The Times They are a Changing

The Times They are a Changing (Bob Dylan)
Summary: The end result of a number of major changes in the world has  been globalization, driving part of our economic growth from 2000 onwards. This trend now seems  to reverse, with nationalist tendencies in  the USA and Europe.  Those nationalist tendencies further initiate similar trends in other countries or regions. Lower economic growth rates and or political unrest in BRIC countries and  Africa further reduce globalization potential. These developments make autonomous growth  within international businesses  increasingly difficult. The need for a mergers and acquisition “wish list” is further increasing, as is a substantial M and A fund.

The Times They are a Changing
This is more relevant now  than before. We have seen major changes in the world in the past, mostly driven either by nature having its course, world wars, technological changes and economic  developments, either isolated or in combination. The end result has been a much higher level of globalization, further driving a higher welfare in a large part of the world. In the meantime the internationalization led to outsourcing tendencies in the Western world, having a tremendous impact on international welfare levels also and  solving part of the previously relevant “development aid” programs.

What is happening now is a another type of trend discontinuation. Current international developments reduce globalization in a pretty drastic way with an outcome which is definitely not going to be predictable. Major regions in the world are now working on positions, either pro-actively or passively, which indicate that further globalization is slowing down or being reversed. We will look at some major areas where  those changes occur.

In the African region  for example , we were looking at a country like Nigeria two years ago  for its tremendous economic potential; mainly driven by the total number of people, its potential for outsourcing and it’s oil driven revenues. Things have changed though;  political issues, oil price decreases and a level of general unrest in the country imply that a lot of international  decision makers are now looking the other way. Issues in most of Northern Africa and Middle African countries further reduce the African potential in terms of its global position.

In the US the trend towards further strengthened nationalism, “America first” and  the “Americans first” (as long as there not “imported” ) imply that all sorts of globalization trends are now being reversed.

Growth numbers in BRIC countries, Brazil, Russia, India and China are coming down from earlier projections; Brazil and Russia  drastically, India modestly, and China, according to their own projections also  modestly.
But, in general terms a completely different ball game compared to a number of years ago.
Adding to the  general feeling of uncertainty in those countries is the level of accuracy  of their official numbers in  countries like  India and China. Let’s assume that those numbers indeed reflect high growth, but also assume that numbers reflect some political “wishful thinking” . And especially in China the continued focus on a service economy and away from ever expanding production will automatically  reduce their potential in further strengthening globalization.

The second tier growth economies are a lot less significant worldwide than India and China combined, and the  second tier does not take off at the previously expected levels.

Current developments in Europe will further  enhance uncertainty. Brexit is only one of the signs reflecting the weakness of the “European Union”, and current developments in Turkey also prohibit their membership.  Political movements enhance the feeling of nationalist and  segregatist tendencies. Nothing which is going  to further support worldwide  confidence  in welfare growth.

Conclusion
If you are in International business you’d better make sure you have your priorities right. Coming from a relatively comfortable position in counting on growing International growth you may now be confronted with a less favourable scenario.  Merger and Acquisition is what you should be looking at. Autonomous growth will be difficult to realize; that’s a  sure thing!

Drs. Robert  J. (Bob) Fetter, Intersumma, march 2017.