The Digital Transformation of Global Trade

Our traditional view of globalization, common for decades, was massive container ships conveying goods from distant manufacturing locations; and watching services, capital and expertise flow from one from major established commercial and financial city or region to another. Just less than a decade ago, there was a cataclysmic change – a major event, a crisis - that was a precursor to an even greater structural shift.

Global trade dipped in 2008, increased in 2009, but never regained its upward trajectory. The traditional flows of goods, services, and finance appeared then, and now, to have stalled.

But, in reality, globalization was heading into a new phase. Global trade and resource supply have transformed and the rules continue to be rewritten.

Today, as transmission costs have plummeted, internet broadband speeds have soared, and mobile connections have exploded, the amount of data flowing across the world’s digital highway has increased 40 fold in seven years and is projected to increase another nine times by 2025.

Every day 2,500 million terabytes of data (equivalent to two trillion copies of Encyclopaedia Britannica) are sent over the internet – a phenomenal amount of digital traffic covering all kinds of digital products and services and including 208 billion emails 3.5 billion Google searches and 150 million Skype call. Each day 36 million purchases are made on Amazon alone.

The value of this digital trade is variously estimated as being between $250 and $450 billion dollars.

Today the transformation of the global supply chain is being evidenced by:

A reconstruction and democratisation of the global supply chain
The emergence of a massive number of platforms facilitates digital trade
The replacement (and supplement) of “real” goods by digital goods, and increasing value being added by digital wrappers

What does reconstruction and democratisation of the supply chain mean?. It means that the digital flow of information, searches, transactions, and communication media (voice, video, chat, data) and intra company traffic has grown, and digital products and services has surged. The penetration of the Internet and access to and by business users of all sizes and location, together with changes such as robotics and 3D printing, has altered who participates in the global supply chain and also where and how products are made.

The massive penetration of the Internet, and the access to and by business users of all sizes, together with robotics and 3D printing, has altered who participates in the global supply chain and also where and how products are made.

As the Internet and connectivity explode so it further democratises the supply chain. Beyond big corporate, existing flows are deepening; micro finance platforms provide capital, SMEs and solo-preneurs can be micro nationals and even the smallest business can be born global. Every day 360 million people engage in cross border commerce.

It’s All About the Platform

A massive number of online platforms facilitate and provide every conceivable resource for global digital trade. Virtually every type of cross- border transaction now has a digital component.

Freelancers are earning more than a $1billion annually via Upwork, 58 million students take over 6800 courses on sites such as Coursera; 2 billion transactions are processed on eBay daily. And, meanwhile, major global platforms such as, for example, Amazon, 3D printing site Shapeways, Albaba, Kickstarter, and Magento, connect people with people, to engage in all manner of trade. Platforms abound to provide resources for the global trader.

In addition to transmitting valuable streams of information and ideas in their own right, platforms which are easily accessible by any entrepreneur or professional, creates data flows, enables the movement of goods, services, finance, and people talent.

The Digital Product

In this global supply chain transformation, digital goods have replaced and supplemented “real” goods. Books that were read, and movies that were shown in movie theatres and on CDs’, are now streamed for consumption on demand, massively lowering the marginal cost of production and delivery to zero. News sites like Buzz Feed, media like Netflix and Spotify, and gaming sites such as Twitch, have captured global consumers of digital goods where once there were conventional media.

Today, digital connectivity, and mobile technology and mobile applications, drive a more digital form of globalization. Developing countries, small companies and start-ups, and billions of individuals are global suppliers and customers.

Approximately 12 per cent of the global goods trade is conducted via international e-commerce. Even the smallest enterprises can be born global: 86 per cent of tech-based start-ups surveyed in a recent MGI poll reported some type of cross-border activity. Today, even the smallest firms can compete with the largest multinationals. Newcomers have agility, speed to market, and – often – innovation on their side.

The Digital Wrapper

In global digital trade, digital wrappers that take several forms, each add value to the underlying good or service. Sensors and data add value to the supply chain by improving efficiency. Even for the Amazon seller, customer reviews are a form of added value digital wrapper – giving confidence in the buying decision.

Key Takeaways

Over the past five years, global trade has transformed. From small initial steps, the digital revolution is accelerating fundamental shifts in how global trade is conducted, changing the participants, and changing what is being traded and how.

Digital technologies are transforming global flows at every stage and facilitating new forms of globalisation. Barriers and distance fade away, as more and more people across the world engage in instantaneous cross border exchanges in digital goods, or on digital platforms that span if not all, most of the globe:

Globalisation expands from physical goods to the flow of ideas and creation of a new strata of entrepreneurs
Digital technologies will be responsible for the transformation of global trade in the foreseeable future
As a result, traditional companies will face a more competitive environment as new technology giants enter their space
These tech based businesses by pass traditional value chains and insert digital transformation at all points – and move fast into completely new sectors – as Google has done this year where is has set about to disrupt the Employment / Recruitment industry
At the same time, small, agile micro global entrepreneurs bite away at the other end as digital platforms provide rapid low cost access into completely new markets.

The Digital Transformation of Global Trade