. "This hasn't changed the way I feel about the need to globalize," says Jeffrey R. Immelt, General Electric's new chairman. Yet, if the "war on terrorism" winds up being as long and difficult as U.S. government leaders warn, then the cost of doing global business may rise significantly. And the flow of labor as well as products could slow substantially.
Federal Reserve Chairman Alan Greenspan notes that, as a result of greater business uncertainty, investors are taking bigger risks and so requiring greater returns on their investments. This drives up the cost of capital and could reduce overall levels of investment. "That, in turn, could mean that even when the U.S. emerges from recession, it will be hard-pressed to return to the 4% baseline growth rate it achieved during the go-go years of the 1990s," according to a BusinessWeek magazine analysis.
Another driver of higher costs is the added security that firms must provide to employees in other nations as well as in the U.S. It may also become harder – and therefore more expensive – to convince people to travel or take jobs abroad, especially in regions that have demonstrated hostility toward the U.S. or other Western nations. "Obviously, we have business executives now taking a step back and asking whether it is imperative to go to Indonesia, the Philippines and Malaysia. There is political risk there most of the time and September 11 has only exacerbated the problem," says Tim Davies, regional director of risk consultant Kroll Associates, quoted in the South China Morning Post.
Restrictions on immigration are also likely to take their toll, reducing the availability of both skilled and unskilled workers that, during the 1990s, helped U.S. companies meet labor needs while holding down costs. Legal immigrants were responsible for about a third (34%) of labor force growth in the 1990s, with ethnic Chinese and Indians playing a huge role in Silicon Valley entrepreneurship. "The economic boom of the late '90s probably never would have happened if not for the immigrant flows," says Mark M. Zandi, chief economist at consulting firm Economy.com.
Some nations are worried that conflict, security concerns and immigration restrictions could hurt their participation in the global economy. The Reuters news service reports a draft declaration from the 21-member Asia Pacific Economic Cooperation (APEC) forum meeting as reading, "Terrorism is ... a direct challenge to APEC's vision of free, open and prosperous economies, and to the fundamental values that APEC members hold." India, with the world's second largest population, is especially concerned that political and military conflict could harm its economy. BusinessWeek reports, "In India, execs fret that a U.S. clampdown on visas for the nation's software engineers, plus a new wariness of outsourcing sensitive work to foreigners, could severely damage the nation's thriving information-technology services industry."
The danger is that reduced globalization will result in less investment, less labor mobility, and rising poverty rates in many nations, resulting in a vicious cycle of political instability that leads to more terrorism. The hope is twofold: that the international integration of markets that occurred in the 1990s will act as "stitches" that hold together the fabric of globalization despite today's conflicts, and that the global community of public- and private-sector leaders will gain a better understanding of how to create a global environment inhospitable to future terrorists. Determining how to help build such a world is likely to become one of the chief strategic concerns of managers – including experts in culture and people management – in the early 21st century.
====================================================
To read "Terrorism and the Global Economy," please see
http://www.businessweek.com/bwdaily/dnflash/oct2001/nf20011012_6644.htm
To read "Fighting a Spreading Anti-U.S. Fire," see
http://www.businessweek.com/bwdaily/dnflash/oct2001/nf20011012_8025.htm
To read about APEC's initial response to terrorism, see
http://dailynews.yahoo.com/h/nm/20011017/wl/apec_dc_12.html