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• 12 Dec 2023
• Research & Ideas

COVID Tested Global Supply Chains. Here’s How They’ve Adapted

A global supply chain reshuffling is underway as companies seek to diversify their distribution networks in response to pandemic-related shocks, says research by Laura Alfaro. What do these shifts mean for American businesses and buyers?

• 17 Aug 2020
• Working Paper Summaries

Of Learning and Forgetting: Centrism, Populism, and the Legitimacy Crisis of Globalization

Cycles of liberation and regulation of global finance follow a pattern of learning and forgetting. This essay argues that liberalization and globalization created the instability and inequality that have begun to undermine the system from within.

• 23 Jun 2020

Dignity, Inequality, and the Populist Backlash: Lessons from America and Europe for a Sustainable Globalization

COVID-19 has enhanced already existing fissures undermining some societies’ commitments to globalization. Governments and firms need to act decisively to make the models of capitalism in the United States and Europe more friendly to small- and medium-sized firms, more equal in opportunity, and more meritocratic.

• 16 Apr 2020

Has COVID-19 Broken the Global Value Chain?

4Questions Companies and consumers depend on the global value chain to create and distribute products around the world. What happens when the chain breaks? Insights from Laura Alfaro and Ester Faia. Open for comment; 0 Comments.

• 17 Mar 2020
• Cold Call Podcast

Is There a Winner in Huawei’s Digital Cold War with the US?

Bill Kirby discusses his case study of China-based Huawei’s growth and ultimate confrontation with the United States government, and China's response to the coronavirus. Open for comment; 0 Comments.

• 10 Mar 2020

The Little Understood Problem Confronting Diverse Workplaces

Knitting together a diverse workforce into a common fabric is a difficult challenge for managers—and even more difficult for the workers themselves, say Lakshmi Ramarajan and Erin Reid. Open for comment; 0 Comments.

• 21 Jan 2020

China-based Fuyao Glass Considers Manufacturing in the US

Not many Chinese companies open manufacturing facilities in the US, but automotive glass maker Fuyao is considering just that. In a recent case study, Willy Shih examines factors that go into deciding where companies should locate production centers. Open for comment; 0 Comments.

• 03 Jul 2019

The Controversial History of United Fruit

Geoffrey Jones discusses the overthrow of President Jacobo Arbenz of Guatemala in 1954 in a US-backed coup supporting United Fruit Company and a key landmark in the history of globalization. Open for comment; 0 Comments.

• 15 May 2019
• Research Event

The Unconventional Capitalism That Shapes Business History

Geoffrey G. Jones reports on a business history conference studying the many shades of capitalism around the world and through time. Open for comment; 0 Comments.

• 11 Mar 2019

Branding Sells Cereal, Handbags, and Vacations. Can It Sell a Country?

Countries such as Israel now realize they need to engage in public diplomacy as well as foreign diplomacy, and in place branding, not just political advocacy, says Elie Ofek. Open for comment; 0 Comments.

• 09 Jan 2019

The UK Needs a Bold Strategy Around Competition to Survive Brexit

There is little doubt that the United Kingdom’s separation from Europe will reduce its competitiveness for the foreseeable future, argues Michael E. Porter. Here's what can be done about it. Open for comment; 0 Comments.

• 11 Dec 2018

Free Trade Needs Nurturing—and Other Lessons from History

Global free trade is not the natural order of things, so it needs to be carefully tended to and maintained. Sophus Reinert and Dante Roscini discuss trade over time and what history teaches. Open for comment; 0 Comments.

• 09 Oct 2018

Towards a New Approach for Upgrading Europe’s Competitiveness

Is the EU’s model of European integration a driver or a barrier towards higher European prosperity? This paper analyzes why the integration model that was successful in the past has lost effectiveness, and sets out strategic principles to guide a new approach. Integration remains key for upgrading European competitiveness, but needs to move towards a new form.

• 26 Sep 2018

Shifting Centers of Gravity: Host Country versus Headquarters Influences on MNC Subsidiary Knowledge Inheritance

This study compares how multinational corporation subsidiaries inherit knowledge from both the headquarters and the local context. To do so the authors analyzed seven years of data (2005–2011) of US patents filed by all subsidiaries of the top 25 US headquartered multinationals.

• 12 Apr 2018

Op-Ed: The Trouble with Tariffs

The world's economies are interconnected by globalization, which makes threats of tariff wars doubly dangerous, says Willy Shih. Open for comment; 0 Comments.

• 22 Mar 2018

Trump’s Populism: What Business Leaders Need To Understand

Whether you are a fan of populism or not, it is vital for business leaders to understand the debate around it, says Rafael Di Tella in our latest Cold Call podcast. Open for comment; 0 Comments.

• 22 Feb 2018

The New History of American Capitalism

Historians are taking a new look at capitalism in light of its adoption in most of the developed world. From the edited volume American Capitalism: New Histories, by Sven Beckert and Christine Desan, the authors delve into the evolution of these new historic views. Open for comment; 0 Comments.

• 16 Nov 2017

Language and Globalization: The Mandate to Speak English at Rakuten

Japan’s largest online retailer, Rakuten, is rapidly expanding into global markets and requiring all employees, where ever they are located, to conduct business in English. Tsedal Neeley discusses the strong connection between language and globalization. Open for comment; 0 Comments.

• 18 Oct 2017

How Economic Clusters Drive Globalization

Historical research by Valeria Giacomin shows that industrial clusters, often cited in explaining local economic growth, have had a much wider impact, especially in developing countries. Open for comment; 0 Comments.

• 29 Sep 2017

International Business and Emerging Markets: A Long-Run Perspective

This paper examines how strategies by Western multinational enterprises in emerging markets over the last century have been shaped by context. These strategies evolved from resolving logistical challenges to managing assertive governments. More recently the focus has been to locate activities in the lower end of global value chains, whilst responding to local competitors.

The Globalization of Strategy Research: Volume 27

Table of contents

Advances in strategic management, copyright page, list of contributors, the globalization of strategy research: permanent pluralism or prelude to a new synthesis.

All knowledge claims are also to some extent legitimacy claims. No theory can receive serious attention, let alone gain credence, unless it is also seen as legitimate. Philosophers of science have spent decades trying to frame criteria that determine the legitimacy of theories, only to agree to disagree on the matter. Sociologists of science, on the other hand, take a broader view, arguing that rather than seeking ex ante criteria of knowledge it is best to examine how researchers legitimate knowledge in practice.

Strategy as innovative design: An emerging perspective

We develop a discourse of strategic management as design, using a conceptual base drawing upon the work of Michel Foucault, as an alternative to the prevailing strategy discourse (strategy as “economizing”). We then use contemporary design theory to theorize strategic management as a design activity in which the focus is on innovation, with the emphasis on future strategies based on the creation of desirable unknowns.

Taking the linguistic turn seriously: Strategy as A multifaceted and interdiscursive phenomenon

Although we have seen a proliferation of studies examining the discursive aspects of strategy, the full potential of the linguistic turn has not yet been realized. This paper argues for a multifaceted interdiscursive approach that can help to go beyond simplistic views on strategy as unified discourse and pave the way for new research efforts. At the metalevel, it is important to focus attention on struggles over competing conceptions of strategy in this body of knowledge. At the mesolevel it is interesting to examine alternative strategy narratives to better understand the polyphony and dialogicality in organizational strategizing. At the microlevel, it is useful to reflect on the rhetorical tactics and skills that are used in strategy conversations to promote or resist specific views. This paper calls for new focused analyses at these different levels of analysis, but also for studies of the processes linking these levels.

Taking “strategy-as-practice” across the Atlantic

An increasingly large group of scholars in Europe have begun to take a practice lens to understanding problems of strategy making in organizations. Strategy-as-practice research is premised on the notion that all social life is constituted within practices, and that practices and practitioners are essential subjects of study. Applying this lens to strategy foregrounds the mundane, everyday work involved in doing strategy. In doing so, it expands our definition of the salient outcomes to be studied in strategic management and provides new perspectives on the mechanisms for producing such outcomes. As strategy-as-practice scholars, we have been puzzled about how much more slowly the ideas in this burgeoning field have traveled from their home in Europe to the United States than have other ideas in strategic management traveled from the United States to Europe. In this chapter, we contribute some thoughts about the development of the strategy-as-practice field and its travels in academia.

Strategy and strategizing: A poststructuralist perspective

This chapter explicates the theoretical basis and contribution of poststructuralism to the study of strategy and strategic management. More specifically, it focuses upon Foucauldian analysis which is contrasted to rationalist and interpretivist studies. Foucauldian analysis is not regarded as a corrective but as an addition to these established approaches to studying strategy. Notably, Foucault's work draws attention to how discourse constitutes, disciplines and legitimizes particular forms of executive identity (‘strategists’) and management practice (‘strategizing’). We highlight how Foucault's poststructuralist thinking points to unexplored performative effects of rationalist and interpretivist studies of strategy. Foucault is insistent upon the indivisibility of knowledge and power, where relations of power within organizations, and in academia, are understood to rely upon, but also operate to maintain and transform, particular ‘discourses of truth’ such as the discourses of ‘shareholder value’ and ‘objectivity’. Discourse, in Foucauldian analysis, is not a more or less imperfect, or ineffective, means of representing objects such as strategy. Rather, it is performative in, for example, producing the widely taken-or-granted truth that ‘organization’ is separate from ‘environment’. In turn, the production of this distinction is seen to enable and sanction particular and, arguably, predatory forms of knowledge, in which the formulation and application of strategy is represented as neutral, mirror-like and/or functional.

The strategy and identity relationship: Towards a processual understanding

The paradigmatic separation of the strategy and identity literatures constitutes an ongoing problem for the extension of either into more global contexts. The theorization proposed in this chapter presents rhetoric as the means by which the ‘strategy work’ of reimagining future options and the ‘identity work’ of reformulating the meaning of past actions may be integrated in the present moment. By locating both strategy work and identity work within the continuity of experience, we suggest that scholars will be better able to develop theoretically integrated, empirically grounded and globally relevant studies of strategy.

Rhetorical history as a source of competitive advantage

This paper develops a framework for understanding history as a source of competitive advantage. Prior research suggests that some firms enjoy preferential access to resources as a result of their past. Historians, by contrast, understand past events as more than an objective account of reality. History also has an interpretive function. History is a social and rhetorical construction that can be shaped and manipulated to motivate, persuade, and frame action, both within and outside an organization. Viewed as a malleable construct, the capacity to manage history can, itself, be a rare and inimitable resource.

Where strategy meets culture: The neglected role of cultural and symbolic resources in strategy research

In this paper, we discuss how “cultural capital” and “symbolic capital,” understood as specialized subsets of intangible resources and capabilities, enable firms to achieve valuable strategic positions in ways that are currently underexplored by mainstream strategy literature. We articulate the similarities and differences between cultural and symbolic capital and the intangible assets that have been the focus of mainstream strategy researchers, such as intellectual, social, and reputational capital. Our theoretical arguments build on insights from a number of studies conducted primarily in non-North American settings that have shown how symbolic properties of products create value. We conclude by delineating future avenues of research that strategy scholarship should consider in order to develop a more comprehensive understanding of the relationships between intangible resources and capabilities, and value creation.

Consuming strategy: The art and practice of managers’ everyday strategy usage

Although the managerial profession is subjugated by the discipline of strategic management, managers are not completely subordinate to it. Instead, they are able to use the institutionalized discourse of strategic management, which is not their own product, in novel and creative ways. In this paper, we focus on the tactics that managers, as central strategy practitioners, use to consume strategy. Drawing on the work of the late Michel de Certeau as a theoretical lens, we conduct an empirical analysis of discourse, produced by 36 managers operating in three case organizations. This analysis allows us to elaborate on three different tactics of strategy consumption: instrumental, playful, and intimate. The results capture the reciprocal dynamics between the micro- and macrolevels of strategy discourse, that is, between strategic management as an institutional body of knowledge and the discursive practice of individual managers.

Beyond the hype: Taking business strategy to the “bottom of the pyramid”

Recent studies in strategy have highlighted both the successes and failures of applying conventional perspectives in strategic management to developing markets. Within this debate, Bottom of the Pyramid (BoP) strategies, aimed at exploiting high-volume, low-margins strata at the bottom of these societies, have particularly drawn interest. We critically examine the emergence and evolution of BoP strategies and compare their anticipated outcomes to some of the empirical evidence. We then draw on the concept of global value chains to usefully extend the BoP concept, and suggest areas for further theory building and empirical research. We offer a typology of BoP ventures, and suggest appropriate levels of public–private engagement to achieve the desired social and economic outcomes.

Strong in the morning, dead in the evening: a genealogical and contextual perspective on organizational selection

A key component of evolutionary models in economics and organizational research, the notion of organizational selection is rarely the object of inquiry. It generally suggests instead a neutral and unquestioned process, a mechanism explaining organizational success and survival. In this chapter, we explore the variation of selection; we problematize the notion of selection and do an exercise in conceptual genealogy. We differentiate between three patterns of firm selection: Darwinian, strategic, and institutional and define the associated “embedded rationalities” that buttress those different selection patterns. We illustrate how selection differed and evolved through time by exploring two empirical cases – France and the United States. Building upon our empirical exploration, we stress some important contributions for three theories familiar to strategy scholars – resource-based view, population ecology, and institutional theory. We also point to some consequences for empirical research and suggest new directions for future work on the dynamics of organizational action.

European and North American origins of competitive advantage

This chapter explores the origins of the theme of competitive advantage in 19th and early 20th century economics. This theme, which forms the core of modern Strategic Management, was a battleground for debates about the value of abstract theory versus observations about real-life events. Intellectual genealogies, citations, and other sources show the central roles played by the University of Vienna and Harvard University. These two institutions strongly influenced the theory of monopolistic competition as well as all three modern views of competitive advantage – the industrial as expressed by Porter, the resource-based as expressed by Penrose, and the evolutionary as expressed by Schumpeter.

Strategy research in the German context: The influence of economic, sociological and philosophical traditions

The present paper takes a look at the particularities of German strategy research over the last three decades. In contrast to much of the Anglo-Saxon research, which has focused on competition as a guiding concept in theorizing about strategy, German research has typically been concerned with more fundamental questions about the general relationship between organizations and their environments and, as a result, tended to be more conceptual than empirical. Researchers have been particularly influenced by the German sociological and philosophical traditions, specifically by the critical theory of Jürgen Habermas and by the systems theory of Niklas Luhmann. Also, there are authors who draw on the economic tradition of the Austrian School in order to develop a competence-based theory of the firm. Another branch builds on Anthony Giddens's structuration theory and Jacques Derrida's philosophy of deconstruction. As we will demonstrate, much of the research has been concerned with fundamental theoretical tensions: evolution vs. planning, selection vs. compensation, cognitive–instrumental rationality vs. moral–practical rationality, etc. We note that, as a consequence, much of German strategy research shows a particular interest in paradoxa and oxymora (such as ‘planned evolution’, ‘productive misunderstandings’ or ‘unfocused monitoring’). This paper will identify and explore important strands of German strategy research and discuss its particularities compared to mainstream strategy research in the United States.

Collaborating to discover the practice of strategy and its impact

This chapter argues that one of the fundamental challenges of the global character of strategy research is the growing need to foster collaborations between academic and business practitioners that can help build a better understanding of the practice of strategy and through these means deliver greater impact. This challenge strengthens existing calls for strategy research to refocus on understanding the practice of strategy with an attentiveness to micro-dynamics of strategizing, and requires us to expand the ways in which research practice is performed. Whilst this can apparently be achieved through better dialogue, building trusting relationships and valuing the contribution each party can make due to their differences, it in fact requires a questioning of our research assumptions and practice.

Where is the ‘I’? One silence in strategy research

I consider the significance of just one silence in strategy research – it revolves around the ‘I’ which brings in matters of biography, epistemology and reflexivity. While different epistemic communities have their investigative conventions or protocols and allied evaluative criteria which either silence or give voice to an ‘I’, developments in the philosophy of science and the sociology of knowledge suggest the need to account for two particular and intertwined aspects of reflexivity. The first rests on C. Wright Mills' assertion that ‘craftsmanship is the centre of yourself’, and in this paper I share four snippets of autobiographical reflection outlining the crystallization of my interests and the sociological ‘eye’ which I bring to the study of strategic management. Second, the ways the established or taken-for-granted socio-politico-ethical orders routinely reproduce as legitimate (or not) particular ways of seeing-researching and thus, particular I's, is also woven into this account. My own intellectual ‘home’ of ethnomethodology is one where constitutive reflexivity is central and shows that the field of research interest – strategy work/strategizing – and our own practice of trying to understand this field are both a reflexive accomplishment.

• Baum Joel A.C.
• Joseph Lampel

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Introduction to Globalization: Strategies and Effects

• First Online: 08 March 2017

Cite this chapter

• Bent Jesper Christensen 3 &
• Carsten Kowalczyk 4  

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Globalization implies the continuing expansion and intensification of economic, political, social, cultural and judicial relations across borders. It is furthered by reductions in transportation and communication costs, the rise of new information technologies, such as the internet, and liberalizations in the markets for goods, services, labor, capital, and technology. Although it also occurs within existing legal structures, globalization in many cases involves political decisions about deregulation, free trade, and the integration of markets. It changes the life styles and living conditions for people around the world, presenting new opportunities to some, but risks and threats to others. Individuals, firms, governments, and transnational organizations that are lifted out of the framework of the nation state, like the World Bank, United Nations, the European Union, and multinational firms all face challenges of how to respond to globalization. The present volume provides important information to private and public decision makers who are choosing strategies for production, investment, and public policy in the increasingly globalized society.

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1 Introduction

The ongoing process of globalization that the world is experiencing today implies the continuing expansion and intensification of economic, political, social, cultural and judicial relations across borders. Globalization is furthered by reductions in transportation and communication costs, the rise of new information technologies, such as the internet, and liberalizations in the markets for goods, services, labor, capital, and technology. Although it also occurs within existing legal structures, globalization in many cases involves political decisions about deregulation, free trade, and the integration of markets. It changes the life styles and living conditions for people around the world, presenting new opportunities to some, but risks and threats to others. Individuals, firms, governments, and transnational organizations that are lifted out of the framework of the nation state, like the World Bank, United Nations, the European Union, and multinational firms all face the challenge of how to respond to globalization.

The present volume brings together researchers from economics, business, political science, law, and the humanities to shed light on the consequences of globalization processes, and to provide information to private and public decision makers who are choosing strategies for production, investment, and public policy in the increasingly globalized world. The volume consists of seven interrelated parts, on search and matching, multinational firms, financial markets and aggregate fluctuations, international integration and migration, policy issues, and development, with a closing part on what we know and what we would like to know about globalization. Here, we briefly introduce each part, and the papers therein.

2 Search, Matching, and Globalization

International trade in goods has been increasing over time, supported by trade agreements such as GATT and WTO, Footnote 1 and trade in services is now part of the international market, too. Net gains from globalization should be accessible, through free trade, migration, and better matching of skills and needs. At the same time, there is competition between countries regarding where production should take place, and thus where jobs are created. Outsourcing and foreign direct investment (FDI) allow shifting production abroad. These globalization processes have important consequences for labor markets. Even if workers are not as mobile as products and capital, jobs are mobile, and workers are thereby affected by the international competition. This has implications for wages and work conditions, and is often seen as increasing uncertainty and posing threats to low skilled workers in developed economies.

The volume opens in the first part with a set of papers using search and matching models to explore the consequences of market frictions for globalization, trade, outsourcing, and labor markets. Frictions may come in the form of costly information acquisition, adjustment, and market entry, and may lead to delays in matching of trading partners, inefficiencies, and mismatching, as in Diamond ( 1982 ) and Mortensen ( 1982 ). It takes time and effort for a person to find a job, and it takes time and effort for a firm to fill a vacancy. Once a match is made, it need not be at the same wage as in other worker-firm matches. Similarly, if production requires that two firms work together, frictions may make it costly for a firm to find a partner in production. An important question is how these features are impacted by the opening of the economy, e.g., through trade, or offshoring of production.

In “Product and Labor Market Entry Costs, Underemployment and International Trade,” Spiros Bougheas and Raymond Riezman use a matching model in which firms (entrepreneurs) face entry costs, and workers face costs of skill acquisition, to study the implications of the resulting frictions for underemployment and international trade. There is a high-tech and a low-tech sector. Establishing a comparative advantage in the high-tech sector at the national level would according to the Ricardian theory of international trade require technological know-how, and according to the Heckscher-Ohlin model sufficient skill endowments. However, as frictions are impediments to the matching of factors of production, cross-country differences in market rigidities may generate comparative advantages, too, as in research following Krugman ( 1995 ). In the model of Bougheas and Riezman, firms must pay the necessary investment cost to enter the high-tech sector, or remain low-tech. Workers must acquire the skills required to work in the high-tech sector in order to be considered there, but even skilled workers may fail to find a match with a high-tech firm, thus generating underemployment. Workers and entrepreneurs have heterogeneous abilities and take these into account when deciding whether to invest in skill acquisition, e.g., education. Bougheas and Riezman demonstrate how countries’ trade patterns may depend on their labor market institutions as these may affect the search and matching costs and hence relative autarky prices. They show that strong inefficiencies in the labor market could lead to trade liberalization being welfare reducing. They argue, however, that rather than imposing trade restrictions, the appropriate policy response may be to improve product and labor market institutions, to reduce the frictions causing the mismatching and underemployment in the first place.

In a related paper, “Offshoring, Mismatch, and Labor Market Outcomes,” David M. Arseneau and Brendan Epstein similarly study an economy where high-tech firms require high-skilled workers, whereas low-tech firms make do with either high- or low-skilled workers. Under conditions laid out in the paper, search frictions imply that some high-skilled workers may take low-tech jobs, in order to escape faster from unemployment. This is again a problem of mismatch. Other conditions lead to segmentation, i.e., high-skilled workers only accept job offers from high-tech firms. In this framework, the authors investigate the implications of offshoring, i.e., firms hiring foreign workers to do jobs that were previously done domestically. An important case is North-South trade, with Northern high-tech firms going multinational. The concern is that offshoring may reduce domestic (here, Northern) welfare, by reducing wages and increasing unemployment. The authors use a version of their model calibrated to U.S. data and a representative emerging market economy to support the analysis. They show that, starting from segmentation in autarky, trade liberalization and the resulting high-tech offshoring may lead to the mismatching problem, with some high-tech workers now having to accept low-tech jobs. However, they also show that this mismatching actually reduces the welfare loss resulting from shifting some of the production abroad, compared to a situation with segmentation even after the opening of the economy. In this sense, the mismatching may rather be thought of as productive reallocation. As the authors note, it would be of interest to further study the response of the wage distribution to offshoring by allowing for on-the-job search, a mechanism that finds empirical support in Christensen et al. ( 2005 ). From a policy perspective, the paper shows the importance for economic welfare of maintaining a flexible labor market as a country participates in globalization.

In his paper “Good Times and Bad Times, With Endogenous Trade Policy Responses,” T. Huw Edwards uses a third search and matching model, again one of North-South trade, to endogenize globalization cycles. The model, which shares some features with that of Grossman and Helpman ( 2002 ), explains why prolonged periods of economic growth tend to be associated with increased trade flows and low barriers to trade, while, once a recession hits, there is a tendency for tariff barriers to go up again. Growth is the exogenous driving process. There are two production stages, where upstream firms sell semi-finished goods to downstream firms that complete the manufacture and sell it to consumers. Informational barriers generate frictions, leading to a search process, where upstream and downstream firms must meet and match in order to produce. The North is assumed to have higher skill endowments than the South, implying a comparative advantage in downstream production in the North, and lower labor costs in the South. In an initial phase, trade costs are high, and most goods are produced through matches within the North. When the economy is opened to trade in a phase of growth and globalization, some downstream Northern firms search for upstream Southern partners. Search is time-consuming and requires credit. The author shows that if growth is sufficiently high, so that there is more entry into outsourcing trade, optimal tariffs are low, as the costs of higher tariffs stemming from the loss of searching firms more than outweigh the domestic welfare benefits. On the other hand, when growth falters, e.g., following a credit shock, optimal tariffs go up, and a protectionist regime with lower trade flows may arise. The paper shows the need to pursue a strategy of continued multilateral commitment to trade liberalization, even following crises and recessions.

3 Multinational Firms

In addition to market frictions, there is tremendous heterogeneity among trading partners. Heterogeneity at many different levels, including people, firms, and markets, is important for globalization, and in particular for multinational enterprises (MNEs), which are studied in the second part of the volume.

In his paper “Dynamic Capabilities and the Multinational Enterprise,” on the theoretical foundations and business perspectives of the MNE, David J. Teece argues that the role of managers and other sources of cross-firm heterogeneity are insufficiently captured by traditional economic theories of MNEs, with their roots in Coase ( 1937 ), or by financial and agency theory, e.g., Jensen and Meckling ( 1976 ). Since globalization is less than complete, MNEs must deal with markets and countries characterized by different needs, desires, institutions, regulations, and policies, with labor that is not fully mobile, and with other frictions and heterogeneity. As a result, each MNE has its own important history, spanning a unique set of markets, technologies, national and regional infrastructures, and so on. While traditional economic theory has focused on the transaction level and efficiency, explaining the rise of FDI and the MNE alternative to contracting as market failures due to transaction costs, with more recent work following Antràs and Helpman ( 2004 ) focusing on property rights, and research following Melitz ( 2003 ) coupling contracting with a heterogeneous firms approach, Teece argues for the importance of his complementary dynamic capabilities approach. This approach emphasizes the “signature” organizational processes rooted in the distinct histories and cultures of MNEs, the non-routine actions of entrepreneurial managers and creativity of expert staff that generate growth and prosperity, and the design of good business models and strategies. In the resulting framework characterized by heterogeneity, firms should reward and promote awareness of the dynamic capabilities of managers and experts addressing uncertainties and changes in market conditions on an ongoing basis. A case study illustrating how this took place in a large multinational oil firm is offered. The paper helps highlighting the entrepreneurial role of MNEs and their managers, and the complexity of managerial control.

Empirically, heterogeneity at the firm level is documented, e.g., by Bunzel et al. ( 2017 ), based on the detailed official register data from Denmark. The other papers in this part of the volume draw on similar firm level registers from Sweden and Denmark to explore MNEs empirically. Thus, Susanna Thede in her paper “Determinants of the Firm’s Foreign Internationalization Decision” presents an empirical test of the Antràs and Helpman ( 2004 ) global sourcing model of organizational choice in a world of heterogeneous firms and imperfect contracting. She shows that firms select FDI over outsourcing exactly when there is more heterogeneity in the industry, here in terms of variation in total factor productivity (TFP) levels, or better foreign contracting enforcement, here in the form of legislative support of headquarter provision. Thus, her findings support the complementarity of the heterogeneity and transactions explanations of MNEs. In addition, more productive offshoring firms integrate in the source country. The paper contributes with novel evidence along these dimensions by using Swedish firm level census data not subject to sample selection bias, in contrast to earlier studies relying on surveys or size-restricted firm data.

Similarly using the Swedish firm level data, Ayça Tekin-Koru studies the selection into FDI and the choice of foreign access strategy in “Multinationals and Corruption: Business as Usual?” By adding the focus on access strategy, this work complements that of Hakkala et al. ( 2008 ) using the Swedish MNE data. Two main entry modes are considered, namely, cross-border mergers and acquisitions (M&As) and greenfield investments. If there is a risk that contracts are not enforced, or that corruption makes doing business abroad difficult, then M&As may be preferred over greenfield FDI, as they allow accessing local knowledge and capabilities. Tekin-Koru shows that under specified conditions, the theoretical predictions about the effects of an increase in the level of corruption are that it discourages greenfield investments, as perhaps expected, but also that it actually encourages cross-border M&As, at least up to a certain corruption level, i.e., a nonlinear effect. The empirical results, using, among others, a bivariate probit model, support this theory, and are also consistent with some predicted secondary effects, e.g., greenfield FDI is more strongly discouraged by corruption for firms with high endowments of mobile skills or assets, such as research and development (R&D), product differentiation, etc., that are not tied to a specific location, whereas investment in M&As is more strongly encouraged for firms with non-mobile skills.

Firm level register data, now from Denmark, are similarly used by Sanne Hiller, Philipp J. H. Schröder, and Allan Sørensen in their paper “Export Market Exit and Firm Survival: Theory and First Evidence,” where the idea is to endogenize firm exit in the Melitz ( 2003 ) model. More productive firms are more likely to export, and survive longer. These empirical findings support the theoretical results presented. The theory further predicts that exiting firms will leave the export market and continue producing for the domestic market for a while before closing down completely. In the data, the annual fraction of exiting firms that stay domestically active relative to all firms leaving the export market ranges between one third and one half. As the authors note, these fractions might be higher in countries where the domestic market is relatively more important to firms. Further, as they also note, and which would be an interesting question for further theoretical and empirical inquiry, it is possible that a higher number of foreign destinations serviced by a firm might indicate greater opportunities for cross-subsidization and hence predict longer survival.

The Danish firm level data are studied further by Hale Utar in her paper “Characteristics of International Trade Intermediaries and Their Location in the Supply Chain,” complementing the work on intermediaries based on U.S. data by Bernard et al. ( 2010 ). Trade in intermediate goods has been growing over the recent decades of globalization, with internationalization of production and increased outsourcing. Utar shows that wholesale trade firms differ systematically depending on whether they trade in intermediate or final consumption goods. Wholesalers exporting intermediate goods command higher unit prices in international trade than manufacturers, whereas those exporting final goods command lower. Those exporting intermediate goods are larger, more skill-intensive, and pay higher wages than those exporting final goods. Further, wholesale trade firms differ systematically from manufacturing firms. They employ fewer but more educated workers, and export to fewer countries, but with more products, and higher total sales. Their share in export is higher in industries characterized by greater heterogeneity, in terms of product fragmentation, and lower entry costs, as indicated by firm size and capital intensity. Thus, the paper adds to the documentation of the role of heterogeneity at all levels, including both within and between industries.

4 Financial Markets and Aggregate Fluctuations

Financial markets and aggregate fluctuations are studied in the third part of the volume. The financial markets are among those where the effects of globalization are most evident. Some areas where limitations to globalization remain are the “home bias” in stock markets, restrictions on pension funds to invest domestically, and rigidities due to differential tax regimes across countries, but by and large, the financial markets are among the most globalized. This has implications for the access to capital and opportunities to invest, but also for the control of financial matters, e.g., the possibility for a country to set both its own monetary policy and its exchange rate. The behavior of foreign currency exchange rates is extremely important for the globalization process, and among the key issues are whether, when, and how currency unions should be formed. Of course, the currency market is closely linked to the bond market, also with international participants, and the interaction of both markets with the macroeconomy and the business cycle is affected by globalization.

In the paper “Cyclical or Structural? Evidence on the Sources of U.S. Unemployment,” Jinzhu Chen, Prakash Kannan, Prakash Loungani, and Bharat Trehan examine the importance of the structural component of unemployment. This is unemployment stemming from a lack of matching of workers and firms, e.g., due to sectoral shifts, so that both workers and firms may be searching in vain. In contrast, cyclical unemployment is due to an overall lack of demand. Increases in the cross-industry dispersion in stock returns is used as a forward-looking indicator of shocks that affect sectors differently, and are expected to be permanent, thus warranting labor reallocation. Using vector autoregressions, the authors show that the portion of unemployment fluctuations attributable to structural factors, based on the stock return dispersion measure, rises from about 25 % to 40 % when focusing on long-term rather than overall unemployment. The remainder may be associated with cyclical factors, such as shocks to aggregate demand, oil prices, interest rates, inflation, and monetary and fiscal policies. Since reallocation takes time, long-term unemployment seems a relevant criterion. Indeed, stock prices should be moved mainly by long-run rather than cyclical factors, as argued by Fisher Black ( 1987 ), and the use of the stock return dispersion measure is based on this idea. It would be interesting to compare with results using implied volatility backed out of financial option prices as an alternative uncertainty measure, as this is specifically forward-looking (based on market participants’ expectations). In his study of output and employment fluctuations, Bloom ( 2009 ) has shown that implied volatility is highly correlated with the cross-sectional dispersion measure, and Christensen and Nielsen ( 2007 ) have used it as a forward-looking measure to explain long-run stock market fluctuations. Overall, viewed jointly with the papers tying frictional unemployment to international trade and sourcing, the empirical results of Chen, Kannan, Loungani and Trehan on the importance of the structural component of unemployment underscore the strong role of globalization for the domestic economy.

Cathrine L. Mann and Oren Klachkin, in “U.S. Treasury Auction Yields Before and During Quantitative Easing: Market Factors vs. Auction-Specific Factors” use a unique data set on U.S. Treasury auctions to investigate the changes following the onset of quantitative easing in March 2009. China, Japan, and the U.K. are large players in the market for U.S. Treasury securities. The auction data do not directly include information on bidder nationality, but instead on bidder type, where foreigners are proxied by indirect bidders, as distinct from primary dealers (the 20 market makers, large banks, and broker-dealers) and direct bidders (with a trading relationship with the Treasury, e.g., large money and mutual fund managers). Auction allocations are observed, not bids. Little evidence of differences between bidder types is found. Larger allocations are expected to be associated with higher bids, and thus lower observed yields. This pattern is confirmed for bonds during the boom-bust period prior to quantitative easing, but not for bills, and disappears afterward. The effects of market factors are as expected throughout, e.g., higher option-implied risk (VIX) induces a flight to Treasuries and so lower yields. Auction-specific factors known prior to the auction may be used to forecast the outcome, and the best forecast is the market yield on the matched instrument on the previous day. Viewing this as an efficient market result, the fact that received coefficients are slightly different from unity makes sense, since the martingale property should apply to the discounted price, not the yield, and under the risk-neutral or pricing measure, only, cf. Harrison and Kreps ( 1979 ). Thus, future research could investigate risk premia, and the possibility of strategic bidding. Liquidity could be examined using a measure such as the limited dependent variable transaction cost estimate of Lesmond et al. ( 1999 ). Based on the reported results, the expected negative effects on yields of higher allocations occur after quantitative easing rather than before, once the previous day’s yield is controlled for, documenting that this policy measure, implemented in the secondary market for U.S. Treasuries, did affect the primary (auction) market, too.

In their paper “Exchange Rate Volatility, Euro Effect and the Two Margins of Trade: Evidence from Monthly Trade Data,” Florian Johannsen and Inmaculada Martinez-Zarzoso analyze data on daily exchange rates and monthly bilateral trade. Using a sample selection correction based on the inverse Mill’s ratio to account for zero trade flows in a gravity model, following Helpman et al. ( 2008 ), and allowing for fixed or random importer and exporter effects, they separate the impacts of explanatory variables on the extensive and intensive margins of trade. Calculating exchange rate volatility as the standard deviation of daily rates over a moving interval, the authors show that higher volatility reduces both the probability of trade, and its amount, for all categories considered, namely, capital goods, intermediates, and final consumption goods. Being a member of the European Union (EU) promotes trade via both margins, whereas being in the Euro zone does so only via the intensive margin, and only for intermediates and final goods. Indeed, Euro membership actually reduces the probability of trade in all categories, and also the amount of trade in capital goods. Policy makers are thus left with a dilemma: On the one hand, the formation of a currency union eliminates exchange rate volatility within the union, and thus promotes trade, according to the received results on volatility. On the other hand, the results on Euro membership warn that a common currency may reduce investment and thus trade in capital goods.

In her paper “Sovereign Debt and Austerity in the Euro Area: A View from North America,” Anne Krueger reviews some of the literature on optimal currency areas. Mundell’s original criteria for the success of a potential currency area included labor and capital mobility within the area, a mechanism for risk sharing, e.g., through fiscal policy, and synchronization of business cycles. These are still relevant, and more criteria have been added over time, as discussed in the paper. An unavoidable trilemma is that a country cannot in the long run have a fixed exchange rate (e.g., be in a currency union), choose its own macroeconomic policy, and at the same time have an open capital account. Here, in addition to the papers referenced by Krueger, some of the early, influential contributions are those by Fleming ( 1962 ) and Mundell ( 1963 ). Besides discussion of these issues, the paper provides a historical overview of some past programs of the International Monetary Fund (IMF), and some background and reasons for the challenges for the Euro area associated with the economic problems in Greece. The historical discussion is illuminating and extensive. An additional important aspect (although not part of the exposition) is the role of the OEEC/OECD for the success of economic integration, liberalization, and growth in the post-war years. Footnote 2 The high quality of this organization’s staff and its attention to structural issues were considered highly valuable in many of the more successful European countries. With regard to the Greek case, it appears that the Mundell criteria with the later additions and the trilemma should again be considered. The author attributes the crisis to fiscal excesses. It may also be that Greece, even without extravagant public finances, but abundant in services, low wages, high unemployment, rigid business practices, and so on, would not satisfy the criteria discussed for membership of a common currency area with, for example, Germany.

5 International Integration and Migration

International migration is a pressing issue within globalization, and it is closely connected to the way in which countries choose to integrate. Similarly to the gains from trade, there should be potential gains to increased mobility of labor. The chance of realizing such gains depends on the labor market absorption of immigrants, and an important issue is whether actual migration improves the matching of abilities of workers and skills needed by firms. Generous welfare states financed through high taxes offer both redistribution and insurance, and may seem attractive to many migrants. This raises adverse selection issues regarding which migrants approach a country, and which to accommodate, as well as moral hazard issues regarding those accommodated. The question is whether and in which form welfare states can remain in a world with continuing migration and integration through the formation of unions. This is an area of complicated interplay between economic, demographic, political, and legal issues, as reflected by the papers in the fourth part of the volume.

Oded Stark in “Possible Policy Responses to a Dark Side of the Integration of Regions and Nations” shows that when two regions or countries merge, aggregate relative deprivation is higher (i.e., worse) in the merged region than the sum of the aggregate relative deprivations of the two regions before the merger. Here, aggregate relative deprivation refers to the average relative deprivation of individuals in a region, with relative deprivation of an individual defined as the sum of income differences between the individual and those in the region with higher income. This is intended to capture a notion of social distress. The received increase in social distress is a dark side to the integration of regions or countries. It would be interesting to extend the analysis to the risk of poverty from EU integration. Further extensions could endogenize incomes and thus allow for gains from integration, e.g., due to increased productivity, see Rivera-Batiz and Romer ( 1991 ). In terms of policy responses, Stark goes on to device publicly financed policies to retain either aggregate or each individual relative deprivation at the pre-merger level. These policies are constructed very explicitly, as algorithms, and numerical illustrations are offered.

Peter Nannestad in his paper “Where Have All the Flowers Gone?” uses data on migration within the EU-15 countries to test the model of Roy ( 1951 ) and Borjas ( 1987 ). Earlier tests have relied on data on migration between more dissimilar countries, e.g., from Mexico to the U.S., or to the EU from the outside, and turned up mixed evidence. The idea of focusing on within EU-15 migration is that barriers are low, as assumed in the theory tested, and data sufficiently detailed that variables may be measured in the manner called for in the theory. Specifically, the position of migrants in the skill distribution of the sending country is regressed on the ratio of the Gini coefficients for the income distributions in the receiving and sending countries, along with various controls. The results show that the higher the income dispersion in the receiving country relative to the sending, the more likely it is that immigrants are drawn from the high end of the skill distribution in their country of origin. This result on the skill-based locational sorting of immigrants is consistent with the theory tested. The policy implications present a challenge to highly distributive welfare states like the Nordic, as they would not stand to receive the highest-skilled migrants, according to these findings.

6 Globalization and Policy Issues

Besides labor migration, also product market integration and the ways in which countries shape and run unions and other international organizations involve a host of economic, political, and legal issues. The fifth part of the volume includes papers on policy issues relating to the role of the EU, international conflicts, the environment, fiscal policy, economic integration, and the WTO.

Thorvaldur Gylfason and Per Magnus Wijkman in their paper “Which Conflicts Can the European Neighbourhood Policy Help Resolve?” address the important question of whether the prospect of economic integration, in particular with respect to trade, with a major economic power, here the EU, can reduce political and military conflicts among member and candidate countries. The consequences for economic welfare of integration between small and large countries has been considered previously, see Kowalczyk ( 2000 ), and the additional political and national security dimensions are obviously of great interest, too. Such thinking has led to prominent initiatives and institutions, including the Marshall Plan, GATT, the World Bank, and the IMF. The authors identify five factors that are critical for economic integration with the EU to lead to conflict resolution: Access to facilitators of compromise, a well-functioning market economy, strong common institutions to realize potential intra-regional free trade, the prospect of accession to the EU, and the absence of third parties to the conflicts. The authors argue that this indicates encouraging prospects for the Balkans, but neither so for Eastern partners, such as the Ukraine, where Russia is involved as a third party, nor for Mediterranean partners, such as Israel, for lack of an active facilitator of compromise in the conflict over Palestine. The EU has failed to assume the latter role, due to, among others, disagreement among its members, and the need for larger international coordination, in particular, with the U.S. Ultimately, the resulting policy recommendations include that the EU adopt a long-term perspective and provide greater support in its neighborhood in response to changes there.

Ellen Margrethe Basse in “The European Union’s Role in the Development of Global Environmental Law” demonstrates that the EU through its actions is actively pushing the conceptualization of a new, more comprehensive, and thorough, approach to the management and regulation of the global environment. Such global environmental law may be seen as developing in parallel with existing national and international environmental law, cf. Yang and Percival ( 2009 ). Climate changes represent serious global threats, and the EU is among the leaders of international efforts to reduce greenhouse gas emission. The author explains how EU initiatives in the area of emissions from flights, ships, and road transport reflect ambitions to secure and strengthen global norms in cases where regimes and agreements in place are ineffective. Indeed, the European Court of Justice supports the EU’s right to act independently of its member states in trying to export EU environmental norms. In effect, the EU is playing the role of a global actor in this respect, combining its internal regulatory power and external economic power to pursue its environmental agenda. Thus, while Gylfason and Wijkman identify some shortcomings with respect to the EU’s taking on its global responsibilities, Basse is more positive regarding its engagement.

In their paper “Product Market Integration, Tax Distortions and Public Sector Size,” Torben M. Andersen and Allan Sørensen consider a Ricardian trade model, with two countries trading some of a large number of goods. Following Dornbusch et al. ( 1977 ) and Eaton and Kortum ( 2002 ), trade frictions provide a measure of the degree of market integration, with globalization driven by both political and technological changes reducing frictions. In the model, there are iceberg costs to trade, i.e., frictions imply that more than one unit must be shipped in order to supply one unit to the export market, and reductions in iceberg costs are used to capture increasing product market integration. A larger public sector (higher tax rate) tends to increase wages and reduce wage competitiveness. The authors show that product market integration does not necessarily reduce public sector size, in part due to the increased tax base stemming from gains from trade. Indeed, a country with a strong preference for public spending may gain from integrating with a country with low such preference, and integration need not lead the country with the large public sector to downsize this. Clearly, these results require an asymmetric model, with cross-country differences in preferences and technologies, and hence the present asymmetric extension of previous analysis by Andersen and Sørensen ( 2012 ) of the symmetric case is essential. For the Nordic welfare states, one policy implication of the new results is that integration and globalization need not lead to their dismantlement. Thus, Andersen and Sørensen are less pessimistic regarding integration than Stark.

Tristan Kohl in “The WTO’s Effect on Trade: What You Give is What You Get” revisits the question of the impact of WTO membership on trade, where Rose ( 2004 ) somewhat unexpectedly found no effect. Kohl contributes to this literature by incorporating data on political relations, in particular, a comprehensive set of economic integration agreements (EIAs), correcting for selection and omitted variable bias using these, and correcting for the over-dispersion and large number of zeroes in the trade data by using a zero-inflated negative binomial maximum likelihood estimation procedure. With these adjustments, he finds a strong positive impact of WTO membership on trade. The effect is stronger for developed countries than for developing, and what you give is what you get: Although WTO membership promotes trade among partners, even if not all of them are members, formal members gain the most. Finally, EIAs promote trade. As Kohl’s results are more in line with what would be expected from theory than those in the earlier literature, it appears that his methodological innovations are promising.

7 Globalization and Development

Globalization is not only a process among developed, industrialized countries. Developing countries are very much affected by globalization, too. They trade, engage in North-South partnerships, send migrants, receive official development aid (ODA) and FDI, etc. Does globalization help or hurt development, according to criteria such as growth, inequality, education, and others? These and related issues are treated in the sixth part of the volume.

In “The Cycle of Development in Africa: A Story About the Power of Economic Ideas,” Martin Paldam analyzes the last 60 years of development in Sub-Saharan Africa. There are three main phases, divided by kinks in 1972 and 1994. Growth was negative between these 2 years, although fairly satisfactory before and after this period of growth tragedy. Paldam considers a number of hypotheses about possible explanations of this cyclical growth pattern, testing them based on a set of socio-economic variables. African poverty has been studied, e.g., by Acemoglu and Robinson ( 2010 ), but Paldam deliberately focuses on theories that he finds more operational, compared to the primacy of institutions school. The hypotheses considered are related to political dynamics, oil and debt crises, geography, history, wars, and governance, among others. The best fit is obtained through the shifts in dominating development strategy. The market systems preferred by the colonial powers and prevailing until around 1965 were replaced by African socialism, with import substitution industrialization, trade protection, and state owned enterprises (SOEs). The goal here was self-reliance and insulation from the world market. From around 1985, market systems returned, through the adoption of trade liberalization and privatization of SOEs. Accounting for implementation lags, the fit with the growth tragedy phase is close. Paldam notes that African GDP per capita nevertheless has doubled since 1950, but that without the growth tragedy, it would have tripled. The policy recommendation is one of market orientation and openness.

Annette Skovsted Hansen in “Developing Globalization: How Japanese ODA Created Channels for Globalization Processes, 1954-2012” documents an interesting case of development assistance leading to globalization. Over the past 60 years, Japanese ODA has financed training courses in management and technology in Japan, leading to the formation of personal networks kept together through formal newsletters, societies, conventions, etc., and forming permanent channels of communication and exchange. The networks are connected to the host country, but may also encourage South-South exchanges. The formation of personal networks may reflect preferential mechanisms, see Barabási and Albert ( 1999 ), with the host country selecting course participants among already well-connected elites from developing countries. Hansen is able to access information through newsletters and carry out a qualitative case study. There are examples of exchanges among network members within or between their home countries in the South, and with Japanese stakeholders, career shifts, and export increase. The paper contributes with a new aspect of how foreign development aid actually spurs globalization at the micro level.

In “Globalization and Female Labor Force Participation in Developing Countries: An Empirical (Re-)Assessment,” Konstantin M. Wacker, Arusha Cooray and Isis Gaddis investigate the impact of FDI and trade on female labor force participation. Goldin ( 1995 ) has argued for a U-shaped relation between development and the labor force participation of married women, with high participation among poor, agricultural workers, falling rates as (husband’s) income increases, then rising rates as female education improves with further increases in income, the substitution effect beginning to outweigh the income effect. Previous empirical literature, often relying on case studies or cross-country regressions, indicates that globalization supports female labor force participation. In this paper, the authors consider a panel data set of 80 countries over 25 years, controlling for fixed effects and thus unobserved heterogeneity. The results indicate that both FDI and trade have a negative impact on female labor force participation, and that this is stronger for younger cohorts. Effects are more positive in countries with a higher share of industry in value added. The authors discuss the possibility that female well-being is not necessarily harmed by globalization, based on previous findings that trade reduces female illiteracy rates and improves access to education. Household income may have increased sufficiently for females to stay home. Nevertheless, in this case, the policy implication emerges that a reduction in female labor force participation following an opening to globalization should be met with continuing education programs, more flexible work schedules, or similar policies, to support employability.

8 Globalization: What We Know and What We Would Like to Know

The seventh and last part of the volume consists of two panel discussions. The first, on business perspectives on globalization, offers an extensive presentation by Jørgen Vig Knudstorp, CEO, LEGO Group, ranging from broad issues of trade, power, culture, digitalization, demography, and the environment, over consideration of specific effects of globalization on business, such as free trade, complexity of management, cycles, and inequality, to discussion of strategies adopted by businesses facing the challenge of globalization, including choice of operating model, location decisions, and marketing. This is followed by discussion spurred by questions from Keith Maskus and David Teece. The last panel offers some reflections and indications of the road ahead, with remarks by Avinash Dixit on the collapse of trade after the financial crisis, bad governance as a trade barrier, and the interaction between internet use and globalization, remarks by Ronald W. Jones on globalization and the “sclerotic economy,” and remarks by Dale T. Mortensen on unemployment, reallocation, and frictions. The ensuing discussion ends the volume.

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Christensen, B.J., Kowalczyk, C. (2017). Introduction to Globalization: Strategies and Effects. In: Christensen, B., Kowalczyk, C. (eds) Globalization. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-49502-5_1

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The State of Globalization in 2021

• Steven A. Altman
• Caroline R. Bastian

Trade, capital, and information flows have stabilized, recovered, and even grown in the past year.

As the coronavirus swept the world, closing borders and halting international trade and capital flows, there were questions about the pandemic’s lasting impact on globalization. But a close look at the recent data paints a much more optimistic picture. While international travel remains significantly down and is not expected to rebound until 2023, cross-border trade, capital, and information flows have largely stabilized, recovered, or even grown over the last year. The bottom line for business is that Covid-19 has not knocked globalization down to anywhere close to what would be required for strategists to narrow their focus to their home countries or regions.

Cross-border flows plummeted in 2020 as the Covid-19 pandemic swept the world, reinforcing doubts about the future of globalization. As we move into 2021, the latest data paint a clearer — and more hopeful — picture. Global business is not going away, but the landscape is shifting, with important implications for strategy and management.

• Steven A. Altman is a senior research scholar, adjunct assistant professor, and director of the DHL Initiative on Globalization at the NYU Stern Center for the Future of Management .
• CB Caroline R. Bastian is a research scholar at the DHL Initiative on Globalization.

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The world economy will need even more globalization in the post-pandemic 2021 decade

Farok j. contractor.

Management and Global Business Department, Rutgers Business School, Rutgers University, 1 Washington Park, Newark, NJ 07102 USA

Instead of the dire predictions of a post-pandemic world characterized by increased global risks, decoupling of economies, shake-up of global value chains, and the retreat of globalization, this article proposes that the changes induced by heightened nationalism and protectionism will be marginal rather than fundamental in nature. These marginally higher risks can easily be handled and ameliorated by multinational enterprises through alternate cross-border business strategies and emerging technologies. Moreover, the paper gives reasons why the future world economy will need even more globalization.

Résumé

Au lieu des sombres prédictions d’un monde post-COVID 19 caractérisé par des risques mondiaux accrus, le découplage des économies, le bouleversement des chaînes de valeur mondiales et le recul de la mondialisation, cet article propose que les changements induits par le renforcement du nationalisme et du protectionnisme soient de nature marginale plutôt que fondamentale. Ces risques marginalement plus élevés peuvent facilement être gérés et atténués par les entreprises multinationales (EMN) grâce à des stratégies transfrontalières alternatives et aux technologies émergentes. En outre, l’article donne les raisons pour lesquelles la future économie mondiale aura besoin d’une mondialisation encore plus poussée.

En lugar de las predicciones nefastas de un mundo post-COVID-19 caracterizado por un aumento de los riesgos globales, la desarticulación de las economías, la sacudida de las cadenas de valor global, y la marcha atrás de la globalización, este artículo propone que los cambios inducidos por el nacionalismo y proteccionismo intensificado serán marginales y no fundamentales en su naturaleza. Estos riesgos marginalmente más altos pueden ser manejados fácilmente y mitigados por las empresas multinacionales (MNEs por sus iniciales en inglés) mediante estrategias de negocios transfronterizos y tecnologías emergentes. Más aún, este artículo da razones por las cuales la economía mundial futura necesitará aún más la globalización.

Em vez das terríveis previsões de um mundo pós-COVID19 caracterizado pelo aumento de riscos globais, desacoplamento das economias, desarranjo de cadeias de valor globais e o recuo da globalização, este artigo propõe que as mudanças induzidas pelo nacionalismo e protecionismo exaltados serão de natureza marginal, em vez de fundamental. Esses riscos marginalmente mais altos podem ser facilmente tratados e atenuados por empresas multinacionais (MNEs) por meio de estratégias de negócios internacionais alternativas e tecnologias emergentes. Além disso, o artigo apresenta razões pelas quais a futura economia mundial precisará ainda mais de globalização.

抽象

本文不是对后COVID19世界是以全球风险增加、经济脱钩、全球价值链改组、以及全球化退缩为特征的可怕预测, 而是提出由加剧的民族主义和保护主义所引起的变化在本质上将是边际的而不是根本的。这些稍高的风险跨国企业(MNE)可以通过替代的跨境业务战略和新兴技术轻松地处理和改善。此外, 本文给出了为什么未来的世界经济将需要进一步全球化的原因。

INTRODUCTION

Much has been written about how the global economy will change as a result of the Covid-19 pandemic, including the operations of multinational enterprises (MNEs), and patterns of trade (e.g., Baldwin & Tomiura, 2020 ). Particular attention has been focused on the reconfiguration of international supply chains (e.g., Ivanov & Dolgui, 2020 ; Verbeke, 2020 ) since it was reported, early in the pandemic, that 94% of the Fortune 1000 companies were encountering coronavirus supply chain disruptions (Sherman, 2020 ). The importance and complexity of cross-border supply or value chains may be gauged from an UNCTAD report that estimated that 60% of global trade consisted of intermediate goods and services (i.e., components and semi-finished items), with around a quarter re-crossing borders at least twice before final assembly or release as a finished product, software or service package (UNCTAD, 2013 ).

In a post-pandemic world, it is proposed that a fundamental shift in MNE strategies and managerial thinking will occur and will be skewed towards greater risk aversion, nationalism, and protectionism (Fontaine, 2020 ), pre-existing trends that they say the pandemic has now precipitated. Some go even further, presaging a “legitimacy crisis” for the post-war neoliberal economic order (Abdelal, 2020 ). Others even proclaim the coming “end of globalization” (Young, 2020 ).

This article instead proposes that the fundamental rationales for globalization have not eroded, and that, in a post-pandemic world, there will be an even greater need and utility for globalization. Certainly, the shifts proposed, such as rethinking of global value chain overdependence, have already begun to occur. However, I argue here that these shifts will be marginal rather than fundamental, and that the basic efficiency, comparative advantage, and rationalization arguments for global investment and trade will remain irresistible, even in a post-Covid-19 world.

HOW THIS PAPER IS ORGANIZED

It would first be useful to outline how globalization has multiple dimensions measured by scholars and consultancies, in order to frame the argument. Next, the paper will review the fundamental rationales or justification for international business, while recognizing its occasional negative externalities. 1 The following sections will argue that changes in the organization and configuration of multinational operations, in response to external factors such as rising nationalism and risk-aversion, will be marginal rather than fundamental. The concluding section will highlight why the world will need even more globalization and cross-border collaboration in the future.

MEASUREMENTS FOR GLOBALIZATION

International Business scholarship is about tracking cross-border movements. The most common measures include traded goods and services, and foreign direct investment (FDI) flows in and out of nations. Data on these are easily found in sources such as the World Investment Report ( 2020 ), the World Bank, and OECD. Critics decry the stagnation of the value of FDI and trade measured in current dollars in the post-2008 period, but this belies the fact that the 2008–2019 numbers averaged as much as ten times their 1990 levels. 2 Some scholars, from a short-term perspective focusing only on the post-2008 period, have taken an excessively pessimistic view, ignoring the fact that most FDI and trade indicators, taken over a long-term trend line, i.e., the 1990s–2020 period, show a five- to ten-fold growth (Witt, 2019 ).

To these as globalization indicators, Verbeke, Coeurderoy and Matt ( 2018 ) add cross-border movements of ideas, people, technology, portfolio capital, and “effective institutional practices” by which they imply that multinational companies are the catalysts and conduits of higher standards and practices in the nations in which they invest. Using different data points, the DHL Global Connectedness Index (Altman & Bastian, 2019 ) paints a rosier picture over the 2001–2018 period, with information flows (bandwidth, telephone, and printed publications) shown as growing by 76%, people flows (migrants, tourists and foreign students) growing at 20%, and the FDI Stock/GDP ratio showing an increase of 16 percentage points (or 71% in terms of percentage growth) from 2001 to 2018). The DHL index shows no growth after 2001 in the geographical breadth coverage of multinational enterprises, echoing Rugman and Verbeke’s ( 2004 ) assertion that most MNEs limit themselves to a regional coverage. However, Rosa, Gugler and Verbeke ( 2004 ) calculated an increased global coverage from the Fortune Global 500 list for 2017 3 , stating that “…many large firms are still home-region oriented, but to a lesser extent than before.”

Another significant globalization indicator, almost totally ignored by international business scholars, is the cross-border payments (mainly royalties) for the licensing of intellectual property, which increased from US$26.74 billion (current dollars) in 1990 to $397.23 billion in 2019. 4 Apart from their dramatic growth, international licensing is far less affected by recessions and pandemics, 5 and is likely to continue its fast growth in the knowledge economy of the future. The royalty numbers seem small in absolute terms, until one probes their strategic significance to global commerce and economics. Foreign sales by licensees at least partially substitute for exports or FDI affiliate sales. How do the sales of these three international business strategies compare? Royalty rates range from 2% or less for some music and publications to over 8% for valuable technologies and medicines, so that dividing $397.23 by the 0.08 or 0.02 royalty rates yields estimates of licensee sales (achieved by international licensing of intellectual assets) of $4965 billion to $19,862 billion, respectively. 6 (Notice that the latter number is comparable to the 2019 world merchandise export sales total).

That MNEs are instruments or channels for the upgrading of institutional standards by foreign host governments is documented in studies such as Jude and Levieuge ( 2015 ). The Contractor, Dangol, Nuruzzaman, and Raghunath ( 2020 ) study covering 189 nations shows that better institutional quality attracts larger FDI inflows. The “demonstration effect” of MNEs, in upgrading productivity, sustainability, and environmental and labor standards has been well documented for 45 years (e.g., Caves, 1974 or Moran, Graham & Blomstron, 2005 ). 7 Also, in recent years, the knowledge spillover effects (intended as well as inadvertent) diffusing into the host nation in which the MNE operates have drawn increased attention (Contractor, 2019 ; Prud’homme, 2019 ).

Starting in February 2020, unsurprisingly, most measures of globalization declined. However, the fundamental rationales for international business remain unassailable and even more valid in the post-pandemic period.

THE CONTINUING RATIONALES OF INTERNATIONAL BUSINESS

The inescapable fact is that, into the long future, the world will remain fragmented (into nation states) and unequal (in terms of income, culture, laws, institutions, and business practices). Therein lies the fundamental rationale for international business, which will persist in the post-pandemic period, since inequalities and fragmentation will continue to create aggregation and arbitrage opportunities for MNEs, and for traders and alliances (Ghemawat, 2007 ). This cross-border “bridging” function performed by international firms will continue to benefit not only them, but also the citizens and companies in host nations to which better managerial, productivity, technological and institutional practices are “demonstrated” (Caves, 1974 ; Swenson & Chen, 2014 ). Consumers in both home and host nations benefit from improved methods and organization, and from heightened competition that results in better quality and design, at lower prices. 8 Such fundamental justifications for international business will not diminish but may even increase in the future (as discussed in a later section).

Global Production Scale Economies : Combining demand from several markets to achieve economies of production scale is a core argument of International Business theory (Chandler & Hikino, 2009 ; Dunning, 2015 ; Cantwell, 2015 ). This is especially pertinent when one considers that the vast majority of national markets are small. Among the 20 biggest markets, going downward we quickly have, at ranks 18 and 20, respectively, Saudi Arabia and Turkey, whose GDP is a mere 0.8% each of global total GDP. Below rank 50, we have not only tiny but also politically risky nations. The bottom 174 countries put together comprise only 19.3% of the world economy – a highly skewed distribution indeed. Of course, aggregating standardized demand across nations to achieve scale economies is not always easy. For one thing, there is the contrary pull of local adaptation as a marketing strategy. Katsikeas, Samiee and Theodosiou ( 2006 ) identify inhibiting factors, such as varying customs and traditions, customer characteristics, stage of product life cycle, regulations, technology, and intensity of competition. Their study shows, however, that, when these barriers are overcome and standardization enables scale economies, this does result in superior performance. The skewed distribution of national economic size and inequality will continue to justify the existence of MNEs.

Global Amortization Scale : Most of the costs of a multinational company are not at the factory but in central organizational and R&D overheads. Generally, MNEs exhibit a greater technology intensity and spend more on R&D than comparable domestic firms. Innovations initially have a local root and most R&D is still carried out in the home nation of the firm. However, the technological and other overheads incurred in the MNE’s home country, if spread over many foreign affiliates and markets, reduce the overhead burden (and hence cost) per unit of final production – a luxury that domestic competitors cannot replicate. 9 As economies become more technology-intensive in the future, this attribute of multinational companies will become even more strategically relevant. 10

Specialization and Global Value Chain (GVC) Orchestration : Since February 2020, when the pandemic began, much attention has been focused on the coming need to deepen cross-border integration of global value chains, i.e., to make them more resilient (e.g., Verbeke, 2020 ).The reasoning is that unexpected shocks, such as pandemics, rising nationalism, geo-political frictions, and protectionism, can adversely affect GVCs, which can delay vital supplies, and in the worst case create “stock-outs” and shortages (Ivanov & Dolgui, 2020 ; Sherman, 2020 ). In brief, the hypothesis is that the design or orchestration of GVCs in the future will exhibit greater risk-aversion (Aylor et al., 2020 ), although, undoubtedly, this will vary depending on the sector in question.

This coming “resilience” of supply chains will be manifested in four ways, (1) an increase in the number of suppliers for the same component or item (or lower likelihood of reliance on one sole-source foreign supplier), (2) geographical diversification of supply sources to more than one country, (3) propinquity of supply sources, in terms of both geographical and political “distance”, and (4) Increase in inventory levels at the point of use – all of which represent an increase in cost per unit.

However, I argue that this future shift will only be marginal and not fundamental. For one thing, as Miroudot ( 2020 ) argues, past experiences show how quickly supply chains recover from disruptions, in some cases more than making up for the business lost during the supply interruption. However, in a longer-term sense, the overarching fact remains that much of international business relies on price-based competitiveness. The strategic imperatives of efficiency or cost-reduction, through the “fine-slicing” of a company’s value chain, the dis-internalization (outsourcing) of many of the “slices”, and their dispersion internationally (offshoring), will remain a powerful, inescapable competitive mandate (Contractor et al., 2010 ). This will limit the coming reconfiguration of GVCs to only a marginal or slight shift. As illustrated in Figure  1 , the vertical axis tracks “Cost Per Unit of Procured Item” as well as the company’s “Risk”, while the horizontal axis tracks increasing “Resilience” of a GVC (a composite index constructed from four sub-indicators.

Trade-offs between GVC resilience and cost per unit.

Figure  1 is a representation of the trade-offs calculated by an MNC before and after the pandemic period. That is to say, the Figure  1 framework enables a company to assess whether it should reconfigure its GVC to make it more risk-resistant and resilient (or not). “Resilience” of the GVC increases along the horizontal axis based on four strategic components to be decided by the firm:

• (i) Number of suppliers worldwide for the item,
• (ii) Geographical diversification (number of distinct source countries),
• (iii) Propinquity: weighted average of the political and geographic distance from supply sources to the point of assembly or demand, and
• (iv) Overall inventory levels.

The cost per unit procured is a J-curve, I hypothesize. 11 Often, a sole-supplier (being a quasi-monopoly) charges a higher cost per unit than a situation where competitive pressures between two or more suppliers reduces the cost. However, beyond two or three suppliers, the cost per unit is likely to increase simply because the multiplicity of supply sources increases (1) global logistics cost and (2) transaction costs (Berghuis, & den Butter, 2017 ).

Risk reduces from left to right in the graph. Resilience of the GVC increases towards the right of the x -axis, which reduces supply chain risk – as sources are diversified to more countries, as the weighted average distance from sources to demand points reduces, and as inventory/sales ratios carried for the item in question increase. 12 The optimum position is neither close to the extreme left of the x -axis nor far to the right, but somewhere in the middle.

Optimizing the supply chain is a balance between it being too lean on the above four indicators (in the interest of efficiency and low cost) and being too resilient or risk-averse. For instance, being too risk-averse and increasing inventory by more than a slight extent can put a firm at a competitive disadvantage. There is an echo of one of the variables in the J-curve hypothesis, found in Chen, Frank and Wu ( 2005 ) who showed that the stock market performance was best for US firms that held an intermediate level of inventory, as compared to rival firms that held too low, or too high, an inventory-to-sales ratio. This suggests that firms that are overly cautious in the future and carry too much inventory compared to rivals, or increase the number of worldwide suppliers by more than a marginal extent, will suffer a worse performance. (The exact shape of the J-curve will vary from one subsector to another.)

“Risk” can be a strategic perception, but can also be estimated by the MNE’s Supply Chain Department using probabilistic models that include the likelihood of “stock-outs” and their consequences for each GVC configuration, in terms of lost sales or profits, as well as reputation. 13 This will of course vary firm by firm. Figure  1 is a schematic representation.

Prior to February 2020, when perceived risks were lower, a MNE could be content to have two or three suppliers worldwide. With higher nationalism and protectionism, the post-pandemic risk curve lifts upwards (the higher dashed line in Figure  1 ), which calls for, or allows, increased resilience (e.g., more suppliers worldwide) – but only to a limited extent – because costs per unit also rise to the right of the x -axis. Sensitivity to risk has increased. However, that will be offset by risk-reducing organizational and technical developments in GVCs, described below.

Hence the argument that the reconfiguration of GVCs will be small or marginal rather than radical. 14 There are two reasons. First, much of globalization is driven by competition between companies based on price and cost. Efficiency and competitiveness require cost-cutting. Only a marginal increase in GVC costs can be tolerated. Second, supply chain risks can (and will) be mitigated by three digital technologies still in their infancy, (1) Blockchain, (2) Integration of Vendor–Buyer Computer Systems and (3) Artificial Intelligence (AI) which produces predictive analytics (Lund et al., 2020 ; Kano & Oh, 2020 ). In general, over the past 30 years, information technology and closer communication between buyers and suppliers has led to the growth of GVCs (Gunasekaran et al., 2017 ). However, even in 2020, to a surprising extent, the computer systems of MNEs are only loosely integrated with those of their foreign suppliers, so that a MNE procurement manager often does not exactly know the status of an order in the foreign factory or service provider.

Blockchain-based contracts lead to greater assurance, lower information asymmetry, and real-time information which reduces uncertainties, risks, and transaction costs (Schmidt & Wagner, 2019 ; Kamilaris, Fonts & Prenafeta-Boldu, 2019 ). Integration of computer systems, or the ability of the MNE to monitor, at any time, the status of the vendor’s production by accessing their servers, reduces uncertainty and helps schedule the MNE’s own sales, inventories, and other processes (Frazzon et al., 2018 ). Systems integrated via 5G will further reduce GVC risks by providing real-time information in transportation pathways (Rundle, 2020 ). Finally, the use of AI that incorporates data from weather, volcanoes, politics, economic cycles, competitor moves, commodity and other price levels, etc., should lead to more accurate forecasting of demand and hence lower risk in the management of GVCs (Lund et al., 2020 ).

In summary, while sensitivity to risk will increase in the post-pandemic era, at the same time there will be countervailing risk-reducing effects from new technologies which will reduce risks by improving the management and coordination of foreign supplier systems. (A fuller discussion of new technologies that reduce risks is taken up in a later section of this paper.) Most pertinently, as noted above, in competition with other global firms, price and cost cutting are of paramount importance. Hence, I argue that the numerical and geographical diversification of suppliers will occur only to a limited or marginal extent.

The imperatives of globalization will continue.

THE OTHER IMPERATIVES OF GLOBALIZATION: MNEs AS INTERNATIONAL BRIDGING AGENTS, TRANSFERORS, AND ARBITRAGEURS

Why do multinational firms exist? In an atomistic, autarkic world, companies would remain domestic or national, and would deal across borders with other firms through contracts. International trade (sales of approximately $23 trillion in goods and services in 2019), as well as an unnoticed but huge set of substitute transactions in the form of international licensing of intellectual assets (also resulting in foreign sales by licensees of $5 trillion upwards 15 in 2019), is legally covered by contracts although some significant portion is between related parties. 16 Sales by MNE affiliates (not counting sales in the MNE’s home nation) trump both at approximately $30 trillion. Whatever the foreign market entry strategy, the multinational firm plays a dominant bridging role.

The MNE as the carrier or transmitter of internalized proprietary capabilities to affiliates in foreign locations, or Internalization Theory (Buckley & Casson, 1976 ), has long lain at the heart of international business scholarship, and this core argument will not disappear in the future, even in a multi-polar, protectionist, or politics-driven world. The proprietary, internalized advantages or capabilities of successful international firms are alternatively described by Verbeke et al. ( 2018 ) as “firm-specific assets” which similarly result in the transfer of technologies (Monteiro, Arvidsson & Birkinshaw, 2008 ), including the occasional reverse flow of ideas and knowledge from affiliates back to headquarters (e.g., Kumar, 2013 ).

MNEs also result in the spread of best practices in management (e.g., Kostova & Roth, 2002 ), human resource management (HRM) (e.g., Ahlvik, Smale & Sumelius, 2016 ), gender equality (e.g., Abe, Javorcik & Kodama, 2016 ), sustainability (e.g., Marcon, de Medeiros & Ribeiro, 2017 ), and ethics (e.g., Johnson, 2017 ). 17 These contributions of MNEs will not disappear but will remain valid, even in a future world that may possibly be more nationalistic or fragmented (Petricevic & Teece, 2019 ).

MNEs are diffusers of knowledge, both unconsciously (like birds or insects that propagate flora), as well as consciously. Even while attempting to keep their core proprietary technologies internalized, there is inevitably a leakage or “spillover” of some knowledge and best practices to local firms through employee mobility or simple imitation. This may be a negative for the international firm, reducing its competitive advantage vis-à-vis local competitors, but for the latter there is a beneficial learning process. For example, Swenson & Chen ( 2014 ) found that the presence of international companies in locations in China resulted in improvement in the productivity, quality, frequency, and revenue capture of exports by local Chinese competitors in those regions.

Similarly, local firms learn as licensees of foreign companies. The World Bank ( 2020 ) reported that cross-border royalty payments for intellectual property crossed $400 billion in 2018. These transactions are covered under a contractual alliance agreement where the licensor, or intellectual asset provider, has a self-interested incentive to teach their foreign partner the auxiliary production techniques beyond just the patent, design, brand, or licensed intellectual asset – for the simple reason that royalties are typically linked to licensee sales, and therefore the licensor has an incentive to help the licensee succeed. Even imports of physical products and services have a learning value to the importer (Grosse & Fonseca, 2012 ).

International investment, trade, and licensing occur because of an arbitragable gap, or “distance”, between nations in terms of knowledge, capital, know-how, and corporate capabilities – a gap that is unlikely to disappear after 2021.

WHY, POST-PANDEMIC, THE WORLD ECONOMY WILL SEE EVEN MORE GLOBALIZATION

The indispensable role played by the multinational enterprise (MNE) as a bridging agent that aggregates demand and arbitrages differences across nations, as well as orchestrates and conduits the cross-border flows of capital (FDI), goods and services (trade), and intellectual assets (in affiliates and in contractual sharing of knowledge and capabilities with licensing and alliance partners 18 ), will not diminish, but remain even more needed in a post-pandemic world. In a world remaining fragmented and unequal, the MNE also plays a salutary role as a catalyst of higher institutional, governance, sustainability, HRM, environmental and ethics standards, both through its own affiliate network (Foss & Pedersen, 2019 ) and by its external influence in countries that still have to catch up with “best practices.”

The pandemic is more an accelerator of changes that were already under way rather than an event that enforces radically new patterns globally. Moreover, the impact of Covid-19 will affect a few nations and sectors more strongly than others. We have indeed seen, in the past three years and only in some nations, marginally more protectionism, nationalism, 19 and calls for greater self-sufficiency. Mimicking trends espoused by the Trump Administration, India’s Modi declared his hope to “… transform India into a more self-reliant country, making the goods and providing the services consumed in the country largely at home” (Roy, 2020 ). However, these trends are not entirely orthogonal to globalization. Waldman and Javidan ( 2020 ) describe this as a “false dichotomy.”

Protectionism and nationalism can even increase the geographical “footprint” of the MNE if trade barriers lead to increased tariff-jumping FDI (Buckley, 2020 ). For example, China’s long tradition of protecting its automobile sector has resulted in substantial FDI investments by western companies from Volkswagen to General Motors to Tesla. Not only do the foreign companies dominate but, for some of them, China is their largest and most profitable market; moreover, Chinese industry has benefited greatly from the transfer of technology, designs, productivity, and best practices to China (Buckley, Clegg, Zheng, Siler, & Giorgioni, 2010 ).

Nationalist policies can sometimes increase globalization, a seemingly paradoxical effect. Glennon’s ( 2020 ) study concludes that the more stringent enforcement of H1-B visas by the Trump Administration has already seen an increase in the offshoring of technological jobs. As a global orchestrator or network organizer, the international firm has more than one conduit of opportunity to enable cross-border transfers. If migration of talent is constrained, it can be replaced by remote virtual work. Observers suggest that, post-pandemic, more service functions will be carried out remotely (Tilley, 2020 ). However, by the same logic (i.e., the “Zoom Effect”), that job can be done even more remotely from Sofia or New Delhi. True, geographical and cultural distances impose higher organizational and transaction costs on the firm (Larson, Vroman, & Makarius, 2020 ), but these can be more than offset by the labor cost saving. Since there is no proposal to restrict the hiring of remote foreign employees, the “Zoom effect” and the growing worldwide familiarity with the “gig economy” can lead to even more offshored work. For example, while cross-border telemedicine faces significant regulatory barriers in advanced nations (Ferreira & Rosales, 2020 ), this is not the case everywhere. Instead of the patient crossing borders to visit the hospital abroad, some diagnoses and treatments will increasingly occur remotely.

Petricevic and Teece ( 2019 ) correctly identify the rekindling of the idea of government intervention in the foreign direct investment process. While most of the rest of the world has been lifting restrictions – liberalizing incoming FDI and eliminating lists of sectors requiring prior governmental approval (UNCTAD, 2019 ) and under the general rubric of “Ease of Doing Business” (World Bank, 2019 ) – the two biggest investors, China and the US, have been tightening scrutiny and vetoing a few proposed investments. The CFIUS (Committee on Foreign Investment in the United States) scrutinizes large FDI proposals for national security 20 concerns and is comprised of nine cabinet members, with the Treasury Secretary as Chair, and aided by senior intelligence officials. Ostensibly, China proclaims itself as a “champion of globalization” (Wang & Quan, 2019 ). China’s new “Foreign Investment Law” promulgated in January 2020 has slightly relaxed inward FDI regulations, reduced its “negative list”, and promises “national treatment” (Dresden & Xia, 2020 ). However, the interventionist hand of the state remains just below the surface.

The few vetoes of FDI proposals in the US, and even rarer such occurrences in Europe, constitute an insignificant fraction-of-one-percent of overall global flows. Anxieties elevated by the pandemic having abated, most countries may become more vigilant, but will resume their welcome towards FDI simply because it adds net value to the host nation. Petricevic and Teece ( 2019 ) go too far in characterizing the future of globalization as a “structural reshaping.” They are correct in highlighting the rising techno-political rivalry between the US and China. Almost their entire paper (except for the first two pages) refers to – and is colored by – this bilateral relationship. 21 While China and the US remain the two biggest economies and direct investors, and they may partially decouple from each other, it is too much of a stretch to extrapolate this possible rivalry to the rest of the 191 nations on the planet. Only a handful of other nations will add some sectors to their list of “strategic industries.” The fact remains that the vast bulk of FDI is in “…non-strategic sectors, such as agriculture, fashion, consumer goods, and even insurance.” (Petricevic & Teece, 2019 , p. 1502). Even in the US, an examination of Chinese FDI investments between January 2007 and June 2020 shows only a small percentage in technology-related sectors (American Enterprise Institute, 2020 ). 22 For all countries’ MNEs seeking to invest in the US, CFIUS conducted 561 reviews for the entire 9-year period, 2009–2017, of which 145 FDI proposals were withdrawn during the investigation, and only 3 or 5 were vetoed by presidential order (Jackson, 2020 ). 23

Buckley ( 2020 ) takes a balanced view, stating that “the fracture (between the US and China) may not be complete, nor be the only global policy change of significance in the post-virus world” (parentheses added). As noted in this piece above, I propose that, after the post-pandemic hiatus, globalization will resume and that changes will be marginal or incremental rather than structural.

REDUCING RISKS IN A POST-PANDEMIC WORLD

We are likely to see a world where perception of risks will be marginally increased. However, these risks will be ameliorated or counteracted by changes that were already underway, which augur an even more coordinated global economy:

• More sophisticated information systems amongst MNEs and Traders : Volatility, Uncertainty, Complexity and Ambiguity (VUCA) are reduced “…by the increased collection of information …with greater transmission and coordination of informational resources…” (Buckley, 2020 ). Liesch and Welch ( 2019 ) make a similar argument. In practical terms, this means linking and integrating the computer systems of GVC buyers and vendors in real-time, so that the exact status of an order under production, as well as a vendor’s schedules, are instantly available and transparent to the MNE or importer. Second, in transit across borders, 5G and satellite technology will further pinpoint the tracking of shipments (Rundle, 2020 ). Third, Bughin et al. ( 2017 ) show the huge – as yet unutilized – potential for the increased use of AI in global scanning and strategic planning, including demand forecasting in various national markets, forecasting and managing political or weather-related risks, input costs and selling prices, and optimization of transport and logistics, as well as culturally-adaptive marketing. These coming information technology advances are poised to reduce risk.
• Closer relationships between suppliers and buyers : Verbeke ( 2020 ) and Kano ( 2018 ) suggest that even stronger joint “relational governance”, accompanied by a willingness to be flexible when disruptions threaten GVCs, can further handle risk by substituting for, or augmenting, the digitized information flows discussed above. This echoes somewhat with the rather venerable concept of “keiretsu” in Japanese supply chains, where interfirm cooperation, homophily, and a familial relationship were aided by symbolically small cross-shareholdings between the focal firm and its constellation of suppliers (e.g., Lincoln, Gerlach, & Takahashi, 1992 ).

Risk can also decrease with the use of alliance partners in R&D. The increased complexity of development and finished product design means that even large MNEs do not possess internally sufficient knowledge or efficiency for all aspects of research. The R&D portion of the value chain is increasingly “dis-internalized” and slices of the development process shared with partners. This results in speedier and lower-cost results; moreover, developmental risks are shared and reduced for the focal MNE (Contractor et al., 2010 ). Occasionally, valuable novel or idiosyncratic ideas can be accessed by including innovation partners in emerging nations (Ramamurti, 2016 ).

• A weighted - average decrease in “distance” : This can be measured multidimensionally as per Berry, Guillén and Zhou ( 2010 ) in terms of cultural, political, and geographical distances between the MNE and its network partners). In addition, the GVC network will see (only a partial) locational shift or decoupling between US MNEs and Chinese sources. For example, Ha & Phuc ( 2019 ) show the benefit derived by Vietnam from the relocation of sourcing from China as a result of the Trump tariffs. However, that geographical shift had begun years earlier in reaction to rising Chinese labor rates. 24

Internationally adopted standards lower risk by reducing information asymmetries, providing transparency, comparability, interoperatibility, scale advantages, and accountability, and supplying a common technical language that facilitates global commerce. Technology standards “…directly affect at least 80% of international trade,” according to Purcell, Kushnier and Law ( 2016 ).

I do not aver that common standards cause or trigger globalization. Rather, common technical standards are a necessary precondition and concomitant of globalization – its hidden plumbing. A technological civilization cannot exist without the world, or at least large enough coalitions of firms, adopting common standards. In a quiet, unheralded way under the aegis of organizations such as the ISO (International Organization for Standardization) and the World Bank, cross-border industry conferences and multinational committees have quietly hammered out jointly acceptable protocols on almost the entire range of products and services, from clinical trials 25 (Idänpään-Heikkilä, 1994 ), to air traffic (International Civil Aviation Guidelines), to financial transactions and remittances, to satellite and GPS receivers, to mobile telephony, to phyto-sanitary standards in food, horticulture, and medicine (Ramakrishnan, 2016 ), to insurance, to cybersecurity (Wilkins, 2020 ), to piping and instrumentation, to smart buildings, to corporate social responsibility (CSR), and to ethics (Nadvi, 2008 ), etc. A complete list of products and services under international standards would require thousands of pages.

A huge boost to the global expansion of trade occurred in 1965 when, after a three-year negotiation, ISO delegates from a dozen nations finalized the design of standardized shipping containers, resulting in an at least three-quarters reduction in freight and insurance costs, compared with the old system of “breakbulk freight”, or the loading of individual cargo of miscellaneous shapes and sizes into the belly of a ship (Levinson, 2020 ).

The standardization process is not only incomplete, but, with new developments and accelerating technical growth, international standardization will be even more needed in the future.

CONCLUSIONS

After the pandemic, the “new normal” may be marginally different, but globalization in its various manifestations will continue, and global coordination will be even more important for collective intergovernmental action to meet future pandemics, climate change, emerging technologies, and international tax-avoidance, to set common product and technical standards, and to address the growing sensitivity of customers worldwide to sustainability, ethics, and CSR issues.

A greater degree of nationalism and protectionism need not impede FDI and in some cases may even increase it by inducing more tariff-jumping investments. Alliances such as international joint ventures and contractual alliances such as licensing of intellectual property, circumvent protectionism, and substitute for exports or FDI as a means of reaching foreign customers. In fact, over 1990–2019, licensing royalties (and the foreign sales resulting from the transfer of intellectual assets) have been the fastest-growing method of international business (10.13% compound annual growth rate or CAGR) versus world exports (6.62% CAGR) versus FDI flows (6.37% CAGR). 26 In comparing the global strategic importance of FDI, trade, and licensing (loose contractual alliances), scholars have to be careful with the raw numbers. All three foreign market entry alternatives are biased by international tax avoidance, double-counting, and under-reporting biases. Nevertheless, it is clear that all three international business indicators have grown at a faster rate than the average growth rate of GDP (4.9% CAGR). This illustrates the value and continued rationale for cross-border commerce, and the unique role played by the MNE as a agent that aggregates demand and arbitrages differences across nations, as well as orchestrates and conduits the cross-border flows of capital (FDI), goods and services (trade), and intellectual assets (in affiliates and in contractual sharing of knowledge and capabilities with licensing and alliance partners),

The art of global management has always been to seek the optimum middle ground between integration and fragmentation, between standardization and adaptation, and between resilience or assurance on the one hand and efficiency/cost reduction on the other. The global manager knows how to manage risk. In MNEs and governments, there will be a greater awareness of political and GVC risks. However, at the same time, this article has highlighted several risk-reducing methods and emerging technologies whereby global risks can be ameliorated. A small or marginal increase in surge or spare capacity (for “strategic” items), a small increase in inventories at point-of-demand, and the number of suppliers can slightly increase procurement costs per unit.

On the other hand, these incremental costs can be reduced or avoided altogether by implementing better information-gathering systems, 5G surveillance and monitoring, blockchain and other integration of vendor–buyer computer systems, AI-based demand and inventory prediction, relationship-based alliances (Kano & Oh, 2020 ), and the continuing evolution and consensus on common technical and governance standards.

One should not overstate the current rift between the US and China as a portent of the business environment to come. In certain technologies, such as 5G, there may indeed be an unfortunate bifurcation of technical standards. However, overall, the “Brussels Effect” 27 is likely to play a more powerful, albeit quiet role in shaping global commerce (Bradford, 2020 ). EU rules and standards, adopted around the world, on issues ranging from green technology, data protection (GDPR), antitrust and competition rules, ethics, international law, arbitration, and technical standards ranging from AI to zucchini 28 (and to a lesser extent California standards) exert a disproportionate extraterritorial influence leading to “harmonization” and a lower-risk strategic planning environment.

We are building a global technological civilization, undergirded by common understandings, consensus, and cooperation. History has had examples of U-turns. The glories of Rome, Chang An, and Pataliputra were followed by some darker periods. However, today, the cross-border flow of information, spread of education, literacy, knowledge, and technology have progressed to a global scope and developed a nascent global consciousness, which makes it more difficult (although not impossible) for regression. The post-pandemic world is likely to need, and witness, even more globalization.

• Individual examples can easily be found where the direct and indirect costs of an international investment project, or a particular kind of trade, are higher than the benefits it produces. However, that does not obviate the unequivocal overall net benefits produced by globalization. Admittedly also, the net benefits produced by globalization are not shared equally across nations, some of which may have had their industrialization stage in economic development prematurely aborted by the shift of manufacturing to more dynamic producers like China (Rodrik, 2016 ; Larson et al., 2016 ), as well as the general shift to a services-based global economy (Levinson, 2020 ). However, these are not issues pursued in this Point article.
• From World Bank data: https://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD . And, of course, the numbers for 2020, and a year or two following, are likely to represent a significant drop.
• The number of MNEs from the Fortune Global 500 list, deemed by the authors to be “global,” increased from a count of 9 in 2004 to 36 firms in 2017, using their perhaps overly-stringent criterion that a global firm must have “at least 20% of their sales in all three regions of the triad, but less than 50% in any one region.” This does not measure sales of a company’s products worldwide through trade, contractual alliances, and minority equity joint ventures, all of which are not separately counted in UNCTAD or World Bank data. Nevertheless, Rugman & Verbeke’s ( 2004 ) overall conclusion is correct, that most MNEs principally serve their home and contiguous regions.
• https://data.worldbank.org/indicator/BX.GSR.ROYL.CD .
• Most royalties are linked by a formula as a percentage of sales achieved by the licensee/alliance partner. Compared to the profit of a FDI affiliate, licensee sales are axiomatically far less volatile, for two reasons/ First, sales of any firm are far less volatile than profits. Secondly, royalties are steady because the agreement remains in force for the number of years of the alliance agreement. Returns from licensing out intellectual assets are hence intrinsically more steady and assured compared with foreign affiliate dividends. FDI flows are also more volatile and sensitive to business cycles, because a FDI involves a conscious initial investment decision, made in return for the expected discounted cash flow of future affiliate profits. Hence FDI falls off in recessionary periods.
• The latter figure is an overestimate. However, unfortunately we have no comprehensive information on international royalty rates, this being a gaping data hole in international business and economics studies. We only have some sketchy figures from consultants (e.g, Podlogar, 2018 ). Using the typical “reasonable” average royalty rate of 5%, touted by licensing negotiators, by dividing the royalty remittances by a factor of 0.05, we get an estimate for foreign licensee sales stemming from licensed intellectual property at $7945 billion. This is smaller than “World Exports  (i.e. Sales)” or “Sales by MNEs Outside Their Home Country”. Nevertheless, licensing of intellectual assets constitutes an inescapably important, albeit neglected, component of global strategy.
• Undoubtedly, a tiny minority of FDI cases produce negative effects on the host country. However, that does not obviate the overall conclusion of the beneficial impact of FDI.
• Of course, there are some net costs of international business and globalization. However, these are, on average, more than offset by the benefits.
• This argument sounds similar to the advantage of larger firm size, except that the MNE, by expanding abroad, transcends or escapes the operational size limitation that constrains domestic competitors. Also, this paragraph addresses the benefits of size or global scale but with a specific focus on the amortization of R&D and central overheads in the MNE as opposed to scale economies in production, where factory-level fixed costs, spread over more units of output, reduce average cost per production unit.
• Easy scalability, accompanied by network effects, can also occasionally lead to oligopolies and monopolies, as we see in digital services such as Google or Facebook (e.g., Smyrnaios, 2018 ). However, this is not a widespread phenomenon and is not the focus of this article.
• The author, despite many searches, has been unable to find a Supply Chain Management paper where the cost per unit of procurement has been theorized or mapped as a function of the number of supply sources. This is likely a research opportunity.
• For US-based firms, the inventory-to-sales ratio had been declining since 1981 but then increased from a low of 1.25 in 2010 to 1.39 in June 2020 according to the US Census Bureau. https://www.census.gov/mtis/www/data/pdf/mtis_current.pdf .
• Again, the author has been unable to find papers that go in this direction, in which case this is a research opportunity for Supply Chain Management or IB scholars.
• With rising geo-political tensions, perhaps the most noticeable changes in global GVCs will be for supply sources from China, where the plateauing labor force has also seen labor costs escalate at well above China’s inflation rate between 2010 and 2020.
• Estimates can range up to an unlikely $19 trillion, depending on our assumption of the global average royalty rate, which is unknown.
• The data have to be interpreted with great circumspection, however, because of double-counting and interrelatedness. UNCTAD ( 2013 ) estimated that a multinational firm functioning as either exporter or importer was involved in three-quarters of world trade. Some reports suggest that intrafirm trade is 40% of the world total. In the licensing or contractual alliance category, an unknown fraction of deals, for tax-avoidance reasons, are between a MNE and its own foreign affiliate as licensee. All said, the MNE plays a dominant role in all three modes of foreign entry.
• The upgrading of standards may be weaker, but only in some cases, when FDI is between emerging nations. For example, the literature on Chinese FDI in Africa admits that there is an overall economic benefit, but takes a more circumspect view of managerial and HRM practices used by Chinese managers within their affiliates and projects in Africa (e.g., Jackson, 2014 ).
• Many IB scholars still seem to be not fully aware that IJVs are today covered by as detailed and long an agreement as in contractual or “non-equity” alliances, both of which are based on the letter of the agreement, as well as the relationship, although the relationship is, on average, stronger and deeper in IJVs than in contractual alliances (Velez-Calle, 2018 ; Contractor & Reuer, 2019 ). Both lie along a spectrum that can be described as “quasi-internalization.”
• The various aspects and nuances of nationalism are a complex subject which deserves a more richly textured analysis than can possibly be covered in this article.
• What comprises “national security” is of course open to question and to political considerations.
• The word “China” is not seen in the first 771 words of the introduction to Petricevic and Teece’s ( 2019 ) paper. However, “China” then occurs as many as 224 times throughout the rest of their article.
• In the largest 20 Chinese investments between 2009 and 2017 which exceeded $2 billion, aircraft leasing and food (pork) companies were the two biggest American targets, others including innocuous sectors such as entertainment, textiles, tourism, real estate, and consumer white goods. In the top-20 list, there were four technology companies, but these included peripherals such as printers (Lexmark) and personal computers (IBM personal computer division purchased by Lenovo).
• Of course, the numbers do not include prospective Chinese investments that may not have been initiated in the first place, because of fear of refusal.
• For the foreseeable post-pandemic future, the shift away from Chinese sources is likely to be small, partial and manageable because (1) other nations like Vietnam do not have as large a labor pool, (2) to some extent, rising Chinese labor costs have already been offset by the greater use of automation in Chinese factories, (3) it is not easy to replicate the sub-contractor and knowledge clusters in Chinese cities that have specialized in certain product types, and (4) the anti-China animus in the US and some other nations may not escalate further.
• Good clinical practice guidelines developed by the International Conference on Harmonization and first published in May 1996.
• World Bank Data: data.worldbank.org.
• While the US federal government has, at least temporarily, abdicated its role as an exemplar and standard-setter, the European Union (EU) has quietly had a big impact in establishing standards of corporate conduct and trade, as well as technology.
• The EU name for zucchini is “courgettes”.
• https://data.worldbank.org/indicator/BX.GSR.ROYL.CD.

is Distinguished Professor of Management and Global Business at Rutgers Business School, a Fellow of the AIB, author of ten books and over 150 scholarly articles. He holds a PhD and MBA from Wharton, two engineering degrees, MS (Michigan), and BSE (Bombay), and is currently on the Board of the Academy of International Business as President-Elect (2020–2021) and President (2021–2022). Farok’s research on corporate alliances, emerging markets, outsourcing and offshoring, valuation of intangible assets, the technology transfer process, licensing, and FDI has been cited more than 12,000 times. He has taught at leading schools on four continents. Previously, he was an executive with the Tata Group, a Fulbright Fellow, Unilever Fellow, and consultant for UNCTAD. Farok’s blog covering International Business issues, https://globalbusiness.blog, is read by viewers worldwide.

APPENDIX: IDEAS FOR FURTHER RESEARCH STEMMING FROM THIS POINT ARTICLE

As Figure  1 indicates, GVC resilience can be operationalized using four variables: (1) the number of vendors for the same component or item, (2) geographical diversification of supply sources to several countries, (3) propinquity of supply sources, in terms of both geographical and political “distance”, and (4) increase in inventory levels at the points of use. This lowers risk (from left to right in the dashed lines in Figure  1 exhibiting a negative slope) and increases resilience. However (1) through (4) also could represent an increase in procurement cost per unit.

• • How do companies arrive at a balance between these contrary considerations?
• • How are the four measures to be operationalized? What weightage should be given to each of the variables?

This represents a research opportunity to international business and supply chain scholars, as well as being a fundamental post-Covid-19 question for companies.

It has been hypothesized that the shock of the pandemic will, to some extent, make GVCs more “regional”, and that MNEs will trim excessively long-distance sources of supply. While it is unlikely that there will be large-scale reshoring (Miroudot, 2020 ) or substantial decoupling, as suggested by Petricevich & Teece ( 2019 ), nevertheless some reduction in geographic coverage could occur. If so, in which sectors, regions or products?

Instead of restructuring value chains, as indicated above, Kano ( 2018 ) and Verbeke ( 2020 ) suggest a behavioral or micro-foundational approach. They propose a more “relational” interaction between buyer and supplier. That is to say, a stronger and more intimate linkage between the two, accompanied by a willingness to be flexible – with mutual accommodation – in the face of exogenous shocks, would be congruent with the “structural” adjustments suggested in (1) above, and would make the GVC even more resilient.

Another aspect of strengthening this relationship is technological (Schmidt & Wagner, 2019 ; Kamilaris et al., 2019 ). Integration of buyer–seller computer systems, which would give the MNE access to the vendor’s servers and help it more closely monitor, in real-time, the status of their orders, reduces uncertainty and helps the MNE’s own scheduling of sales and inventories (Frazzon et al., 2018 ). However, here again, giving such access requires trust, which is a microfoundational or behavioral issue.

Interfirm relationships (and GVCs are one example) cover a spectrum from purely contractual ordering, or basic patent licensing unaccompanied by any significant interaction between licensor and licensee, all the way to forming an international joint venture where the managers, engineers, and personnel of the partners “rub shoulders” on a daily basis (Contractor & Reuer, 2019 ). Much of past alliance literature, unfortunately, has used bifurcated dependent variables such as “Equity” JV (EJV) versus “Non-equity” alliances. This a distortion of reality. Actually, the majority of alliances involve some degree of interaction or relationship. For example, even in a contractual alliance, the licensor, after transferring the intellectual property rights and accompanying “know-how” (or unregistered knowledge), will continue to support and help their licensee, out of self-interest. Even more pertinently, in recent years, EJVs are covered by as detailed, or even more detailed, an agreement as are contractual alliances (Velez-Calle, 2018 ; Contractor & Reuer, 2019 ). Research has only partially provided answers to questions such as how to construct or structure an agreement (i.e., with what clauses, depth, and length) depending on the strategic objectives (e.g., resilience, flexibility, irreversibility (Verbeke, 2020 ), and duration) – questions that occur in a world of increasing interorganizational relationships and supply chains.

IB Scholars have long known that, instead of FDI or exporting as a means of achieving sales in foreign markets, the licensing of intellectual assets (registered property such as patents, brands, and copyrights, as well as unregistered trade secrets and tacit “know-how”) results in sales by the licensee in the assigned country/territories. These licensee sales can act as a substitute strategy to FDI or trade—in terms of reaching the foreign customer. The licensee pays the licensor royalties, which are typically a percentage of the sales achieved for the licensed item. Even GVC and IJV agreements often have a licensing component, because the supplier or partner first needs to receive the legal permission to produce the MNE’s designs. Moreover, payment of royalties is most often a deductible expense, reducing the licensee’s corporate tax liability.

We know from World Bank and other data that cross-border royalty payments in 2019 amounted to $397.23 billion, and that these have grown faster, over recent decades, than the growth rate of FDI or trade. 29 The $397.23 billion number is not a sales number, it is only royalties, which are a small percentage of the licensees’ achieved sales.

Astonishingly, nobody knows the strategic significance of international licensing (in terms of foreign market sales, compared with exporting or FDI affiliate sales) because we have no basis, yet, for estimating the foreign sales that result from the international licensing of intellectual assets. If we assume that the global average royalty rate is 8% of sales, by dividing 397.23 by 0.08, we obtain an estimate of foreign licensee sales (achieved by international licensing of intellectual assets) of $4965 billion. If, on the other hand we assume a global average royalty rate of 2%, by dividing 397.23 by 0.02, we arrive at a foreign sales estimate of $19,862 billion (resulting from international licensing). The actual figure is likely somewhere in between. However, we just do not know, because there is no available datum about the global average royalty rate. Either estimate tells us that international licensing is a substantial substitute strategy to FDI or trade as a means of serving foreign markets.

However, there is another conundrum. Is licensing really a substitute strategy to FDI and trade? Only partially. In many cases, licensing is a complement to FDI and trade (as in GVC agreements) and not the main strategic driver. For parties related by ownership such as Parent–Subsidiary or IJV partner–JV company, the licensing portion of the agreement may only be an “add-on” clause for tax-avoidance and legal purposes. On the other hand, when the licensor and licensee are unrelated parties, then the royalty payment is based on an arms-length negotiation. Here again, astonishingly, we have no firm idea of the proportions of related party versus arms-length transactions in international business.

This investigation should be of great interest to MNEs, IB scholars, and tax authorities around the world.

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Accepted by Alain Verbeke, Editor-in-Chief, 27 October 2020.

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United   States-Japan Joint Leaders’   Statement

Global Partners for the Future

Over the course of the last three years, the U.S.-Japan Alliance has reached unprecedented heights. We arrived at this historic moment because our nations, individually and together, took courageous steps to strengthen our collective capacity in ways that would have seemed impossible just a few years ago. Today, we, President Joseph R. Biden, Jr. and Prime Minister KISHIDA Fumio, celebrate this new era of U.S.-Japan strategic cooperation during the Prime Minister’s Official Visit and State Dinner in Washington, D.C.—and pledge that the United States and Japan will continue our tireless work, together and with other partners, to realize a free and open Indo-Pacific and world.

In this new era of U.S.-Japan cooperation, we recognize that global events affect the security and stability of the Indo-Pacific, and that developments in our shared region reverberate around the world. We are therefore working together, across all domains and at all levels, to build a global partnership that is fit for purpose to address the complex, interconnected challenges of today and tomorrow for the benefit of our two countries and the world. As our Alliance cooperation reaches new heights, we are expanding our engagement to reflect the global nature of our partnership.

At the core of our cooperation is a shared commitment to work with like-minded partners and multilateral institutions to address common challenges and to ensure a world that is free, open, connected, resilient, and secure. These joint efforts are based on our shared fundamental respect for international law, including the protection and promotion of human rights and dignity, the sovereignty and territorial integrity of all states, and the prohibition on acquisition of territory by force. Our purpose as partners is to uphold and bolster the free and open international order based on the rule of law that has allowed so many nations to develop and prosper, and to ensure our Alliance is equipped to tackle the challenges of the 21 st century.

To advance our global partnership, today we announce several new strategic initiatives to strengthen our defense and security cooperation; reach new frontiers in space; drive technology innovation; bolster economic security; accelerate climate action; partner on global diplomacy and development; and fortify the ties between our peoples. Through our global partnership, we are also synchronizing our strategies, and our two nations have never been more united as we work together to address the most pressing challenges and opportunities of the future.

Strengthening our Defense and Security Cooperation

The core of our global partnership is our bilateral defense and security cooperation under the Treaty of Mutual Cooperation and Security, which is stronger than ever. We affirm that our Alliance remains the cornerstone of peace, security, and prosperity in the Indo-Pacific. President Biden reiterated the unwavering commitment of the United States to the defense of Japan under Article V of the Treaty, using its full range of capabilities, including nuclear capabilities. Prime Minister Kishida reaffirmed Japan’s unwavering commitment to fundamentally reinforce its own defense capabilities and roles, and to enhance its close coordination with the United States under the Treaty.President Biden also reaffirmed that Article V applies to the Senkaku Islands. We reiterated our strong opposition to any attempts by the People’s Republic of China (PRC) to unilaterally change the status quo by force or coercion in the East China Sea, including through actions that seek to undermine Japan’s longstanding and peaceful administration of the Senkaku Islands. We welcome the progress in optimizing Alliance force posture in areas including the Southwestern Islands to strengthen U.S.-Japan deterrence and response capabilities, and we confirm the importance of further advancing this initiative.

The United States welcomes the steps Japan is taking to fundamentally enhance its defense capabilities, including its plans to increase the budget for its defense capabilities and complementary initiatives to two percent of GDP in Japanese Fiscal Year (JFY) 2027 in accordance with Japan’s National Security Strategy, its decision to possess counterstrike capabilities, and its plans to stand up the Japan Self-Defense Forces (JSDF) Joint Operations Command to enhance command and control of the JSDF. Together, these initiatives elevate our defense ties to unprecedented levels and launch a new era of U.S.-Japan security cooperation, strengthening our Alliance and contributing to stability in the Indo-Pacific.

Today, we announce several new strategic initiatives to further advance our Alliance. Recognizing the speed at which regional security challenges evolve and to ensure our bilateral Alliance structures meet these critical changes, we announce our intention to bilaterally upgrade our respective command and control frameworks to enable seamless integration of operations and capabilities and allow for greater interoperability and planning between U.S. and Japanese forces in peacetime and during contingencies. More effective U.S.-Japan Alliance command and control will strengthen deterrence and promote a free and open Indo-Pacific in the face of pressing regional security challenges. We call on our respective defense and foreign ministries to develop this new relationship through the Security Consultative Committee (our security “2+2”). In support of this vision, we also reaffirm our goal to deepen Intelligence, Surveillance, and Reconnaissance cooperation and Alliance information sharing capabilities, including through the Bilateral Information Analysis Cell.

We will also continue to implement efforts to strengthen our Alliance force posture, build high-end base capabilities, and increase preparedness that are necessary to deter and defend against threats. We resolve to deepen bilateral cooperation toward the effective development and employment of Japan’s suite of counterstrike capabilities, including the provision of U.S. materiel and technological support to enhance Japan’s indigenous stand-off programs. The United States expressed its commitment to start the training pipeline and ship modifications for Japan to acquire operational capability of the Tomahawk Land Attack Missile (TLAM) system. We also reaffirmed our pursuit of a Glide Phase Interceptor (GPI) cooperative development program to counter high-end, regional hypersonic threats.

As our countries strengthen our bilateral ties, we will continue to build our relationships with like-minded partners in the region. Today, we announce our vision to cooperate on a networked air defense architecture among the United States, Japan, and Australia to counter growing air and missile threats. Recognizing Japan’s strengths and the close bilateral defense partnerships with the AUKUS countries, AUKUS partners – Australia, the United Kingdom, and the United States – are considering cooperation with Japan on AUKUS Pillar II advanced capability projects. Continuing the momentum from the Camp David Summit, we welcome progress on establishing an annual multidomain exercise between the United States, Japan, and the Republic of Korea (ROK). Recognizing the commitments made in the Atlantic Declaration and the Hiroshima Accord, and as the Indo-Pacific and Euro-Atlantic regions become ever more interlinked, we welcome the announcement of regular U.S.-Japan-UK trilateral exercises, beginning in 2025, as we enhance our shared and enduring security. Building on the announcement at the Australia Official Visit in October to pursue trilateral cooperation with Japan on unmanned aerial systems, we are exploring cooperative opportunities in the rapidly emerging field of collaborative combat aircraft and autonomy.

The United States welcomes Japan’s revision of the Three Principles on the Transfer of Defense Equipment and Technology and its Implementation Guidelines, which bolsters cooperation through joint development and production to enhance our deterrence capabilities in the region. To leverage our respective industrial bases to meet the demand for critical capabilities and maintain readiness over the long term, we will convene a Forum on Defense Industrial Cooperation, Acquisition and Sustainment (DICAS) co-led by the U.S. Department of Defense and Japan’s Ministry of Defense to identify priority areas for partnering U.S. and Japanese industry, including co-development and co-production of missiles and co-sustainment of forward-deployed U.S. Navy ships and U.S. Air Force aircraft, including fourth generation fighters, at Japanese commercial facilities, in coordination with relevant ministries. This forum, in conjunction with our existing Defense Science and Technology Cooperation Group, will better integrate and align our defense industrial policy, acquisition, and science and technology ecosystems. The DICAS will provide updates on progress to the foreign and defense ministers in the security “2+2.” We also commit to establishing a working group to explore opportunities for future fighter pilot training and readiness, including AI and advanced simulators, and co-development and co-production of cutting-edge technologies such as common jet trainers to maintain combat-ready next-generation fighter airpower.

We reaffirm the critical importance of continuing to enhance U.S. extended deterrence, bolstered by Japan’s defense capabilities, and will further strengthen bilateral cooperation. In this regard, we call on our respective foreign and defense ministers to hold in-depth discussions on extended deterrence on the occasion of the next security “2+2” meeting.

We continue to deepen our cooperation on information and cyber security to ensure that our Alliance stays ahead of growing cyber threats and builds resilience in the information and communication technology domain. We also plan on enhancing our cooperation on the protection of critical infrastructure.

Recognizing the importance of rapidly responding to frequent and severe climate change-related and other natural disasters, we plan to explore cooperation on the establishment of a humanitarian assistance and disaster relief hub in Japan.

In order to maintain deterrence and mitigate impact on local communities, we are firmly committed to the steady implementation of the realignment of U.S. forces in Japan in accordance with Okinawa Consolidation Plan, including the construction of the Futenma Replacement Facility at Henoko as the only solution that avoids the continued use of Marine Corps Air Station Futenma.

Reaching New Frontiers in Space

Our global partnership extends to space, where the United States and Japan are leading the way to explore our solar system and return to the Moon. Today, we welcome the signing of a Lunar Surface Exploration Implementing Arrangement, in which Japan plans to provide and sustain operation of a pressurized lunar rover while the United States plans to allocate two astronaut flight opportunities to the lunar surface for Japan on future Artemis missions. The leaders announced a shared goal for a Japanese national to be the first non-American astronaut to land on the Moon on a future Artemis mission, assuming important benchmarks are achieved. The United States and Japan plan to deepen cooperation on astronaut training to facilitate this goal while managing the risks of these challenging and inspiring lunar surface missions. We also announce bilateral collaboration on a Low Earth Orbit detection and tracking constellation for missiles such as hypersonic glide vehicles, including potential collaboration with U.S. industry.

Leading on Innovation , Economic Security, and Climate Action

The United States and Japan aim to maximally align our economic, technology, and related strategies to advance innovation, strengthen our industrial bases, promote resilient and reliable supply chains, and build the strategic emerging industries of the future while pursuing deep emissions reductions this decade. Building on our efforts in the U.S.-Japan Competitiveness and Resilience (CoRe) Partnership, including through the U.S.-Japan Economic Policy Consultative Committee (our economic “2+2”), we intend to sharpen our innovative edge and strengthen our economic security, including by promoting and protecting critical and emerging technologies.

The United States and Japan welcome our robust economic and commercial ties through mutual investment, including Microsoft’s $2.9 billion investment in Japan on AI and cloud infrastructure, workforce training, and a research lab; and Toyota’s recent additional $8 billion battery production investment for a cumulative $13.9 billion investment in North Carolina. Japan is the top foreign investor in the United States with nearly $800 billion in foreign direct investment, and Japanese companies employ nearly 1 million Americans across all 50 states. Similarly, as a top foreign investor in Japan for many years, the United States is supporting Japan’s economic growth, and as two of the world’s largest financial sectors, we commit to strengthening our partnership to bolster cross-border investment and support financial stability. As robust and creative economies, we also plan to accelerate investment in our respective start-up environments to foster innovation through the “Japan Innovation Campus” in Silicon Valley and the “Global Startup Campus” to be established in Tokyo, and in companies that take actions toward sustainable value creation (SX). We welcome our new Japan-U.S. personnel exchange programs on startups and venture capital firms under the Global Innovation through Science and Technology (GIST) initiative.

We are committed to strengthening our shared role as global leaders in the development and protection of next-generation critical and emerging technologies such as AI, quantum technology, semiconductors, and biotechnology through research exchange and private investment and capital finance, including with other like-minded partners. We welcome our collaboration on AI for Science between Riken and Argonne National Laboratory (ANL) founded on the revised project arrangement.

We applaud the establishment of $110 million in new AI research partnerships – between the University of Washington and University of Tsukuba and between Carnegie Mellon University and Keio University – through funding from NVIDIA, Arm, Amazon, Microsoft, and a consortium of Japanese companies. We are committed to further advancing the Hiroshima AI Process and strengthening collaboration between the national AI Safety Institutes.

Building on our long history of semiconductor cooperation, we intend to establish a joint technology agenda for cooperation on issues such as research and development, design, and workforce development. We also welcome the robust cooperation between and with our private sectors, especially in next-generation semiconductors and advanced packaging. We also plan to work together along with like-minded countries to strengthen global semiconductor supply chains, particularly for mature node (“legacy”) semiconductors through information-sharing, coordination of policies, and addressing vulnerabilities stemming from non-market policies and practices. We also celebrate the signing of a Memorandum of Cooperation between Japan’s National Institute of Advanced Industrial Science and Technology (AIST) and the U.S. National Institute of Standards and Technology (NIST) as a first step in bilateral cooperation on quantum computing.

Building on the Indo-Pacific Economic Framework for Prosperity (IPEF) and our respective leadership of the G7 and Asia-Pacific Economic Cooperation (APEC) last year, we continue to advance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness for our economies . We applaud the recent entry into force of the IPEF Supply Chain Agreement. We will continue to seek cooperation on critical minerals projects, including those along the Partnership for Global Infrastructure and Investment Lobito Corridor, and through the Minerals Security Partnership (MSP) as well as the Partnership for Resilient and Inclusive Supply-chain Enhancement (RISE). We are cooperating to deter and address economic coercion, through our bilateral cooperation as well as through our work with like-minded partners including the G7 Coordination Platform on Economic Coercion. We are working to uphold a free, fair and rules-based economic order; address non-market policies and practices; build trusted, resilient, and sustainable supply chains; and promote open markets and fair competition under the U.S.-Japan economic “2+2” and the U.S.-Japan Commercial and Industrial Partnership. We will advance our commitment to operationalize data free flow with trust, including with respect to data security. We will also discuss the promotion of resilient and responsible seafood supply chains.

The United States and Japan recognize that the climate crisis is the existential challenge of our time and intend to be leaders in the global response. Towards our shared goal of accelerating the clean energy transition, we are launching a new high-level dialogue on how we implement our respective domestic measures and maximize their synergies and impacts, including the U.S. Inflation Reduction Act and Japan’s Green Transformation (GX) Promotion Strategy aimed at accelerating energy transition progress this decade, promoting complementary and innovative clean energy supply chains and improving industrial competitiveness. Today we announce Japan joins as the first international collaborator of the U.S. Floating Offshore Wind Shot. We intend to work together towards global ambition in line with the Wind Shot, taking into consideration national circumstances, through the Clean Energy and Energy Security Initiative (CEESI) to pursue innovative breakthroughs that drive down technology costs, accelerate decarbonization, and deliver benefits for coastal communities. The United States welcomes Japan’s newly-launched industry platform, the Floating Offshore Wind Technology Research Association (FLOWRA), aiming to reduce costs and achieve mass production of floating offshore wind through collaboration with academia.

We are further leading the way in developing and deploying next generation clean energy technology, including fusion energy development through the announcement of a U.S.-Japan Strategic Partnership to Accelerate Fusion Energy Demonstration and Commercialization.

The United States remains unwavering in its commitment to support the energy security of Japan and other allies, including its ability to predictably supply LNG while accelerating the global transition to zero-emissions energy and working with other fossil energy importers and producers to minimize methane emissions across the fossil energy value chain to the fullest extent practicable.

We intend to advance widespread adoption of innovative new clean energy technologies, and seek to increase the globally available supply of sustainable aviation fuel or feedstock, including those that are ethanol-based, that show promise in reducing emissions.

We are also working to align global health security and innovation, including in such areas as pandemic prevention, preparedness, and response and promoting more resilient, equitable, and sustainable health systems. Today, we announce that the U.S. Food and Drug Administration and the Japan’s Pharmaceuticals and Medical Devices Agency (PMDA) intend to collaborate and exchange information on oncology drug products to help cancer patients receive earlier access to medications and to discuss future drug development and ways to prevent drug shortages. We welcome PMDA’s future representative office in Washington, D.C., to facilitate this cooperation.

Partnering on Global Diplomacy and Development

The challenges we face transcend geography. The United States and Japan are steadfast in our commitment to upholding international law, including the UN Charter, and call for all Member States to uphold the Charter’s purposes and principles, including refraining from the threat or use of force against the territorial integrity or political independence of any State. We remain committed to reforming the UN Security Council (UNSC), including through expansion in permanent and non-permanent categories of its membership. President Biden reiterated support for Japan’s permanent membership on a reformed UNSC.

We reaffirm our commitment made in Hiroshima last year and are determined to further promote our cooperation in the G7 and work together with partners beyond the G7.

We emphasize the importance of all parties promoting open channels of communication and practical measures to reduce the risk of misunderstanding and miscalculation and to prevent conflict in the Indo-Pacific. In particular, we underscore the importance of candid communication with the PRC, including at the leader level, and express the intent to work with the PRC where possible on areas of common interest.

We emphasize the importance of all States being able to exercise rights and freedoms in a manner consistent with international law as reflected in the United Nations Convention on the Law of the Sea (UNCLOS), including freedom of navigation and overflight. We strongly oppose any unilateral attempts to change the status quo by force or coercion, including destabilizing actions in the South China Sea, such as unsafe encounters at sea and in the air as well as the militarization of disputed features and the dangerous use of coast guard vessels and maritime militia. The PRC’s recent dangerous and escalatory behavior supporting its unlawful maritime claims in the South China Sea as well as efforts to disrupt other countries’ offshore resource exploitation are inconsistent with international law as reflected in UNCLOS. We also emphasize that the 2016 South China Sea Arbitral Award is final and legally binding on the parties to that proceeding. We resolve to work with partners, particularly in ASEAN, to support regional maritime security and uphold international law.

We emphasize that our basic positions on Taiwan remain unchanged and reiterate the importance of maintaining peace and stability across the Taiwan Strait as an indispensable element of global security and prosperity. We encourage the peaceful resolution of cross-Strait issues.

We continue working together with partner countries to make concrete progress in strengthening the international financial architecture and fostering investment under the Partnership for Global Infrastructure and Investment. We are committed to delivering better, bigger, more effective multilateral development banks including through our planned contributions that would enable more than $30 billion in new World Bank lending and securing ambitious International Development Association and Asian Development Fund replenishments. We also emphasize the importance of private sector investment in the Indo-Pacific. We welcome the announcement of Google’s $1 billion investment in digital connectivity for North Pacific Connect, which expands the Pacific Connect Initiative, with NEC, to improve digital communications infrastructure between the United States, Japan and Pacific Island Nations. Building on the U.S.-Australia joint funding commitment for subsea cables last October, the United States and Japan plan to collaborate with like-minded partners to build trusted and more resilient networks and intend to contribute funds to provide subsea cables in the Pacific region, including $16 million towards cable systems for the Federated States of Micronesia and Tuvalu.

We reaffirm our steadfast commitment to the Quad and its shared vision of a free and open Indo-Pacific that is stable, prosperous, and inclusive which continues to deliver results for the region. We reiterate the Quad’s unwavering support and respect for regional institutions, including ASEAN, the Pacific Islands Forum (PIF), and the Indian Ocean Rim Association. We also reaffirm our support for ASEAN centrality and unity as well as the ASEAN Outlook on the Indo-Pacific. Southeast Asian countries are critical partners in the Indo-Pacific and the U.S.-Japan-Philippines trilateral aims to enhance trilateral defense and security cooperation while promoting economic security and resilience. Japan and the United States reaffirmed our intention to work to support the region’s priorities as articulated through the 2050 Strategy for the Blue Pacific Continent, including through the PIF as the Pacific’s preeminent institution as well as through the Partners in the Blue Pacific (PBP).

As we pursue our shared vision of a free and open Indo-Pacific, we continue to build strong ties between key, like-minded partners in the region. Building on the historic success of the Camp David Trilateral Summit, the United States, Japan and the Republic of Korea continue to collaborate on promoting regional security, strengthening deterrence, coordinating development and humanitarian assistance, countering North Korea’s illicit cyber activities, and deepening our cooperation including on economic, clean energy, and technological issues. The United States and Japan also remain committed to advancing trilateral cooperation with Australia to ensure a peaceful and stable region.

We reaffirm our commitment to the complete denuclearization of North Korea in accordance with relevant UNSC resolutions. We strongly condemn North Korea’s continued development of its ballistic missile program—including through launches of intercontinental ballistic missiles (ICBM) and space launch vehicles using ballistic missile technologies—which poses a grave threat to peace and security on the Korean Peninsula and beyond. We call on North Korea to respond to continued, genuine offers to return to diplomacy without preconditions. We call on all UN Member States to fully implement all relevant UNSC resolutions, especially in light of Russia’s recent veto. We urge North Korea to cease illicit activities that generate revenue for its unlawful ballistic missile and weapons of mass destruction programs, including malicious cyber activities. President Biden also reaffirms U.S. commitment to the immediate resolution of the abductions issue, and the two sides commit to continuing joint efforts to promote respect for human rights in North Korea.

We continue to stand together in firm opposition to Russia’s brutal war of aggression against Ukraine, its strikes against Ukraine’s infrastructure and the terror of Russian occupation. We are committed to continuing to impose severe sanctions on Russia and provide unwavering support for Ukraine. Together, we reiterate our call on Russia to immediately, completely, and unconditionally withdraw its forces from within the internationally recognized borders of Ukraine. Any threat or use of nuclear weapons in the context of its war of aggression against Ukraine by Russia is unacceptable. We also express serious concerns about growing North Korea-Russia military cooperation, which is supporting Russia’s war of aggression against Ukraine and threatens to undermine peace and stability in Northeast Asia as well as the global non-proliferation regime.

As the linkages between the Euro-Atlantic and the Indo-Pacific regions have become stronger than ever, our two countries look forward to continuing to work together to enhance Japan-North Atlantic Treaty Organization (NATO) and NATO-Indo-Pacific Four partnerships.

We once again unequivocally condemn the terror attacks by Hamas and others on October 7 of last year, and reaffirm Israel’s right to defend itself and its people consistent with international law. At the same time, we express our deep concern over the critical humanitarian situation in the Gaza Strip. We affirm the imperative of securing the release of all hostages held by Hamas, and emphasize that the deal to release hostages would bring an immediate and prolonged ceasefire in Gaza. We affirm the imperative of realizing an immediate and sustained ceasefire in Gaza over a period of at least six weeks as part of a deal that would release hostages held by Hamas and allow for delivery of essential additional humanitarian assistance to Palestinians in need. We underscore the urgent need to significantly increase deliveries of life-saving humanitarian assistance throughout Gaza and the crucial need to prevent regional escalation. We reiterate the importance of complying with international law, including international humanitarian law, as applicable, including with regard to the protection of civilians. We remain committed to an independent Palestinian state with Israel’s security guaranteed as part of a two-state solution that enables both Israelis and Palestinians to live in a just, lasting, and secure peace.

We reaffirm the importance of supporting inclusive growth and sustainable development in Latin America and the Caribbean. We continue to enhance policy coordination in the region, in particular on Haiti and Venezuela. We also recognize that promoting the stability and security for Haiti is one of the most pressing challenges in the Western Hemisphere, and we continue to support Haiti in restoring democratic order.

We also support African aspirations for peace, stability, and prosperity based on the rule of law. We continue to work together to support the democratic process and economic growth through our respective efforts, including our cooperation with African countries, Regional Economic Communities, the African Union, and multilateral organizations.

The United States and Japan are resolved to achieve a world without nuclear weapons through realistic and pragmatic approaches. It is critical that the overall decline in global nuclear arsenals achieved since the end of the Cold War continues and not be reversed, and the PRC’s accelerating build-up of its nuclear arsenal without transparency nor meaningful dialogue poses a concern to global and regional stability. We reaffirm the importance of upholding the Treaty on the Non-Proliferation of Nuclear Weapons (NPT) as the cornerstone of the global nuclear disarmament and non-proliferation regime and for the pursuit of peaceful uses of nuclear energy. In promoting this universal goal of achieving a world without nuclear weapons, Japan’s “Hiroshima Action Plan” and the “G7 Leaders’ Hiroshima Vision on Nuclear Disarmament” are welcome contributions. The two leaders also welcomed the U.S. announcement to join the Japan-led “Fissile Material Cut-off Treaty Friends” initiative. We reaffirm the indispensable role of the peaceful uses of nuclear technology, committing to fostering innovation and supporting the International Atomic Energy Agency’s efforts in upholding the highest standards of safety, security, and safeguards. President Biden commended Japan’s safe, responsible, and science-based discharge of Advanced Liquid Processing System treated water at Tokyo Electric Power Company’s Fukushima Daiichi Nuclear Power Station into the sea. Our two countries plan to launch the Fukushima Daiichi Decommissioning Partnership focusing on research cooperation for fuel debris retrieval.

To effectively address the myriad challenges outlined above, our global partnership is launching a Deputy Secretary of State/Vice Minister for Foreign Affairs-level dialogue involving our respective aid agencies to align our diplomatic and development efforts globally.

Fortifying People-to-People Ties

People-to-people exchanges are the most effective way to develop the future stewards of the U.S.-Japan relationship. In this regard, we recognize the achievements of exchange programs between our two countries, including the Japan Exchange and Teaching (JET) Programme, KAKEHASHI Project, the Japan Foundation’s programs, and the U.S.-Japan Council’s TOMODACHI Initiative, and commit ourselves to providing more opportunities to meet today’s needs, including through enhanced subnational exchanges on critical issues such as climate and energy. We also recognize the important role civil society has played in strengthening the U.S.-Japan relationship over the past 170 years, including the 38 Japan-America Societies across the United States, the Asia Society, and the 29 America-Japan Societies across Japan.

Building on the Memorandum of Cooperation in Education signed between us on the sidelines of the G7 Leaders’ Summit in Hiroshima, today we announce our commitment to increase student mobility through the new $12 million “Mineta Ambassadors Program (MAP)” education exchange endowment administered by the U.S.-Japan Council for U.S. and Japanese high school and university students who will “map” the future of the relationship with support from Apple, the BlackRock Foundation, Toshizo Watanabe Foundation, and other founding donors. In this regard, we also welcome Japan’s new initiative to expand scholarship for Japanese students through the Japan Student Servicers Organization.

We recognize the significant contributions made by the binational Japan-U.S. Educational Commission (Fulbright Japan) over the past 72 years. We welcome recent changes to upgrade the program by reopening scholarships to Science, Technology, Engineering, and Math (STEM) fields for the first time in 50 years, with the first STEM students on track to participate in academic year 2025-26, as well as removing the tuition cap for Japanese Fulbright participants to attract the highest quality students and researchers.

Celebrating the 30th anniversary of the establishment of the Mansfield Fellowship Program, we honor the legacy of Ambassador Mansfield’s contributions through the University of Montana Mansfield Center and Mansfield Foundation. The two leaders also welcome the creation of the Government of Japan endowed Mansfield Professor of Japanese and Indo-Pacific Affairs at the University of Montana.

Upon the 100 th anniversary of the birth of the late Senator Daniel K. Inouye, who made incredible contributions to our bilateral relationship, we praise the efforts of Japanese American leaders to build a bridge between the two countries and to address common community issues, including through support to the U.S.-Japan Council’s newly launched TOMODACHI Kibou for Maui project. We also share the recognition on the importance of exchanges between our legislatures. We acknowledge the importance of language study, particularly in person, to develop long-term ties and announce a new Memorandum of Cooperation to increase opportunities for the number of exchange visitors from Japan to share their specialized knowledge of Japanese language and culture in the United States, as well as welcome efforts to expand the Japanese Language Education Assistant Program (J-LEAP).

The two leaders also affirm that women in leadership remain their focus and reaffirm our pledge to achieving gender equality and the empowerment of women and girls in all their diversity. We welcome close cooperation on Women, Peace, and Security and Women’s Economic Empowerment initiatives and efforts to promote women and girls’ full, equal, and meaningful participation and leadership in public life.

Finally, we emphasize the need to build a diverse pipeline of future U.S.-Japan experts who understand and support the Alliance. Our peoples form the core of our Alliance, and we reaffirm our commitment to forge ever-closer bonds for generations to come.

Through our shared and steadfast commitment, we have taken bold and courageous steps to bring the U.S.-Japan Alliance to unprecedented heights. In so doing, we have equipped our partnership to protect and advance peace, security, prosperity, and the rule of law across the Indo-Pacific and the globe so that everyone benefits. Today, we celebrate the enduring friendship among our peoples—and among ourselves—and pledge to continue our relentless efforts to ensure that our global partnership drives future peace and prosperity for generations to come.

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Hidden threat: Global underground infrastructure vulnerable to sea-level rise

by Marcie Grabowski, University of Hawaii at Manoa

As sea levels rise, coastal groundwater is lifted closer to the ground surface while also becoming saltier and more corrosive. A recent study by Earth scientists at the University of Hawai'i (UH) at Mānoa has compiled research from experts worldwide showing that in cities where there are complex networks of buried and partially buried infrastructure, interaction with this shallower and saltier groundwater exacerbates corrosion and failure of critical systems such as sewer lines, roadways, and building foundations.

The research is published in the journal Annual Review of Marine Science .

"While it has been recognized that shallowing groundwater will eventually result in chronic flooding as it surfaces, what's less known is that it can start causing problems decades beforehand as groundwater interacts with buried infrastructure," said Shellie Habel, lead author and coastal geologist in the School of Ocean and Earth Science and Technology (SOEST) at UH Mānoa. "This knowledge gap often results in coastal groundwater changes being fully overlooked in infrastructure planning."

The research team aimed to create awareness about these issues and offer guidance from world experts on managing them. Habel and co-authors reviewed existing literature to examine the diverse effects on different types of infrastructure. Additionally, by employing worldwide elevation data and geospatial data that indicate the extent of urban development, they identified 1,546 low-lying coastal cities and towns globally, where around 1.42 billion people live, that are likely experiencing these impacts.

"The IPCC 6th Assessment Report tells us that sea level rise is an unstoppable and irreversible reality for centuries to millennia," said Chip Fletcher, study co-author, interim Dean of SOEST, and director of the Climate Resilience Collaborative (CRC) at UH Mānoa. "Now is the time to prepare for the challenges posed by this problem by redesigning our communities for greater resilience and social equity."

Concealed damage

Well before the visible effects of surface flooding, sea-level rise pushes up the water table and shifts salty water landward. With this, the subsurface environment becomes more corrosive to critical underground infrastructure networks—buried drainage and sewage lines can become compromised and mobilize urban contamination, and building foundations can weaken.

Extensive research conducted by the CRC has substantiated that critical infrastructure around the world, including drainage and basements, is likely currently experiencing flooding from rising groundwater levels.

"The damage caused by sea level rise-influenced coastal groundwater is often concealed and not immediately perceptible," said Habel, who is based at the CRC and Hawai'i Sea Grant in SOEST. "As a result, it tends to be overlooked in infrastructure management and planning efforts."

Informing management strategies

The study authors emphasize the importance of research efforts that can contribute to informed adaptation strategies.

"Being aware of these hidden impacts of sea level rise is of significant importance for the State of Hawai'i due to the concentration of communities situated along low-lying coastal zones where groundwater is generally very shallow," said Habel.

The CRC actively collaborates with partners across the nation and infrastructure managers in Hawai'i to gain a comprehensive assessment of how vital infrastructure, encompassing pipe networks, roadways, and buildings, is impacted. Understanding the impacts and risks associated with sea level rise -influenced coastal groundwater enables more effective management and adaptation.

Provided by University of Hawaii at Manoa

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Read our research on: Gun Policy | International Conflict | Election 2024

Regions & Countries

About 1 in 4 u.s. teachers say their school went into a gun-related lockdown in the last school year.

Twenty-five years after the mass shooting at Columbine High School in Colorado , a majority of public K-12 teachers (59%) say they are at least somewhat worried about the possibility of a shooting ever happening at their school. This includes 18% who say they’re extremely or very worried, according to a new Pew Research Center survey.

Pew Research Center conducted this analysis to better understand public K-12 teachers’ views on school shootings, how prepared they feel for a potential active shooter, and how they feel about policies that could help prevent future shootings.

To do this, we surveyed 2,531 U.S. public K-12 teachers from Oct. 17 to Nov. 14, 2023. The teachers are members of RAND’s American Teacher Panel, a nationally representative panel of public school K-12 teachers recruited through MDR Education. Survey data is weighted to state and national teacher characteristics to account for differences in sampling and response to ensure they are representative of the target population.

We also used data from our 2022 survey of U.S. parents. For that project, we surveyed 3,757 U.S. parents with at least one child younger than 18 from Sept. 20 to Oct. 2, 2022. Find more details about the survey of parents here .

Here are the questions used for this analysis , along with responses, and the survey methodology .

Another 31% of teachers say they are not too worried about a shooting occurring at their school. Only 7% of teachers say they are not at all worried.

This survey comes at a time when school shootings are at a record high (82 in 2023) and gun safety continues to be a topic in 2024 election campaigns .

Teachers’ experiences with lockdowns

About a quarter of teachers (23%) say they experienced a lockdown in the 2022-23 school year because of a gun or suspicion of a gun at their school. Some 15% say this happened once during the year, and 8% say this happened more than once.

High school teachers are most likely to report experiencing these lockdowns: 34% say their school went on at least one gun-related lockdown in the last school year. This compares with 22% of middle school teachers and 16% of elementary school teachers.

Teachers in urban schools are also more likely to say that their school had a gun-related lockdown. About a third of these teachers (31%) say this, compared with 19% of teachers in suburban schools and 20% in rural schools.

Do teachers feel their school has prepared them for an active shooter?

About four-in-ten teachers (39%) say their school has done a fair or poor job providing them with the training and resources they need to deal with a potential active shooter.

A smaller share (30%) give their school an excellent or very good rating, and another 30% say their school has done a good job preparing them.

Teachers in urban schools are the least likely to say their school has done an excellent or very good job preparing them for a potential active shooter. About one-in-five (21%) say this, compared with 32% of teachers in suburban schools and 35% in rural schools.

Teachers who have police officers or armed security stationed in their school are more likely than those who don’t to say their school has done an excellent or very good job preparing them for a potential active shooter (36% vs. 22%).

Overall, 56% of teachers say they have police officers or armed security stationed at their school. Majorities in rural schools (64%) and suburban schools (56%) say this, compared with 48% in urban schools.

Only 3% of teachers say teachers and administrators at their school are allowed to carry guns in school. This is slightly more common in school districts where a majority of voters cast ballots for Donald Trump in 2020 than in school districts where a majority of voters cast ballots for Joe Biden (5% vs. 1%).

What strategies do teachers think could help prevent school shootings?

The survey also asked teachers how effective some measures would be at preventing school shootings.

Most teachers (69%) say improving mental health screening and treatment for children and adults would be extremely or very effective.

About half (49%) say having police officers or armed security in schools would be highly effective, while 33% say the same about metal detectors in schools.

Just 13% say allowing teachers and school administrators to carry guns in schools would be extremely or very effective at preventing school shootings. Seven-in-ten teachers say this would be not too or not at all effective.

How teachers’ views differ by party

Republican and Republican-leaning teachers are more likely than Democratic and Democratic-leaning teachers to say each of the following would be highly effective:

• Having police officers or armed security in schools (69% vs. 37%)
• Having metal detectors in schools (43% vs. 27%)
• Allowing teachers and school administrators to carry guns in schools (28% vs. 3%)

And while majorities in both parties say improving mental health screening and treatment would be highly effective at preventing school shootings, Democratic teachers are more likely than Republican teachers to say this (73% vs. 66%).

Parents’ views on school shootings and prevention strategies

In fall 2022, we asked parents a similar set of questions about school shootings.

Roughly a third of parents with K-12 students (32%) said they were extremely or very worried about a shooting ever happening at their child’s school. An additional 37% said they were somewhat worried.

As is the case among teachers, improving mental health screening and treatment was the only strategy most parents (63%) said would be extremely or very effective at preventing school shootings. And allowing teachers and school administrators to carry guns in schools was seen as the least effective – in fact, half of parents said this would be not too or not at all effective. This question was asked of all parents with a child younger than 18, regardless of whether they have a child in K-12 schools.

Like teachers, parents’ views on strategies for preventing school shootings differed by party. 

Note: Here are the questions used for this analysis , along with responses, and the survey methodology .

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‘Back to school’ means anytime from late July to after Labor Day, depending on where in the U.S. you live

Among many u.s. children, reading for fun has become less common, federal data shows, most european students learn english in school, for u.s. teens today, summer means more schooling and less leisure time than in the past, about one-in-six u.s. teachers work second jobs – and not just in the summer, most popular.

About Pew Research Center Pew Research Center is a nonpartisan fact tank that informs the public about the issues, attitudes and trends shaping the world. It conducts public opinion polling, demographic research, media content analysis and other empirical social science research. Pew Research Center does not take policy positions. It is a subsidiary of The Pew Charitable Trusts .