Company Announcement - In today’s fast-paced world of frequent air travel, high-speed internet and a shared hip-hop culture, we might consider ourselves to be living in a global village.  Indeed, globalisation spills into areas such as human rights, global justice, the environment, markets and production.  Globalisation is, however, nothing new.  As a concept it has been around for almost two hundred years; as a buzzword, for over thirty.  The question to ask is: are we really as global as we think we are?

“Where is this global village?  Can someone please tell me where it is?”  This comes from Professor Bart Smit, Associate Professor at Unisa’s Graduate School of Business Leadership. His specialisation is international management and economics, two subjects that he lectures to students on one of the SBL’s flagship programmes, the Masters of Business Leadership (MBL). If anyone should know where the global village is situated, it should be him. But Prof Smit is adamant that globalisation is merely a myth, embedded deep in the minds of modern men and women rather than grounded in the real world.

Prof Smit suggests that we don’t really understand the concept of globalisation at all.  In fact, research that he has undertaken among South African business executives points to a loosely-strung-together comprehension of globalisation which is in stark contrast to how this plays out - or doesn’t - in world markets and global firms. 

Consider the definition of globalisation.  Globalisation refers to a world that converges towards a commonality.   Old assumptions of how the world works no longer hold true, because a new world order has emerged; with it, a blurring of borders through the integration of markets and production, and the rise of a new beast:  the global corporation.  Prof Smit says, “Analysis of the definitions of globalisation all have at least three common elements.  These include the notion of shrinking space, shrinking time and the disappearance of borders.”

To see if these three elements reflect the current way in which the world works, Prof Smit says that it is critical to interrogate empirical data that goes beyond standard economic data, to include export figures as a percentge of GDP, and foreign direct investment as a percentage of fixed investment: “Data that has been gathered from various sources, including the World Bank, depicts that around 80% of all goods and services are still produced and consumed locally.  Although exports increased from 18% in the 1980s to 26% in the 2000s, and FDI increased from 3% to 10 % over the same time, this still indicates that 74% of world markets and 90% of all investments remain local.   Throughout the years of globalisation, the average of exports as a percentage of GDP has remained at 22% and that of FDI as a percentage of total real investment at 6%.” (Prof Smit cautions that some of the empirical data overstates export figures given that re-exports are included here.  This gives an upward bias to exports as a percentage of GDP and creates a false sense of the degree of globalisation.) 

Prof Smit says that leading research in the area of globalisation does provide some evidence of its occurrence at the firm level.   He cites research that indicates 90% of all businesses in the world are small-medium enterprises, and together these produce 80% of world GDP and provide between 60% and 90% of all employment.   This would indicate that just 5% of all businesses regarded as multinational enterprises (MNEs) are contributing, at most, 20% of world GDP.  Furthermore, of the Fortune 500 global companies, 80% derive their sales, on a weighted average, from their home region and less than 10 have sales of 20% or more outside their home regions.  Even Wallmart, the largest company throughout the world in terms of sales, derived 80% of its sales in 2005 from the US market to a tune of USD 204 billion, and just 20% at USD 60 billion from its overseas operations.

In a world that appears to be not as global as we would anticipate, and where most firms remain local, Prof Smit believes that one should talk less about globalisation and more about the CAGE framework.  This is where cultural (C), administrative (A), geographic (G) and economic (E) distance still matter very much.  In a world of CAGES, there is no borderless world - or ‘global village’ - that operates outside the CAGE space.  In CAGEs, countries are closed systems rather than the open systems that are described by the definitions of globalisation. Prof Smit says, “Of course, the world is undoubtedly linked together by the balances of payments of countries and by exchange rates.  But these work on an automatic adjustment mechanism that adjusts for economic differences - rather than similarities - between countries.  And capital flows between countries not because the world is global, but because the return, or risks, of capital between countries (CAGE differences) differ. Albeit at a faster rate due to advances in technology, these linkages work today in exactly the same way they did almost 100 years ago.”