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What in the world is going on? A leader’s guide to global flows

Harmony Internal - McKinsey

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ESSENTIALS FOR LEADERS AND THOSE THEY LEAD

Brought to you by Liz Hilton Segel & Homayoun Hatami
Global leaders, Industry & Capabilities Practices

The world has been ‘flattening’ for many years as technology narrows the competitive gap between industrial and emerging markets and removes geographical limits on integration . But recent economic and political upheavals have sparked speculation that this pattern is reversing. Our research shows that things are not falling apart: rather, global flows of trade, people, finance, and data are reconfiguring in ways that may pose risks but also offer unique opportunities for companies to enhance their growth and resilience . Now more than ever, organizations both large and small stand to benefit from integration with the global economy. Here’s how to ensure that yours is well positioned to do so.

AN IDEA

New forces propel integration

Global interdependencies remain strong, with some differences from traditional patterns. A report coauthored by McKinsey’s Michael Birshan , Sven Smit , Olivia White , and other experts reveals that growth in global flows now comes from intangibles, services, and talent; these segments grew about twice as fast as goods flows in 2010–19 and continued to expand in 2020 and 2021 despite pandemic-related disruptions. Flows of data have reached all-time highs. Far from being self-sufficient, all regions continue to depend on imports for at least some of the important goods or resources they need. Value chains may experience major shifts as governments exert a greater influence, one that stems from considerations of national security, competitiveness, or resilience. Given these trends, leaders are “confronting an increasingly contested global order in which operating in one market can create significant risks in others,” suggest the report’s authors.

A BIG NUMBER

21%

That’s the percentage of total corporate growth that comes from outside the core industries of companies in a McKinsey survey conducted by senior partner Chris Bradley and colleagues. As globalization patterns shift, organizations may want to reposition themselves ahead of trends by investing in new business areas where they are the “natural owners”—able to bring unique advantages or capabilities to the business. Advanced analytics can help identify investment opportunities that might otherwise be difficult to spot. Selecting the right leaders for the new venture is crucial: our research shows that strong corporate growth correlates with excellent leadership scores on a few dimensions rather than unexceptional scores on many. Therefore, your venture is more likely to succeed if you pick leaders with outstanding capabilities in the areas that the new business needs most.

A QUOTE

“As we think about the world’s most complicated problems—climate, health, security, innovation—we don’t have a hope of solving these issues independently.”

That’s McKinsey global managing partner Bob Sternfels urging leaders to reimagine rather than retreat from globalization. In his speech at the 2022 Bloomberg New Economy Forum, Sternfels acknowledges the many pressures pushing the world to decouple, such as onshoring and localization. But “up to 10 to 40 percent of global GDP is dependent on staying connected,” he says, adding that connection, not separation, may be the most effective way to tackle global challenges, particularly the talent shortages that affect companies worldwide. “Solving the world’s supply/demand mismatch with talent can’t be solved individually,” Sternfels says. “That requires collaboration.”

A SPOTLIGHT INTERVIEW

In the face of global uncertainty, public- and private-sector partners can facilitate access to new markets and channels , reduce risk, and share intellectual property or infrastructure. “But if [the partnership] is not managed, it will not only be unsuccessful but will likely hurt your brand,” cautions McKinsey partner Ankur Agrawal in this Inside the Strategy Room podcast. “A partnership is a living entity and requires constant attention and nurturing to thrive. Our data shows that more than half of partnerships fail to meet expectations.” To counter this, Agrawal suggests conducting periodic “health checks” to detect whether all participants are still aligned on important components such as strategy, culture, operations, and governance. Establishing a robust health check process up front is essential, Agrawal says: “There is a tendency to leave some key details for subsequent discussion. Usually, that is a recipe for disaster.”

SLOW MOTION

The possibility of ‘slowbalization’ is causing some concern in business circles. The term refers to the slowing of globalization from “light speed to a snail’s pace in the past decade,” as an article in the Economist puts it. Proponents of this idea point to increasing protectionism, the rise of regional trading blocs, pandemic-induced supply chain inadequacies , surging prices of critical commodities and materials, and new regimes in some countries scrutinizing foreign investment. While these forces may not threaten integration, leaders should be prepared for a global economy that will look markedly different from the one of previous decades.

Lead globally.

– Edited by Rama Ramaswami, senior editor, New York

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by "McKinsey Leading Off" <publishing@email.mckinsey.com> - 02:43 - 12 Dec 2022

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What in the world is going on? A leader’s guide to global flows

New forces propel integration

“As we think about the world’s most complicated problems—climate, health, security, innovation—we don’t have a hope of solving these issues independently.”