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| It is important for countries to prepare for digital globalization (globotics). Illustration photo. (Source: thehansindia) |
In the 1950s, development theory emphasized the importance of industrialization for economic development. China is a typical example of a development model with industry as the spearhead.
The post-1990 economic development model sparked a wave of offshoring and industrialization. At that time, it was believed that the prosperity of developing countries was a result of participating in global value chains. To do so, countries needed to improve their investment climate, regulations, infrastructure, and trade policies.
New way?
Today, as argued by global economist on international trade, Professor Richard Baldwin of the International Institute for Management Development - IMD (Switzerland), the combination of globalization and digital (globotics, roughly translated as digital globalization) is the "door" that opens a new path to prosperity for developing countries, which is the development of globalization based on the service platform.
In fact, while China's economic success has been driven by manufacturing, India's growth has been driven by the service sector, a very atypical growth model for a developing country.
It is not hard to understand why governments around the world continue to look to China as a model for development. This model has survived and indeed thrived impressively throughout the late 20th and early 21st centuries in the world’s second largest economy – turning vast numbers of peasants into workers, wages rising, livelihoods improving. Hundreds of millions of people were lifted out of poverty, a strong middle class emerged, and China achieved superpower status.
China’s path, while long a model for other developing countries, is not easy to follow. China possesses so many factors that other economies find difficult to match.
Here, international competition is the big issue and the “key” for developing economies to participate in the global race. Therefore, in terms of potential, it is very difficult for developing countries today to “nominate” themselves in the manufacturing sector, because manufacturers in East Asia, Central Europe and Mexico are far behind the general level.
The low-hanging fruit here, “offshoring,” has already been picked. Meanwhile, the trend of “reshoring” is now becoming mainstream and is characterized by the simplification of global supply chains, both within and between countries.
Some of the characteristics that will reshape and operate the current global supply chain are "flexibility, adaptability, application of digital technology, promotion of transparent e-commerce; increasing regional production networks within the global network"...
Therefore, digital technology opens up another path of development. That is to “reduce” the distance of the remote workforce, while continuously improving collaboration platforms in cyberspace, promoting international trade in services, thanks to the extraordinary growth rate of telecommunications.
This is evidenced by the growth of eBay and Alibaba in international commodity trade.
Meanwhile, cheap labor remains a key factor in international competition. Service providers across the ocean have the ability to remotely monitor, interact with, assign tasks, manage, and securely pay a workforce that costs as little as $5 an hour, which is already a middle-class standard of living in many countries around the world.
This creates significant variation between and even within businesses as they look to cut costs by purchasing services overseas/or outsourcing/or moving internal business processes offshore.
India is not the only economy benefiting from this trend. However, India’s success story stands out, thanks to its global scale of service provision in the areas of information technology and accounting, with its strong technological infrastructure, high-quality higher education, good English skills and very few institutional barriers.
The importance of policy
What is interesting about India's rapid rise as a leading services exporter is that it did not stem from a government-led development policy, observers say.
Even the development of India's service industry started by accident. It is also said that the Indian model is difficult to replicate, because the initial development was somewhat spontaneous, so it will take a long time.
Since the 2000s, India has emerged as a prime location for developed economies to outsource IT and knowledge-based jobs, and has gradually become a host to call centers, as well as many other activities and processes that require a lot of technology labor.
In fact, initially, not stemming from government policy, the service sector that “led” India’s economic development “groped” from the very constraints on international trade, such as lack of access to capital, weak transport infrastructure and too great a distance from global manufacturing centers in the US, Germany, Japan and China…
However, the Philippines has recently emerged as a service export hub. Not only learning from India’s lessons, the Philippines has quickly and successfully capitalized on the wave of digital globalization in the services sector, and driven by a deliberate government strategy.
This strategy was built by Manila on a customer service culture with tax incentives and the establishment of special economic zones, encouraging the development of service exporting businesses.
The Philippines offers huge potential for data center operators and developers, based on four key pillars: Supporting businesses to adopt cloud computing faster; establishing policies conducive to digital transformation; building renewable energy infrastructure; and developing a robust telecommunications infrastructure.
As a result, thanks to the policy of accelerating digital globalization, in 2021, the Philippines' Internet economy grew to US$17 billion and is expected to reach US$40 billion by 2025.
Overall, for the roads to be cleared and concerns to be addressed, experts say, global cooperation is needed so that the world economy does not miss out on the huge potential benefits of digital flows.
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