From Ideas Lab, 9 January 2014
Small will be big in the global digital economy – and policymakers must catch up
The WTO’s trade facilitation deal reached in Bali in early December adds to the past three decades’ dramatic expansion in world trade owing to tariff liberalization, regional integration, lower transport costs, and spread of global supply chains. Now five technology game-changers will erase many of the pending impediments to globalization – yet also give rise to new business and policy challenges:
1. Consumer-powered commerce. Dictated directly by individual consumers leveraging their laptops, tablets, and phones, world trade will increasingly flow online and be of B2C and C2C kind, rather than only B2B that still makes up 90 percent of total trade. Cross-border e-commerce explodes between now and 2025, as five billion to-be Internet users log-on across the developing world and businesses around the world build e-commerce capabilities. Small businesses and individuals selling online win: already, 97 percent of American micro and small businesses that sell on eBay also export – that is 20 times more than the five percent of small businesses that export offline. Once the planet gets online, anyone anywhere can sell anything to anyone anywhere in the world: garage sales will be global.
2. Virtual supply chain. Thought global supply chains are already streamlined? Emerging technologies like nanotech, 3D printing, and robotics will power hyper-localized production and obliterate the “factory world” of outsourced production and global sourcing and shipping of components. Corporate giants from GE to Ford are already using 3D printers to develop and print parts and components right where they are assembled into planes and cars, soon enough by human-like robots. By 2020, individual consumers will also be printing goods like Kindle books right off the web. 3D printing will also generate a local micro-manufacturing revolution, with makers and small businesses producing individualized products to local clients. Designers of parts and products can sell to consumers armed with printers on the other side of the world – without the hassles of shipping and handling. Soon enough, entire vehicles can be 3D printed. As trade moves to the cloud, weight no more matters and distance, key impediment to trade, dies.
3. Global data integration. The buzzword of 2013, “big data” will also fuel world trade. Smart users are already streamlining shipping and trucking. But particularly interesting are the indirect impacts. Marketers will be able to consolidate customer data currently dispersed across platforms and anticipate customer whims; companies that connect this point of sale and customer feedback data with operational, financial, and global supply chain data can mitigate the bullwhip effect, where changes in customer behaviors magnify across the supply chain all the way to raw material purchases. International purchases, production, shipments, and inventories are optimized. Consumers will gain, both in experience and cost.
4. Hyper-connectivity. Global icons from the Internet to Hollywood, McDonald’s, Apple, and Starbucks have not erased the cultural “distance” that still obstructs trade: habits, tastes, languages differences, and trust-building face-to-face meetings tend to be rarer with international than domestic clients. But what if lunch with any client anywhere in the world were the equivalent of today’s metro ride away? Hypersonic airplanes promise to shuttle passengers from New York to Beijing in less than 2 hours; Elon Musk’s Hyperloop could take riders from San Francisco to Mexico City in 90 minutes. In a world where cross-border business can be conducted by Skype, video, personal holograms, and hypersonic travel, cultural distance will evaporate – yet handshake and in-person lunches can remain a core to doing business in the global digital economy. The rise of massive online open courses (MOOCs) can expand common ground: your next customer in Johannesburg may well have taken the very same class online you took at Stanford.
5. Global currency. Trade economists have for decades fancied a world with a single currency that would remove transaction costs from cross-border transactions, only to run up against countries’ jealousy over monetary and exchange rate policies. This will change as the virtual currency takes hold. For now “embodied” in Bitcoin, virtual money can coexist with national currencies and be used by banks and future peer-to-peer conversion platforms as a middleman that lubricates cross-border transactions. It also enables digital payments in developing world, still without PayPal and first-world credit systems. As security and consumer protections are being worked out, tomorrow’s trade can run on one world money. Currency disputes won’t necessarily end, but delays and transactions costs can.
These trends have three implications. First and most obvious, businesses that fail to leverage these game-changers will lose. Second, today anyone can gain from trade, and not only as a consumer, but also as an exporter, producer, and designer. And smallness is no more a liability in the global economy: what entrepreneurs and small businesses lack in scale they make up in agility, speed, and creativity – success drivers in the 21st century global marketplace of changing consumer fads, niche markets, and out-of the-woods competitors. No longer do firms need scale to trade; they need trade to scale.
The third implication is for policy. Today’s trade policies lag far, far behind tomorrow’s trade. Wide international differences remain on key topics in the digital economy – IP, copyrights, trademarks, data protections to name a few. But most worrisome are governments’ knee-jerk reactions to control the digital economy. While some regulations may be needed to tame predation, policymakers around the world must keep their eye on the ball: the very consumers they claim to protect are ever likely to be multinational vendors thriving on an unfettered global digital economy.