The Free Trade Business – Please Support ‘me’ Globally
By: Amit Bhushan Date: 15th Feb.2018
We have a debate in the commercial news media on ‘Free Trade’ and Globalization. The theme is that how these are under threat in most nations with the exception of probably China. This is also when most of the proponents supporting free trade would go at length that how Chinese have been supporting their ‘corporations’ to capture markets abroad as well as to claw back on domestic markets. The Globalization which rode on the back of ‘innovation’ and ‘competitive factors’ is now heavily reliant on ‘state support’. Yes, we have some of its stronger proponents in Europe, where the factor of domestic state support may still not be an overriding factor for dominance of its firms. However ‘state subsidies and policies’ and their impact on ‘globalization’ and ‘free trade’ is a new curiosity and needs to be studied. The businesses though would continue to argue for higher element of state support including policy stance in their favour so that they can globalize with access to different markets using all the influence. This is increasingly becoming the hallmark of the current version of Globalization and free trade arguments with the argument makers not even realizing and recognizing the same and supporting oligarchy or state run projects, rather the European moderate version for globalization based on competitiveness, brand development led one.
The Chinese version of Globalization with the advent of BRI has taken a curious turn. The emerging economies are keen to develop and require support to evolve ‘projects’ that can help them catapult to a higher level of satisfaction. The large factories with excess capacities to domestic needs are keen to feed this ‘latent demand’ subject to liberal doses of credit being used to fund and back this demand. The view to balance the trade imbalance is minimal, but this has eye on the ‘global markets’ which in turn means ‘other markets’ and their continued ‘excess’ with significant large capacities being developed. Thus is a great game of globalization and free trade being run and some of the older champions are being exorcised for not be ‘true globalizers’ any more. To explain this new version of globalization with a hypothetical example, here the Ethiopian readymade industries are developed not to feed domestic Ethiopians or say Chinese markets, but with an eye on European or the US markets be fed from the bulked up produce and the returns be used to pay off, Chinese loans for infra, machinery, technology etc. The pressure on the Chinese importation of European or the US goods or the Ethiopian produce is again minimal and if such trade doesn’t work then the alternatives for Ethiopia are stark. The trade as well as capital flows are somehow expected to balance by themselves over the ‘long term’ and there is a degree of ‘alarm’ over this but the pressures regards development are also huge and increasing.
Amongst the policy alternatives with these nations is the choice that these countries try to develop their services sector on priority or at least on equal priority and this would be to primarily feed the domestic markets but with some spill over to global markets though here again the regional markets would take a precedent. In such a scenario, they would still need to develop their primary as well as industrial sector with supportive infra being focused and for this they could use a variety of policy choices. This is however not seen as a sound version of development by the champions of globalization and free trade and very little number of people to back such a model. This is even as we have huge noise around topics like Industry 4.0, IoT, distributed manufacturing, glocalization etc. which are likely shaping changes in the industrial manufacturing scene. There are two-three major challenges with a host of other and these are primarily that which country or who can lead such endeavor and what does it gain by supporting the ‘domestic services sector’ in the emerging markets besides how would this be funded since the emerging markets are short of the required capital as well as necessary risk capital. There is need that the banking in the lead country as well as other supporting countries evolve to understand and underwrite such risks and legal contracts as well as understanding between nations and societies to take care of the spills and mitigate the risks. The ‘trade’ in technology and sectors such as telecom, energy and other supportive infra can then develop to solve the problems of the domestic services sector in these nations.
There is focus and alarm over external security, however there is a huge need to focus on energy security, food security, healthcare challenges, pollution and waste management, water & hydrography besides other human needs for the continued evolvement of the pluralistic society. It would then be an endeavor of the whole society to support the laws, norms and value systems which seem to be under challenge from those in the guise of globalization and free trade or some other machinations. The shift on power to influence Trade and Capital flows seems to have tilted quite a bit and some of the countries now seem to worry about the impact of these on the security scenarios and focus on trade in security alone. This is unlikely to be sustainable expect for a while since every country expects a payoff for its wares in the global marketplace. For the development focused countries, the model effort has to engage these over a variety of areas rather than just sounding alarmist since ‘development’ now has a democratic support including political overtones and growth of multiple business sectors, a key need. This may have implications for banking and risk management in India, Middle East or other resource rich regions who may/could be willing or wanting to pursue these opportunities. This is because these nations may want to develop markets for their wares viz. commodities, surplus capital (for better returns) as well as for technically qualified manpower and technology products/services.
It is to be noted that the importance of technology in shaping and evolution of the domestic services sector like in media, financial services or healthcare or education or government services sectors etc. is still not understood as a key development priority by many of the leaders including business leaders in the emerging markets. This is even when the entities in these sector need to manage a scale and technology backing has had wide impact in making a difference in such sectors in West which is seen as a leading player in these sectors or even a model to be emulated. This has been on account of ‘dicey behavior of the pay-off’ for the investments in technology in the past including transactional approaches regards technology partnerships by vendors as well as the buyers. It is only the more aspirational ones who have aspirations to evolve business over the region or with some global connotations, who better appreciate these needs but may again be vary on account of fast changing business environment. These players might also be looking collaboration or a wider support as well as some division of risk while pursuing these opportunities and therefore transactional approaches regards tech has little support unless it is something very acceptable or very rudimentary. There is need to develop support for positive inclinations to be evolved including sharing of modern day best practices to evolve a more favorable view regards technology backed services sector development including local culture, arts and social behaviors in these countries.
The policy challenges that remain in India in contrast with China are many even though it remain unacknowledged while the Netas tom-tom their propaganda. The Chinese industry has been able to get bulk orders for almost all new innovations from the Apples to Teslas to serve the global client base for these global innovators with hardly any manufacturing outside or at least all other markets outside of the US being serviced out of China. This is while India’s industry languishes to have any piece of action for say a Dropbox or a Facebook or Whatsapp or Uber even when there is a lot of noise on the IT side of business. Even its own innovator happily move to foreign shores for not only financing of the business but also the development teams to have a better mix of talent as well as closeness to customers. There is thus a need to emerge as a better & credible service point for the global innovators while these pursue their business and let the tech-development activity or other generic functions like customer support, insides sales, CRM etc. be run from where these can be offered with much greater efficiency. Despite the promise of co-innovation centers by the industry, no such viable model seems to have evolved so far. Also while a clutch of domestic start-ups may have evolved however they are in very early phase of their domestic evolution and very far to be able to put any significant pressure on ‘scale’ start-up to explore reduction of their dev. cost or business models to incorporate an India center. This would primarily explain the rather laggardly growth of services exports from India. Let’s see the ‘Game’ evolve…