Reinhold M. Karner

Success advisor and mentor

Reinhold Karner is an international success advisor and mentor to entrepreneurs, chief executives, start-ups and business leaders. He is a chair/fellow of think tanks and the RSA in London, keynote speaker and lecturer, as well as chairman/member/trustee on a number of advisory bodies, committees, juries and trusts. In 2007, Mr Karner went from being a 21-year-strong self-made entrepreneur and recognised start-up founder to losing everything ‘overnight’, yet overcame this setback and managed this failure successfully. It taught him an indispensable lesson and has enabled him to become a steadfast success advisor. Restarting from scratch, he is now at the top of all his fields once again. Mr Karner has accumulated profound experience ranging across the ICT and digital economy, trade, manufacturing, services and logistics, business and management consulting among others. He has a unique track record of 35+ years as a multinational entrepreneur, expert and leader, and his companies and products have received countless awards and accolades, as well as top rankings in several disciplines, categories and business performances. Mr Karner also pioneered the development of Europe’s very first ground-breaking Internet-, cloud- and Java-compliant ERP business suite, inventing several ICT key architectures which have become today’s ICT standards.

Economy 4.0: the global revolution and its five disruptive forces (Part 6 of 7)

Tuesday 19th July 2016


There is a significant structural shift to detect in globalisation – an impact which will overturn the old order, upscaling and changing our perception by rethinking what it means to do business globally. And this is – again – also triggered by digitisation and connections, a new era which is no longer dominated by large multinational corporations and which will even shorten their lifespan, as SMEs can instantly become micro-multinationals in their own right, and start-ups can be ‘born’ global.

Globalisation is mainly driven by the degree to which the world is more and more connected through trade, capital and finance, people and information (data and communication).

To demonstrate the immense dimensions, I quote various reports and literature dealing with global flows in a digital age and global trends of disruptions from 2014-2016 by the McKinsey Global Institute (MGI):

  • In the past 30 years’ world’s trade has increased tenfold;
  • $26 trillion flow of goods, services, and finance in 2012, equal to 36 per cent of global GDP;
  • up to $450 billion added to global GDP growth each year by flows – and 40 per cent more benefit for the most connected countries than the least connected;
  • 18-fold increase in cross-border Internet traffic between 2005 and 2012;
  • 38 per cent of total cross-border flows of goods, services, and finance from emerging economies in 2012, up from 14 per cent in 1990; 
  • up to $85 trillion flow of goods, services, and finance by 2025, three times the value in 2012;
  • emerging economies now account for 40 per cent of all goods flows, and 60 per cent of those go to other emerging economies – known as south-south trade;
  • 12 per cent of global goods trade from China in 2012 vs. two per cent in 1990;
  • growth in knowledge-intensive goods trade is growing 30 per cent faster than trade in labour-intensive goods;
  • between 1980 and 2012, the value of total goods trade grew at a seven per cent compounded annual growth rate, while the value of services traded rose at an eight per cent annual rate;
  • in the same period, thanks to rapidly expanding supply chains, goods flows increased nearly tenfold in value, from $1.8 trillion to $17.8 trillion, and amounted to 24 per cent of global GDP;
  • between 1980 and 2007, annual cross-border capital flows increased from $0.5 trillion to a peak of $12 trillion, a 23-fold increase. Such flows fell sharply in the aftermath of the 2008 financial crisis and then bounced back.

The world is more connected than ever. For the first time in history, emerging economies are counterparts on more than half of global trade flows, and South-South trade is the fastest-growing type of connection. (Refer to the shift of the world’s economic centre of gravity in part 2).

While flows of goods and finance have lost momentum, used cross-border bandwidth has grown 45 times larger since 2005. It is projected to grow by another nine times in the next five years as digital flows of commerce, information, searches, video, communication, and intracompany traffic continue to surge.

Digital platforms change the economics of doing business across borders, bringing down the cost of international interactions and transactions. They create markets and user communities with a global scale, providing businesses with a huge base of potential customers and effective ways to reach them.

Over a decade, global flows have raised world GDP by at least 10 per cent – this value totalled $7.8 trillion in 2014 alone. Data flows now account for a larger share of this impact than global trade in goods. Global flows generate economic growth primarily by raising productivity, and countries benefit from both inflows and outflows.

For decades, trade – the flow of goods, services, and finance – grew at twice the rate of the global economy. But since the financial crisis in 2008, the year 2016 is expected to be the fifth in a row in which trade has failed to grow at this historical rate.

According to the Financial Times, last year we saw the biggest collapse in the value of goods traded around the world since 2009. Major ports such as Hamburg and Singapore have also reported slowing growth and even declining volumes. A spectacular turnaround in the global economy is not on the horizon – a pattern not seen since the stagnations of the 1970s.

Much of this recent feeble performance is down to the economic slowdown in China and an ongoing weak recovery in Europe.

Others think the slowdown in global commerce could still be offset by another transition in China, which is already underway. China is reviving the historic Silk Road trade route that runs between its own borders and Europe. The idea is that two new trade corridors – one overland and the other by sea – will connect the country with its neighbours in the west: Central Asia, the Middle East and Europe. Beijing is, in many ways, emulating what Japan did following the 1980s Plaza Accord, when a dollar depreciation against the yen triggered a move by Japanese companies to send lower-value manufacturing overseas while keeping higher-value production at home. So, China still has a clear path forward – and is by 2030 expected to be the world’s largest economy once again, as China was the world’s largest economy in 1820, and is the second largest economy today.

China has already lifted more people out of poverty than any other country – it is developing middle class consumers. China is the world’s largest exporter and the second largest importer of merchandise goods. There is big transition by China’s attempt to rebalance from a manufacturing and export-led economy towards one focused on domestic consumption.

While these factors explain part of the weakness in global trade, some say there are even bigger factors at work. A growing number of economists argue that the slowdown is not simply cyclical, but a steady sign that the forces that have driven globalisation for decades are beginning to shift. They note that the plateau in worldwide trade in goods and capital has coincided with a surge in data flows — an indicator that the digital economy of the 21st century is starting to overturn the old order.

The growth of trade is a centuries-long drift that has accelerated with containerisation and higher productivity of transportation networks. But today a host of new technologies and networks are changing and shifting the trend in its characteristics.

The rise of consumers and businesses in emerging economies is remaking, intensifying, and deepening the process of globalisation. Supply chains are growing quite complex and have greater geographical reach.

Economists at the McKinsey Global Institute (MGI) point to increased automation and new manufacturing technologies, including 3D printing, to support the argument that the change is likely to accelerate – all of which bodes badly for the future of the global trade in goods.

“The image that many of us still have in our minds of globalisation is the picture of the huge cargo container ships taking boatloads of manufactured goods from factories in far-flung places and delivering them to markets around the world,” says Susan Lund, one of the authors of these McKinsey reports. “What we see in front of us is a globalisation that has morphed into a very different and more digital direction.”

Even as flows of finance, goods and services have slowed — falling from a peak of 53 per cent of global output in 2007 to 39 per cent in 2014 — the world has seen a surge in cross-border data. The flow of digital information around the world more than doubled between 2013 and 2015 alone, to an estimated 290 terabytes per second, McKinsey says. That figure will grow by a third again this year, meaning that by the end of 2016, companies and individuals around the world will send 20 times more data across borders than they did in 2008.

McKinsey argues there are already signs of the economic value of that new form of globalisation. By its calculations, cross-border flows of capital, goods, services and data added an extra $7.8tn to the global economy in 2014. The added value of data flows alone accounted for $2.8tn of that total, slightly more than the $2.7tn attributed to the global trade in goods.

The arrival of this digital economy has coincided with a shortening of global supply chains, a phenomenon that the International Monetary Fund and World Bank warned about in 2014.

McKinsey argues that those moves, replicated in the US and elsewhere, have had a global impact as carmakers and other companies have begun bringing production closer to home or concentrating it in bigger markets. This trend will, in my opinion and as mentioned in part 3, be fuelled even more with the new and next generations of robots, automation concepts like ‘Industry 4.0’ and the Internet of Things (IoT), since labour costs will play an ever-decreasingly minor role.

Trade between emerging economies is likely to continue to grow as a share of global trade as incomes in these countries increase, boosting the number of consumers with a ravenous appetite for goods of all kinds. So there should also be plenty of room for economies in Africa and Latin America and even India to take up China’s mantle and feed the next round of growth in global trade. Whether as sources of rising demand for overseas goods or as new export powers, all could contribute to another burst of globalisation, let alone when the next billions of people in emerging economies are lifted out of poverty within the next few decades (as mentioned in part 2) and add to the consuming class – which will lead also into massive consequences regarding demand and costs of commodities and capital.

In an important trend break, technology is shifting trade from the formerly exclusive province of large companies to an activity that all sorts of companies – even individuals—can participate in.

Small businesses worldwide are becoming “micro-multinationals” by using digital platforms such as eBay, Amazon, Facebook, and Alibaba to connect with customers and suppliers in other countries. Even the smallest enterprises can be born global today: 86 percent of tech-based start-ups MGI surveyed report some type of cross-border activity. The ability of small businesses to reach new markets supports economic growth everywhere. More than 90 per cent of eBay commercial sellers export to other countries, compared with less than 25 per cent of traditional small businesses – a new era of globalisation for ‘the little guy’, as MGI calls it.

Individuals are participating in globalisation directly, using digital platforms to learn, find work (even on a remote basis), showcase their talent and build personal networks. Over one billion people have international connections on social media, and approximately 400 million take part in cross-border e-commerce.

Even people themselves are increasingly interconnected globally. While the number of people travelling, working, and studying globally has increased steadily for centuries, the past few decades have seen an explosion in the volume of those movements. Once people move to cities and earn higher incomes (see part 2), it becomes much easier to move or travel to other countries. Hence the labour market is becoming truly global for the first time as well.

In Silicon Valley for example, more than half of business start-ups involved a foreign-born founder, scientist or engineer, and over 25 per cent even included an Indian or Chinese immigrant.

People are not just traveling more frequently for work. World tourism has also expanded exponentially. In 1950, just 25 million people travelled abroad. But in 2013, we have already seen more than one billion international tourists travelling around. Their impact is enormous, not just because of the money they spend, but for the invaluable exchange of knowledge and culture, as well as the set-up of many new personal relationships.

Students, too, are crossing borders in large numbers. Around 800,000 international college students study in the US today – about 250,000 more than in 2006. Approximately a quarter of these students are Chinese.

Perhaps the most dramatic change in recent years however has been the speed at which information is flashing around the world. More than two-thirds of humans have a mobile phone, and the proportion is rising rapidly. Today, there are more phones than people.

This level of tele-density means that people have become interconnected at a level never seen before in history. Over 40 per cent of the planet is online. At more than 1.65 billion, the community of Facebook users is already far beyond the population of the world’s largest nation, China.

These connections have already had an enormous impact and are poised to have an even greater one, especially in developing countries. Internet-related consumption and expenditure is now bigger than either global agriculture or the worldwide energy sector.

The MGI Connectedness Index – which scores the flow of goods, services, finance, people and data over the flow of value and intensity, offers a comprehensive look at how countries participate in inflows and outflows. Singapore tops the rankings in the latest report (No. 4 in 2014), followed by the Netherlands (previous No. 6), the United States (unchanged), and Germany (previous No. 1). China has surged from No. 25 to No. 7.

This matters! MGI explains why: the rise, diversification, and power of global flows are not just fascinating; they are of significant importance to businesses all over the world for several reasons. First, the more connected you are, the better off you are. Second, global interconnections are rewriting the rules of the game and are one of the major factors changing the basis of competition. The new landscape of global flows offers more entry points to a far broader range of players. Large companies from emerging markets are increasingly formidable competitors. Traditional sector boundaries are blurring. Small businesses and start-ups can be instantly global. Whereas in the past, developed-economy multinationals competed against each other, today’s competitors can be individuals and companies in all shapes and sizes – from anywhere in the world and from unexpected sectors. Put differently, if a business today has data and a platform that engage millions of people, few attractive business opportunities in just about any sector are ‘unthinkable’ for it.

Online marketplaces for the sale of goods and services, have been at the epicentre of changes in the global competitive landscape. Today, however, as technology continually allows for the creation of entirely new platforms, incumbents may not have any familiarity with the mechanics, business models, and competencies of their new competitors.

It’s no longer sufficient to regard large firms as potential competitors; start-ups with access to digital platforms can be born global, scale up in the blink of an eye, and disrupt long-standing rules of competition.

Technology is also shifting the balance of power from large, established incumbents to small businesses, start-ups, and entrepreneurs. In global markets, size has typically not only been an advantage – it has been a necessity. In the 1990s, it was virtually impossible for small enterprises to compete in markets around the world or scale up operations to a global level immediately. In the vast commercial ocean, the sharks would easily mow down the minnows. Today, however, minnows are increasingly chasing and getting the better of sharks, thanks in large part to the rise and power of new technological platforms.

In an important trend break, technology has allowed small, nimble attackers to compete with large, established companies. Start-ups today can plug into enormously powerful global platforms with the same ease as a large corporation and can expand to millions of customers in a matter of a few years, if not months.

New competitors can buy state-of-the-art systems off the shelf and install them in a matter of weeks. 3D printing allows start-ups and small companies to ‘print’ highly complicated prototypes, moulds, and products in a variety of materials with no tooling or setup costs. Cloud computing gives small enterprises IT capabilities and back-office services that were previously available only to larger firms – and cheaply, too. Indeed, large companies in almost every field are vulnerable, as start-ups become better equipped, more competitive, and able to reach customers and users everywhere.

The instantly plugged-in phenomenon isn’t confined to the technology and digital sectors. Even traditional industries such as manufacturing are increasingly seeing small businesses with multiple-country production sites and global operations – practices once reserved for established multinationals.

Third, global flows provide companies with new ways to put their assets to productive use.

Finally, a more interconnected world leads to some surprising new outcomes. But that has, in my opinion, two sides of the coin, as this provides not just a vast range of opportunities but makes our world more and more into a village, so that any unfortunate event somewhere may impact vulnerable others without any delay, as these days, news travels not just fast but almost in real-time.

So be prepared to see and deal with this significant structural shift to make the best out of it and master the challenges well.

In the next and final part of this series, Reinhold Karner will deal with conclusions and recommendations.