As the COVID-19 pandemic took hold in early 2020, it was immediately clear that international trade would be particularly hard hit. Countries closed borders, cutting off the flow of goods as well as international business travel, and pandemic restrictions caused the closure of manufacturing plants and warehouses, disrupting supply chains.
Now, the state of the pandemic has allowed countries to reopen and international commerce seems to be making a comeback. Nevertheless, the disruption caused by the pandemic has left some individuals uncertain about the state of globalization: What will the lasting effects be for organizations that want to do business in foreign markets or utilize international supply chains?
The impact of COVID-19 on globalization
As COVID-19 outbreaks shuttered nations and their borders, the effect on international trade was immediate.
The decline in trade was steeper in March and April of 2020 than it was during the Great Depression or the global financial crisis of 2007. Investors quickly withdrew capital for investment in emerging markets, causing cross-border investment flows to decline even more severely than trade goods. International travel was reduced by 74 percent, making it difficult for businesses to arrange international deals or visit potential suppliers or customers.
Those dramatic decreases in international commerce caused many businesses to question their globalization strategies, as they exposed the fragility in international supply chains and investments. Some companies began looking for domestic supply chains and workers to fit their needs. The hit to businesses has been clear as gross domestic product is down for nearly every country more than a year after the pandemic spurred economic shutdowns globally.
The future of post-pandemic globalization
Most experts agree that, while the pandemic shook international markets, businesses who look toward globalization in the future are setting themselves up for success. While global output did drop by 3.9 percent in 2020, according to the United Nations Conference on Trade and Development (UNCTAD), that decrease was 0.4 percent less than the UNCTAD had originally projected.
UNCTAD also improved its outlook for growth in global output for 2021 to 4.7 percent–0.6 percent better than what it had projected for the year looking forward from mid-2020.
Of course, many companies, both domestic and international, have been left hurting by the pandemic. Many analysts believe that globalization– particularly globalization focused on diversifying and shoring up international supply chains, networking internationally and establishing good international communication–can be the key to succeeding in the post-pandemic economy.
“I believe globalization is a clear answer for how global companies can recover,” Jessica Starman, founder and CEO of Elev8 News Media, wrote in Forbes. “The ability for companies to research, distribute and manufacture on an international scale is more possible than ever.”
Through the pandemic, there have been some indicators that tend toward the benefits of globalization. Many countries have continued to make strides toward enabling international trade. Companies who looked at domestic supply chains discovered that they can come at a higher cost without added security. There also have been upsides to pandemic adaptations, such as the proliferation of remote work, which can help support the development of international talent and international relationships with telecommunication.
Moving forward with globalization
While many organizations are looking to increase globalization as they navigate the post-pandemic recovery, some caution that globalization efforts should be employed with some caution.
“Prospects for international business investment should brighten as pandemic-induced macroeconomic uncertainty, lockdowns, and travel restrictions begin to lift. But tighter screening of foreign takeovers on national security grounds will remain in place, and supply-chain diversification and partial reshoring will boost prospects for some projects while making others less attractive,” Steven A. Altman, a senior research scholar, director of the DHL Initiative on Globalization and professor at the NYU Stern School of Business, and Phillip Bastian, a research scholar at the DHL Initiative on Globalization at the NYU Stern Center for the Future of Management, wrote in the Harvard Business Review in May.
That means that post-pandemic, businesses should balance traditional benefits of globalization, such as access to markets and supply chains, with risk assessments that consider current geopolitics. At the same time, businesses should be taking a good look at what worked well, and what didn’t, during the pandemic so they can evaluate how to best move forward with their post-pandemic globalization efforts.
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