Opinion | The retreat of globalization has been ill-timed for India
4 min read 05 Feb 2020, 10:41 PM ISTIndia’s marquee initiatives have coincided with a loss in the world’s appetite for business beyond borders
PremiumLate last month, Uber Eats, a subsidiary of ride-sharing major Uber, decided it had had enough of a market in which it was losing millions of dollars. Its sale to its stronger rival Zomato, leaving the food delivery market in the hands of two home-grown companies, reinforces a pattern of retreat by global companies in favour of local players. Telecom, aviation and automobiles are among the other sectors that have seen large multinationals exiting India following rapid changes in market dynamics.
Mind you, the online food delivery market in India is burgeoning, growing at 16% annually and likely to reach $17 billion by 2023, according to a study by business consultancy firm Market Research Future. So, why would Uber Eats want to quit such a promising market? Did it look at Vodafone’s 13-year multibillion-dollar investment gone bad and decide to cut its losses early, given that it is committed to turning profitable by 2021?
Whatever the reason, Uber Eats’s withdrawal is in keeping with well-chronicled de-globalization trends, marked by rising pressure on global trade as well as the rise of parties across Europe that oppose the economic credo of global free trade. Estimates by the Organization for Economic Co-operation and Development (OECD) state that global trade growth slowed from 5.5% in 2017 to 2.1% in 2019, even as cross-border investments continued to fall. Against this background, it is easy to infer that the era of multinational companies (MNCs) looking to spread their manufacturing supply chains across the globe is, for now at least, on hold.
Instead, corporate strategies are increasingly being re-engineered for deeper dives into local markets in preference to operating across multiple markets. The idea of a broad country presence has been discredited.
Inasmuch as stock markets react to business trends, we have seen the effects of this over the past decade. In India, there has been a general decline in the performance of MNC stocks over this period, in comparison with stocks of Indian companies. With big investors backing strong local stories, de-globalization is accepted wisdom now.
The cracks in the globalization edifice first surfaced in June 2016, when Britain voted to leave the EU, a membership that it had done much to nurture over the previous 43 years. It was followed a year later by the election of Donald Trump, who as president unequivocally declared the new priority of the US: “We reject globalism and embrace the doctrine of patriotism." Soon, it became a popular narrative, intermeshed with a more cerebral pushback arising from voices against rising global inequality. It is no surprise today that the backlash against immigration that has roiled Europe over the last 10 years and influenced US politics has also swept into India.
The consequences of this global squeeze are worrisome, with the BlackRock Geopolitical Risk Indicator currently close to its peak (bit.ly/2tAobOw), driven by heightened market attention to tensions in the Gulf, prospects of European fragmentation, and uncertainty over US -China rivalry.
India missed the globalization bus that many countries in Asia rode successfully through the 1960s and 1970s. Countries such as Hong Kong, Singapore, Taiwan and South Korea, and later even Thailand and Malaysia, used their highly developed ports and a well-educated population, while investing in industrial infrastructure and offering massive tax concessions to foreign investors, to yank themselves out of poverty into prosperity by exporting everything from personal computers to cars. By the time of the first hiccup in the globalization fairy tale, the 1997 Asian financial crisis, they were stable and robust enough to tide over what proved to be a temporary setback.
By contrast, even through its boom years from 1992 to 2007, when the economy grew rapidly and millions of people were pulled out of poverty, India’s economy remained largely insular, with most of its growth coming from a rising tide of domestic consumption. It was bound to end at some point. No country has achieved developed status on the back of a purely domestic economy. Even in the US, the world’s largest economy, the total production capacity for all manufactured and agricultural goods exceeds by a wide margin what can be consumed not just in that country but also in Canada and Mexico. China, which has been the world’s largest exporter of goods for 10 years now, is still pursuing an aggressive globalization strategy through its belt and road initiative.
India needed to get on to the global bandwagon sooner than later. When the Narendra Modi government first came to power in 2014, its initial few programmes to boost investment in India were a clear indication of this belated recognition. The problem, however, has been that India’s initiatives have coincided with a loss in the world’s appetite for business beyond borders.
An AT Kearney report titled Competing In An Age Of Multi-Localism identifies several reasons for this change: “This new age has arrived, in part, because of the ‘islandization’ of the global economy in which governments are pushed inward by nationalist and protectionist sentiments and every economy becomes its own island. Technological changes and pressures from stakeholders, including consumers, investors, and policymakers, are also fuelling the shift to an age of multi-localism."
The key question for India is whether this multi-localism is a mere interregnum in globalization’s path, or an irreversible U-turn
