Competitiveness and business
in a fragmented world

The world is becoming increasingly fragmented. This fragmentation is political, geographic, ideological and economic, and it significantly affects trade, the division of labor and capital, supply chains, investments and markets. The repercussions extend beyond business, influencing every aspect of life and posing a substantial challenge to prosperity.

This trend did not start with United States President Donald Trump’s second term – it began much earlier, and GIS has long been addressing the consequences of a shifting world balance.

The reality became undeniable for everyone after Mr. Trump’s announcement of tariffs on “Liberation Day.” Many, particularly in Europe, viewed the earlier sanctions on Russia as a one-time measure.

It is important to recognize that the economy has become a political weapon used by governments. Among the most powerful instruments are sanctions, along with traditional measures such as trade and investment restrictions, which include regulatory barriers and tariffs. Arbitrary taxation and bureaucracy also play a role.

It is important to recognize that the economy has become a political weapon used by governments.

 

However, this does not mean that globalization is coming to an end; rather, it will continue to evolve in a different and more diverse manner. Businesses must adapt to these changes. Both the corporate world and policymakers need to acknowledge this paradigm shift and prepare for a more challenging environment.

A sense of optimism about globalization can come from new technologies that transcend borders. However, regulators are already trying to rein that in.

Europe’s regulatory and competitive struggles

European countries and Brussels must accept that competition among nations and blocs will intensify. Political power, underpinned by military credibility, has regained importance, as has prudent, forward-thinking foreign and alliance policy – particularly for smaller countries. Economic productivity is also a key element.

Protectionism has been on the rise for some time now. The European Union has led in regulatory protectionism, often under the pretext of protecting consumers. In a hypocritical way, these policies enable governments to appease voters while additionally safeguarding outdated, “zombie” businesses. This has reduced competitive pressure. But the regulations have also prevented European companies from becoming global leaders or even serious actors in their home markets in fields such as technology, energy, biotech and genetics, just to mention some striking ones. Talent has been drained from Europe in many areas of science.

Many arrogantly argued that Europe was strong enough to shape global regulations by controlling access to its market, making the continent a “regulatory superpower.” President Trump’s Liberation Day declaration shattered this foolish illusion.

The European Union has led in regulatory protectionism, often under the pretext of protecting consumers.

 

Politics and policies elsewhere in the world are not necessarily better, but Europe is particularly weakened by the above arrogance and the neglect of defense shown by various countries on the continent. The stifling regulatory web in Europe, excessive state involvement in economies and an ever-increasing cost of an expanding administration have drastically reduced productivity compared to other economic blocs.

The situation, unfortunately, has unfolded in a manner that the founders of European integration sought to prevent. Their vision was that an internal market could enable the continent, made up of small and medium-sized powers, to create a diverse Europe strong enough to thrive in global competition. The core idea was deregulation and limiting national governments’ involvement in the economy, while clearly observing the principles of beneficial competition among the different members. Yet, these key pillars for a successful Europe were ultimately betrayed, with the complicity of most member states. As a result, citizens and businesses have been abandoned by complacent, short-sighted and narrow-minded politics.

What does this new situation mean for international businesses in general? They need to analyze the evolving landscape and adapt pragmatically.

Internationally active businesses will need to adopt tailored structures for different markets. For instance, Swiss pharmaceutical companies are already planning to relocate significant manufacturing to the U.S. Rising political tensions might eventually force businesses to legally and financially separate their operations depending on where they are based. European businesses, burdened by political vulnerabilities and regulatory constraints, face particularly daunting challenges in maintaining global competitiveness.

Governments must abandon ideological blinders and misguided policies and business restrictions, instead prioritizing pragmatic strategies that focus on their countries’ interests – security and prosperity. It is up to European nations to harness and reshape their own countries and the institution of the Union for this purpose.

This comment was originally published here: https://www.gisreportsonline.com/r/fragmented-global-order/