The three-decade-long era of globalization threatens to reverse according to company executives and investors, as world leaders prepare to meet in the Swiss town of Davos for the first time. since the coronavirus pandemic began.
The geopolitical impact of Russia’s war in Ukraine, combined with global supply chain disruptions caused by the virus, recent market turmoil and rapidly deteriorating economic prospects have led and Investors grapple with key strategic decisions, several people told the Financial Times in interviews.
José Manuel Barroso, president of Goldman Sachs International and former president of the European Commission.
He added: “Procurement, re-nationalization and regionalization have become the latest trend of companies, slowing the pace of globalization.”[Globalisation faces] friction from nationalism, protectionism, nativism, chauvinism if you will, or even sometimes xenophobia, and for me it’s not clear who will win. ”
According to the head of one of the world’s largest private equity groups, “virtually no one sees” these conditions “during the course of their investment.” Charles ‘Chip’ Kaye, chief executive officer of Warburg Pincus, said geopolitics has been on “the edge of the way we think” since the fall of the Berlin Wall and this has “provided a certain amount of oxygen to the world”. global growth”.
Still, he said, geopolitics is now “front and center” of investment decisions like “a pretty strong headwind to asset prices” as years of inflation fell and low interest rates came to an end.
“You are not optimizing economic outcomes, you are creating conflict within the system,” he said of rising geopolitical tensions.
Discussion of de-balancing between companies has increased in recent weeks. Mentions of corporate earnings calls and investor conferences are at their highest level since 2005, according to data provider Sentieo, according to data provider Sentieo.
The topic will be on the agenda of World Economic Forum attendees in Davos this week. Since its last meeting in January 2020, world events vie for the supply chains that underpin globalization that WEF champions.
“Companies are saying I need my manufacturing to be closer to the customer,” said Jonathan Gray, president of Blackstone Group.
The head of Asia’s largest pharmaceutical company said the era of globalization based on outsourcing functions to cut costs is over.
Christophe Weber, chief executive of Takeda, which is headquartered in Tokyo, Japan, said drugmakers will continue to seek growth in international markets, especially China because of the potential. high capacity. But the company’s focus has shifted to a more sustainable form of globalization, he said: “It’s all about eliminating risk in your supply chain.”
Weber said: “It would be succinct to say that globalization is over, but the globalization that people think of now is no longer true. “The globalization that existed a few years ago, the free trade and the ‘flat world’ idea, is over.”
Takeda has implemented a dual sourcing policy to build more redundancy into its supply chain, Weber added, adding: “I never thought it would. [outsourcing] will work in the long run but I think this should be clear to everyone by now. ”
According to Rachid Mohamed Rachid, president of Valentino and Balmain, consumer industries are also undergoing a shift away from globalization.
“Some luxury companies are rethinking their strategies, which tend to rely heavily on global brands, selling to tourists and shipping goods around the world,” he said. . . Today’s stores in London, Paris or Milan are now catering to their local residents more than before. “
Over the past two years, companies have started to “go local and start acting locally instead of acting globally,” he said at the FT’s Luxury Business conference earlier this week. “In markets as different as the US, Europe, Asia, even smaller markets like Latin America and Africa, people are searching local right now and I’m sure there will be a lot of people. a lot of local transactions take place.”
Dominik Asam, Airbus’ chief financial officer, warned this could have dire economic consequences.
“If a meaningful part of decades of globalization-driven productivity gains were to be reversed in a short period of time, this would cause inflation to soar and lead to a protracted major recession,” he said. ,” he said. “This is precisely why I believe the major economic powers will come to the conclusion that they must do everything they can to prevent such a dire scenario.”
Mr. Barroso blamed poorer cooperation at the political level in the current G20 when compared with the 2008 financial crisis. Political leaders should distinguish between serious geopolitical differences. and the need to address challenges such as public health and climate change, he said.
German central banker Joachim Nagel listed denuclearization as one of the “three Ds” that would “add to inflationary pressures” along with decarbonisation and demographics.
The move away from globalization was driven by geopolitical tensions and a desire to move away from globalization, said the President of the Bundesbank after a meeting between G7 finance ministers and central bank governors in Königswinter, Germany. reduce economic dependence”.
Additional reporting by Brooke Masters and Sylvia Pfeifer in London and Martin Arnold in Frankfurt
