How Businesses Can Mitigate the Adverse Impact of Deglobalization

Businesses operating in the global market must take proactive steps to minimize the effects of deglobalization and maximize its benefits.

In a world where events in one nation can have far-reaching impact on others, it is tempting to believe that our global community will persist indefinitely. This perception is fueled by digital transformation, cross-border commerce, and favorable geoeconomic policies made possible because of globalization, enabling businesses of all sizes to function on a global scale.

However, escalating geopolitical conflicts, global supply chain disruptions, and the growing adoption of nationalist-protectionist policies are posing significant challenges to globalization, fueling a shift towards deglobalization. According to the World Economic Forum’s, 69% of chief economists predict an acceleration in geo-economic fragmentation, while 86% expect a rise in the localization of economic activities. January 2024 Chief Economists Outlook

As international trade and cooperation wane, businesses grapple with challenges in sustaining their economic viability, profitability, and growth, further straining the already fragile supply chain.

Factors Responsible for Deglobalization

As countries adopt more nationalist and protectionist policies, global cooperation is undermined. This shift can escalate tensions and conflicts, evident in trade wars and disputes over international treaties and standards. It also diminishes the power and efficacy of global institutions like the United Nations or World Trade Organization in upholding global order and settling disagreements. As a result, the fragmentation triggered by political competition presents obstacles to the stability and unity of international relations.

Global supply chains are experiencing disruptions and a shift towards domestic production. This is due to a multitude of factors such as the impact of the COVID-19 pandemic, the global energy crisis, the ubiquitous adoption of digital transformation, and the competition over essential resources and technologies. These issues are further intensified by geopolitical conflicts, as countries vie for supremacy and security, often sidelining cooperative global efforts.