The challenges for businesses in New Zealand are the best way to adapt to face this new global economy. Photo / Getty Images
As recovery from the COVID-19 pandemic continues, there are strong reasons to believe that a rejuvenated global economy will be like never before.
A liberal economic order that allowed the rapid growth of trade, investment, technology and income until the Global Financial Crisis (GFC) 2008 is showing signs of deterioration.
Many developed countries are now experiencing a revival of populist political movements. There is a growing disregard for the rule of law and a weakening of major global institutions, including the World Trade Organization.
The level playing field of the rule-based system is being challenged by the rules of the rulers. The challenges for businesses in New Zealand are the best way to adapt to face this new global economy.
The changing face of globalization
Developing countries are reshaping globalization. For example, China and Russia pursue a form of state capitalism characterized by close government-business relations. By providing subsidized financing or a dominant domestic market share, they distort their competitive advantage in world markets.
The broader context for these developments is China’s challenge to the United States’ long-held global economic leadership.
The result is a widening global divide between liberalism and statism, democracy and authoritarianism, and rules-based versus unregulated governance.
A challenge for business
For businesses, this development means a more challenging operating environment, one that is more complex, uncertain, and ambiguous. The growing fragmentation will inevitably add to the costs of business across borders, with arbitrary costs, regulations and distortions affecting the movement of resources.
More specifically, businesses need to rethink some fundamental principles.
Greater geopolitical awareness will be needed. Trade, investment and technology management decisions should give greater weight to political and regulatory considerations.
Commitment to one side of a technological, ideological, or regulatory division can mean exclusion or marginalization on the other.
The strategic focus of the business will evolve from simply cost or profit to evolutionary fitness. Businesses need to adapt to various constraints on the movement and protection of personnel, technology and knowledge.
Governments need to rethink the scale and form of support they offer their local businesses. Subsidies, protection, competition policy and industrial policy will all require reconsideration in the face of state capitalism.
Trade war risk
There are early signs near home of what this new neighborhood will be like.
Currently Australia request an investigation into China’s handling of the pandemic it is facing rates in Grape and barley. It also faces export restrictions coal, lobster, wood, Red meat and cotton to China.
On the same road, New Zealand is reprimanded by China to support Taiwan’s re-acceptance to the World Health Organization’s annual global health meeting.
This experience highlights the growing interdependence between economic and political objectives and the increasing uncertainty that businesses will face.
Future plans for business
This challenge will seriously disrupt the New Zealand economy. this heavily dependent on trade and tourism and increasingly embracing Asian regional economies since the 1970s.
New Zealand has diverse historical commitments and obligations globally. This includes defense with the United States, with intelligence Five Eyes alliances, migration with the Pacific and Europe (and more recently Asia), and increasing economic prosperity with Asia.
Our largest businesses are proud of their global reach, but this may be more of a barrier than a profit.
Our leading companies – such as Fonterra, Zespri, and Lion Nathan – have all faced difficulties in China recently. Future challenges appear more complex.
New Zealand businesses need to plan for a post-COVID recovery characterized not only by more homeworkers, but also by new strategic questions that are just emerging.
There are undoubtedly other questions that need to be asked (and answered), but now is the time for businesses to start planning for the future or risk falling behind.