Graphically Speaking

Virtual trading

The world may be shrinking but global trade is tilting in favour of services, from manufacturing

Published 4 years ago on Jan 02, 2020 1 minute Read

The world is getting smaller, or so it may seem, as you watch someone stream the birth of a kitten thousands of miles away. Looking for a fitness band that hasn’t released in the country? Amazon can deliver it to you within days. We live in a global village but a recent McKinsey Global Institute report conveys a subtle (but immensely interesting) change — global value chains have seen a structural shift over the past few years, and are actually becoming more regional, in a sort of ‘de-globalisation’. What’s more, advanced economies are losing their edge since demand for goods and services is coming more from emerging markets, with China as the top consumer.

Growing demand in the developing countries also means they consume more of what they produce and export less. McKinsey estimates that by 2030, emerging economies are projected to account for more than half of the global consumption. These nations are also moving beyond assembling inputs into final products and are leading in R&D capabilities. They are shifting to the production of capital-intensive goods and services, from labour-intensive ones. This means companies are now looking for countries with highly skilled labour force, strong innovation and R&D capabilities, instead of settling for ones with low wages.

While output and trade undisputedly continue to increase in absolute terms, what is being traded has changed. Services and data constitute more value in global trade than goods. This shift from tangible to digital flows started years ago, with individual movie, game and album sales changing to streaming and cloud computing. Similarly, ultra-fast 5G wireless networks have opened new possibilities for delivering services from remote locations. The world is changing at breakneck speed, and along with it, the map of the future.