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Will Economic Decoupling Be the New Normal With the Coronavirus?

Geopolitics

Fears about deglobalization and economic decoupling are not new but have grown in the wake of the coronavirus. Jeremy Ghez, Associate Professor on the Education Track at HEC Paris, explains in four big ideas what the Covid-19 outbreak means for the global business environment.

worker looking at the world map on a tablet

The coronavirus has wide effect on the global economy. How does it challenge our understanding of globalization?

The coronavirus is challenging four widely-held beliefs about globalization and the global business environment:

  1. Freedom of movement for goods and people will always be guaranteed; 
  2. We will always have access to all of the data and information we need to make evidence-based decisions; 
  3. Governments will always have the legitimacy to act, in particular in the wake of a sanitary crisis;
  4. We will transition into a new paradigm in a progressive and foreseen way. 


What are the potential consequences on the business environment? And what type of firm best survives to such a crisis?

If one of these assumptions is proven false, then I would argue that all bets regarding the future of globalization are off. This does not mean that “business as usual” is impossible. It is still a plausible scenario. But it means that the business environment could also undergo deep transformations.

This may put in question the legitimacy of outsourcing — we can expect a debate on that issue, especially as a reversal has already started, even before the coronavirus crisis began. 

Only a limited set of firms who anticipated this new normal may be in a good position to reinvent. In particular, evidence from my own analysis suggests that companies with local ties, investing in local ecosystems may be able to create more value the way conventional wisdom seems to believe. This may put in question the legitimacy of outsourcing — we can expect a debate on that issue, especially as a reversal has already started, even before the coronavirus crisis began. 

Can we still talk about a winning global strategy in this new normal?

We indeed need a better understanding of what a winning global strategy is about in this new normal. It can be one in which actors invest their resources in products, services and brands that are truly unique and that they can show case worldwide. It may also drive us to think about diversity, which can’t be a buzz word, but a way to generate novel ideas — something we desperately need.

A winning global strategy can be one in which actors invest their resources in products, services and brands that are truly unique and that they can show case worldwide.

The coronavirus has also showed that the whole idea of shared value — namely that there is no inherent contradiction between the private interest of firms and society’s interest as a whole — is not a fiction. Companies are rushing to participate in efforts to correct market failures, when it comes to lack of hydro alcoholic gel or even ventilators. They were not all mandated to do it, but they know that if their ecosystem rots from within, there may very well not be a market or a middle class to sell to. Efforts to accelerate the end of crisis are all the more so meaningful.

 

Watch the webinar in replay.

 

HEC Paris Executive Education is organizing a series of free webinars to best deal with the crisis caused by the Covid-19. Professors share their analysis of the situation and give insights on how to recover from it. This article is an outcome of the first webinar, "Will economic decoupling be the new normal with the coronavirus?". [In French] Série de webinars pour préparer à la reprise post-coronavirus.  

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