Countries are less connected worldwide than is commonly thought, according to research by Deutsche Post DHL and the IESE Business School in Spain that measured the flow of goods and services, capital, information and people among 140 nations.
Nine of the ten countries most integrated with the rest of the world are members of the EU, according to the DHL Global Connectedness Index 2012.
The Netherlands topped the list for the second year in a row, followed by Singapore, Luxembourg, Ireland, Switzerland, the UK, Belgium, Sweden, Denmark and Germany. The US came in 20th, up one rank from 2011 but behind Thailand, Malaysia, South Korea and Hong Kong.
The rankings reflect the deeper and broader global ties that richer countries are more likely to have than poorer countries, and establish Europe as the most globally connected continental region. But the index also highlights some misconceptions and opportunities for companies to tap and boost wealth.
- The flow of trade, information, capital and people in EU countries is mostly regional, not global. For example, 73% of European exports and 68% of European investments went to other EU nations.
- China has been called the workshop of the world, and shoes and clothing American consumers buy are more likely made in China than in the US; but China is ranked just 74th on the Global Connectedness Index, behind Ghana, the Philippines, India and Nigeria. In China, the second- largest economy in the world, the overwhelming majority of the flows of trade, people, information and capital are domestic.
- Globalisation, especially international investments, suffered setbacks during the debt crises in the US and Europe. Since 2008, investors have become more selective with foreign investments and have kept more of their funds at home. As a result, countries are less integrated with the rest of the world today than they were in 2007.
- Some countries have experienced large waves of immigration in past years. Still, first-generation immigrants worldwide account for only about 3% of the world’s population, the same as in 1910.
- Five African countries topped the most improved list, climbing a dozen or more ranks since 2011. Ghana, Guinea, Mozambique, Togo, and Zambia improved their global ties through rising exports and imports.
Countries that are better connected offer companies looking to do business abroad new opportunities, because deeper global ties are linked to higher levels of prosperity and the growth rate of a country’s GDP per capita.
“Increasing global connectedness has the potential to contribute economic gains valued in trillions of dollars,” the DHL report suggests.
The report mentioned the following gaps that companies could tap into:
Services trade. The service sector accounts for two-thirds of global GDP but only one-fifth of international trade, and the International Monetary Fund has recommended reforms to lower barriers and strengthen competition across economies.
Communications technology. Internet traffic is more international than phone calls or mail, but international internet traffic still accounts for only 17% of the total. Twitter is the most international with 25% of followers of Twitter users being located outside the user’s home country.
Emerging economies. Economic activity has been shifting towards emerging markets in Asia, Latin America and Africa. Seventy-two per cent of worldwide GDP growth from 2008 to 2011 took place in emerging markets.
University education. Laws restrict people migration between countries. International students are on average 5,600 kilometres away from their home country, farther than tourists, migrant workers or other groups.
Related CGMA Magazine content:
- “Foreign Investors Not Scared of Europe, But More Selective”: The ongoing euro-zone crisis hasn’t scared foreign investors away from Europe, but it has made them more selective, according to Ernst & Young research.
- “Is Your Company Prepared for the Rise of the Asian Consumer?”: If your company does business overseas, you are about to feel the rapidly rising influence of the Asian consumer. Is your company prepared for this economic shift?
- “Study Finds Early Warning Signs for a Looming Global Talent Imbalance”: Companies are overhauling their business strategies to adjust to the rise of emerging markets, new research shows. But demographic trends will add new challenges over the next five to ten years, specifically in talent management.
- “The Most Business-Friendly Countries off the Beaten Path”: Small and mid-size companies looking for business-friendly markets overseas could check out a World Bank report that tracks regulatory reform efforts in 185 countries. Many of the top improvers are rarely found among up-and-coming economies.
- “Lack of Experience Flavours Investors’ Perceptions of Africa”: Africa is home to some of the fastest-growing economies in the world. Many of its countries have less corruption, are easier to do business with, and are more democratic than several fast-developing nations in Europe and Asia. But dated perceptions still keep many investors away, according to an Ernst & Young report.
—Sabine Vollmer (firstname.lastname@example.org) is a CGMA Magazine senior editor.