Singapore ranks second on Globalization Index 2012
Singapore, 21 January 2013 – Singapore ranks second, after Hong Kong and above Ireland, on Ernst & Young’s Globalization Index 2012 (see Appendix 1 for 2012 rankings).
The Globalization Index is part of Ernst & Young’s annual globalization report, Looking beyond the obvious: globalization and new opportunities for growth, which draws on two sources of original research: Ernst & Young’s Globalization Index, and a survey of 750 senior business executives worldwide, conducted in late 2012.
The Index measures the world’s 60 largest economies according to their degree of globalization relative to their GDP. It is based on a comprehensive understanding of the underlying drivers for globalization across five main pillars: openness to trade, capital flows, exchange of technology and ideas, labor movements and cultural integration. It incorporates a broad range of sub-indicators within these key categories and spans the period from 1995 to 2016.
For 2012, Singapore achieved an overall score of 6.31, with category scores of 8.57 for openness to trade; 6.04 for capital flows; 5.56 for exchange of technology and ideas; 4.8 for labor movements and 6.31 for cultural integration. With the exception of the category for technology and ideas, Singapore saw a slight dip in scores for all the other categories.
Max Loh, Country Managing Partner at Ernst & Young LLP says: “Singapore’s main strength lies in its openness to trade, given its business-friendly environment with low and predictable tax rates, which enables the country to continue to draw in large amounts of foreign direct investments. Having said that, the relatively modest GDP growth in 2012 is a reflection of the negative impact that slackened demand growth in the US and Eurozone has on the country’s trade-dependent economy.”
“The government’s progressive business incentives regime and push to restructure the economy through proliferating productivity and innovation throughout businesses and the workforce will strengthen Singapore’s competitiveness in drawing investment and capital. Together with other positive economic spin-offs, we may expect scores for the categories of trade, capital, and technology to go up in future. However, any upswing is likely to be counterbalanced by a continued dip in score in the category of labor, given the current tightening of labor immigration policies and rising labor pressures,” Loh adds.
Growth in globalization driven by technology and cross-border flow of ideas
Despite weak growth in 2012 and an uncertain economic outlook in many markets for 2013, globalization is still increasing among a majority of the world’s 60 leading economies, according to the globalization report.
The Index suggests that globalization will continue to advance driven primarily by technology and the cross-border flow of ideas. It also highlights the improved globalization scores in the last 12 months for medium-sized rapid growth markets like Vietnam, Malaysia, Thailand and the Philippines as well as smaller European countries including Belgium, Slovakia and Hungary.
Jim Turley, Chairman and CEO of Ernst & Young, comments: “Globalization continues to define our business landscape with increasing levels of cross-border trade, capital and labor integration. Despite the highly volatile economic backdrop, the trend for greater integration and closer co-operation continues to outweigh the threat of protectionism for the majority of the world’s markets.”
However there are real concerns from the survey respondents that continuing weak growth combined with increased global competition could spark more protectionism in the next 12 months. The respondents also specifically pointed to the increasing challenges of operating in some BRIC economies as well as slowing growth in some BRIC markets. As a result nearly half of the survey’s respondents expect an increase in protectionism in the BRIC countries as well as an increase in developed markets. In contrast, respondents see a decline in protectionism as more likely in other smaller rapid growth markets.
BRICs face competition as globalization creates new emerging players
The Index highlights that non-BRIC rapid-growth markets are emerging as hot spots for global business, thanks to a perception of being more globally integrated on a range of trade, investment, cultural and technological criteria than the BRICs. These markets also show consistently high economic growth close to that of the leading BRICs. Turkey, Mexico and Indonesia closely shadow China and India in terms of GDP growth from 2000 through 2015. Peru, Colombia, Venezuela, Malaysia and Vietnam, as well as several countries and regions in Africa are all shaping up to be among the most dynamic parts of the world for investment.
The number of executives questioned who view rapid-growth markets, other than the BRICs, as the most important source of new revenue nearly doubles from 26% today to 45% in three years time. And they are planning accordingly with South Africa, Indonesia, Mexico and Turkey reported to be the most competitive locations. Executives from all geographies expect to increase investment in these markets – 82% plan to do so, and 4 in 10 expect to increase it by more than 10%.
Turley explains: “Leading companies are adopting a multi-market approach. While the BRICs remain critical to their strategy, executives are also looking closely at opportunities in non-BRIC emerging markets, where they are seeing improvements in the ease of doing business, infrastructure, government policies and labor productivity.”
They’re also discovering that a standard strategy for a group of markets – e.g., an “emerging markets” strategy – no longer works. Instead, what they will need are nuanced and customized strategies for different markets, areas, regions, sectors and countries.”
Mature markets remain critical
While many of the non-BRIC rapid-growth economies are worth a big, mostly long-term bet, the report reinforces that they are only part of the picture. To create a well-rounded portfolio, investors will need to diversify their bets to include several mature markets, which are making a comeback in certain areas and sectors.
Executives surveyed confirm that North America and Western Europe remain critical to protecting the bottom line. Although new investment in these regions remains patchy, high energy costs, the decline in a labor cost differential between developed and developing markets and shorter product lifecycles are driving global organizations to pursue near-sourcing. In the next three years, the number of respondents who expect to outsource more operational functions to providers in mature markets will rise to 36% from 22% today and the number that plan to near-source previously outsourced activities will more than double, from 14% to 35%.
The report also highlights how innovation and exchange of technology and ideas can give developed markets an edge over their rapid-growth counterparts. The diffusion of broadband, social, digital and mobile technologies is much higher in these markets, enabling them to retain a high share in the export of goods and services.
John Ferraro, Global Chief Operating Officer, Ernst & Young explains how one market in particular could benefit: “The US could well be a surprisingly attractive investment destination for the next decade; with its strong revival of domestic manufacturing, the landmark discovery of new shale gas reserves driving low energy costs for US producers, increasing high-tech and export-fueled growth, and narrowing labor cost differentials.”
As the trade in goods and services is returning to pre-financial-crisis levels, and the flow of capital shows a steady increase, technology and the cross-border flow of ideas will continue to shape the growth and character of globalization. As trade integration stabilizes, a shift between import and export countries is forecast, with rapid-growth markets emerging as stronger consumer markets and developed markets regaining strength as producers and exporters of goods and services.
Turley concludes: “The nature of globalization continues to evolve and change. Technology continues to enable and enhance the flow of capital, ideas and innovation in ways that are increasingly hard to anticipate. The challenge for business is how to monitor, evaluate and respond as rapidly and effectively as they can, to a dynamic environment that cannot be dealt with by an “off the shelf solution.”
Notes to Editors
About The Globalization Index
The Globalization Index developed for this report measures and tracks the performance of the world’s 60 largest economies according to 20 separate indicators that capture the key aspects of cross-border integration of business. The indicators fall into five broad categories: openness to trade; capital movements; exchange of technology and ideas; labor movements; and cultural integration. The Index measures “relative” rather than “absolute” globalization. This means that a country’s* trade, investment, technology, labor and cultural integration with other countries is measured relative to its GDP rather than by the absolute value of these elements being exchanged. The Index, therefore, reflects the degree to which the global integration of a country is observable or experienced from within that country.
*Country or, where applicable, territory
About the survey
The Economist Intelligence Unit surveyed 750 business executives in November 2012
About Ernst & Young
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