Though the geopolitical climate impacts every business, moves by government leaders throughout the world are particularly impacting the high-tech sector. These shifts indicate a potential global competitive realignment, according to a report from the International Monetary Fund, to which the photonics community must adapt.
As the century began, the trend toward increasing globalization encouraged a business strategy based on comparative advantage. The approach prompted business leaders to buy what they need from offshore suppliers or search the globe to optimize various aspects of their business by locating them where they make the most economic sense. Offshoring production is the most prominent example, though strategically placing R&D facilities is another. The thinking was that no country needs to have or do everything and that, overall, globalization benefits global economic growth.
Governments promoted these shifts, such as welcoming China into the World Trade Organization, enabling businesses to take advantage of its comparative advantage in low-cost labor and the country to grow its economy, raising people out of poverty. Still, every country used trade laws and tariffs to influence the outcomes to ensure businesses in the most lucrative or politically advantageous industries remained competitive.
More recently, however, business policy and strategies shifted away from globalization, accelerating with significant events, including the pandemic, the U.S.-China trade issues, and the Ukraine war. Governments established plans to strengthen their advanced and emerging technologies and to limit China’s and other countries’ access to them. Businesses started to re-, near- or friend-shore parts of their global supply chains.
The slowdown in globalization is evident in foreign direct investment, according to a recent report from the IMF, which noted a global FDI decline from 3.3% of GDP in the 2000s to 1.3% between 2018 and 2022. Further, the report shares that a scenario modeling “a permanent rise in cross-bloc barriers to importing investment inputs could substantially reduce global output.”
As policymakers focus on strengthening their technology capabilities and implementing restrictions, the risk is that they’ll go too far. The current data in the IMF report show that that is not yet the case. However, as they adapt to the new competitive landscape, business and research leaders must be at the forefront of maintaining the essential ties that yield globalization’s benefits.
