Globalization 4.0: Trade’s New Center of Gravity
How logistics and other key elements are helping ASEAN members thrive in today’s rapidly changing global marketplace.
In the wake of the economic downturn, global trade is entering a new phase – an era I call “Globalization 4.0.” This era is distinguished by an uptick in trade, but a distinct shift in its center of gravity from developed nations like the U.S. to emerging economies.
As the hard-hit developed economies recover and consumer spending in the U.S. is weak, trade lanes are growing in emerging economies, particularly in Asia. Over the past seven years, trade within Asia has risen 75 percent faster than its trade with Europe and the United States. In fact, trade with developed economies is now half that of intra-Asian trade.
In the last several years, emerging nations made trade agreements with each other and lowered tariffs. ASEAN has been a free trade agreement leader. In fact, when the ASEAN FTA was signed with China earlier this year, it created the largest free trade area in terms of population (1.9 billion people) and the third largest free trade zone in economic size, (a cumulative gross domestic product of US$5.8 trillion).
But as trade-oriented ASEAN nations drive more global growth, other countries – especially in Western Europe and North America – are pulling inward. With high unemployment and slow growth, major developed nations are threatening to raise barriers to commerce. The United States is a case in point. Troubling signs of protectionism include tariffs on Chinese aluminum. Major U.S. trade agreements with South Korea, Colombia and Panama are stuck on the docket, and a few industry-specific disagreements are blocking legislation that would boost U.S. trade and growth. These moves threaten to impede U.S. exports and imports, and even increase the risk of a trade war in which everyone loses.
The second factor of Globalization 4.0 is investment in transportation and technology infrastructure. This is an area where Asia also leads the way. After the ASEAN-China agreement was signed, Indonesia, one of the largest exporters of raw materials in South East Asia, pledged to triple spending on ports and airports this year to support trade. And in China, the government is building new highways to open western provinces to development and bring even more people into the global economy. Contrast that with the United States' crumbling transportation infrastructure, which hasn't seen a major influx of investment since the 1960s.
Another critical part of the Globalization 4.0 story is logistics, which underpins all global trade. Logistics is the art and science of moving something exactly where it needs to be, exactly when it needs to be there. Logistics is the key to ensuring that global trade continues to expand and thrive, and helps companies compete.
Logistics is a rapidly changing practice. Under old-style logistics, firms tended to develop capabilities internally, and shipments often got bogged down in paperwork as they moved through different networks and across borders. But under the new logistics, shipments often are handled by third-party global transportation companies, taking advantage of their global assets.
Shipments are traced electronically, and businesses have clear transparency of product movement. This levels the competitive playing field: large businesses can outsource logistics costs and tap into a single global network that allows them to stay nimble. And small businesses can compete in new markets by tapping the same global logistics network the big guys use.
Take for example, AliExpress, a China-based Web site and growing small business e-commerce company. It matches buyers and sellers in a global B-to-B marketplace with wholesale prices. AliExpress is powered by UPS logistics. In addition to shipping, UPS helps connect sellers in China with global buyers through sophisticated technology that makes shipping across borders and tracking easy. As a result, global trade becomes simpler, and customer satisfaction improves.
a) The possibilities for enterprising businesses like AliExpress, and for nations like China and the 10 ASEAN member states, to complete in Globalization 4.0 era are limitless. In the future, the most competitive businesses and nations will do what emerging economies are doing now: pursuing trade agreements, building up infrastructure, and harnessing the power of logistics to help them succeed. For countries and companies geared toward trade, the future is bright.
As president of UPS International, Dan Brutto is responsible for all international package, freight forwarding and logistics businesses, as well as U.S. international package services. He is a member of UPS's Management Committee, which is responsible for the day-to-day management of the company.
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November 4, 2010
Globalization 4.0: Trade’s New Center of Gravity
How logistics and other key elements are helping ASEAN members thrive in today’s rapidly changing global marketplace. More
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