Rising protectionism in the global technology market.

The barriers to globalisation are also changing. In particular, state interference is a growing concern. Forty-nine percent of those surveyed say that increased regulation arising out of the downturn is restricting the benefits of globalisation and 44% agree that protectionism has affected their globalisation strategy. Indeed, protectionism has risen from a mid-ranking issue for companies (cited by 21% as a leading barrier before the downturn) to the second biggest impediment to the strategy (38%) after poor local infrastructure (41%, down from 48%). Similarly, increased pressure by governments to locate in home countries is now a leading issue for 19% of companies, up from 13% before the economic troubles.

Very few states have adopted formal tariffs or financial restrictions. An OECD report from June 2009, for example, found little evidence of restrictions on foreign investment. Instead, political interference today takes other forms. Rhetoric has been much in evidence. Ravi Venkatesan, President of Microsoft India, notes that speeches in the United States on labour mobility have raised particular worries. “The biggest issue that we are concerned about globally is potential curbs on the movement of talent,” he says. Quieter tactics have also been used. Mr Lakshminarayana of Wipro explains that while banks are traditionally major IT spenders, those that have received state aid “may find it challenging to outsource globally” because of government involvement. As a joint report by the WTO, United Nations Conference on Trade and Development (UNCTAD) and the OECD found, while governments have not created extensive new tariffs, their use of existing duties, non-tariff measures, subsidies, and burdensome administrative requirements have created “‘sand in the gears’ of international trade that may retard the global recovery.”

Populist politicians are not the only ones seeking to use protectionism: Companies seek to benefit as well, as seen in recent reports of certain Canadian firms that asked their federal government to block Ericsson AB’s purchase of Nortel’s wireless operations. Meanwhile respondents, particularly those based in Asia-Pacific, are noticing increased buyer hostility to foreign goods, with 27% saying that it is now a leading impediment to their globalisation strategies. “Protectionism is a natural reaction to job losses in different parts of the world,” says Mr Lakshminarayana, but for Wipro, customers’ concern about being perceived as outsourcing jobs outside the country during a time of high unemployment is an important consideration. Accordingly, Wipro has accelerated its program of creating local centres to meet local demand.

So far, rhetoric has not translated into hard legislation. The industry, however, remains wary. The possibility of a W-shaped recovery, and the potential for a protectionist backlash in response, is top of mind for many executives.

What would you say were the greatest barriers to globalisation at your company before the current downturn, compared with today?
  1. Political environment in countries where we are looking to increase our presence
  2. Desire to focus on markets where we are strongest
  3. Inefficient infrastructure in countries where we would be interested in having a presence
  4. Government pressure to locate activities in country of company’s headquarters
  5. Rising protectionism
  6. Tax issues
  7. Environmental/social impact of activities
  8. Buyer hostility to foreign products/elements in products
  9. Hostility to presence of foreign companies in targeted markets
  10. Don’t know
What did your company see as the main reasons for increasing its level of globalisation before the current downturn, and what would it see as the biggest advantages today?
  1. Cut costs/keep costs low
  2. Tax incentives
  3. It was an existing strategy and has not been rethought
  4. It would have been (would be) too difficult to reverse course
  5. Need to find new markets to counteract immediate difficulties in existing ones
  6. Need to position ourselves in lucrative new markets or gain market share in existing ones over the long term
  7. Ability to access superior R&D
  8. Ability to access new ideas and/or technology
  9. Ability to access talent
  10. Ability to take advantage of less demanding regulatory environment
  11. Diversify supply chain base
  12. Other
  13. Don’t know