Global connectedness at a record-high

DHL is a Business Reporter client.

Despite recent conflicts and geopolitical tension, we’ve seen remarkable resilience and growth in global connectedness over the past two years. Analysing flows of trade and rates of globalisation, our 2024 Global Connectedness Report indicates that the disruptions caused by the Covid-19 pandemic are finally behind us, with its economic after-effects also declining.

Against this backdrop, globalisation reached unprecedented heights in 2022, maintaining this momentum across 2023. This upward trajectory in international flows highlights that the world economy is more interconnected than ever, opposing the notion that regionalisation is on the rise.

Singapore has emerged as the most globally connected country. As a member of unions including the Association of Southeast Asian Nations (ASEAN) and a signatory of vital free-trade agreements (FTAs) including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Singapore’s standing is a testament to the power of regional integration and FTAs as tools for trade.

In contrast, other CPTPP member nations lag Singapore in global connectedness, with Canada and Australia coming in at 29th and 33rd respectively. Typically, large-economy countries such as these don’t rank as high in global connectedness because, despite having a wide range of globally distributed flows, international trade tends to be low when compared with their domestic markets.

For Canada, this is largely due to the dominant nature of its trade relationship with the USA, which accounts for 54 per cent of its combined trade, capital, information and people flows. Meanwhile, Australia’s remote location often makes staying connected more challenging, with businesses in countries such as the UK considering this market too far geographically to trade with cost-effectively.

Despite this perception, the price of goods in Australia means UK businesses can be highly competitive in this market, while also benefiting from a shared language, similar culture and similar legal systems, as well as a recent FTA – something UK businesses would benefit from taking further advantage of.

The UK’s network of FTAs helps to reduce barriers to international trade, contributing to the UK’s position as the nation with the most broadly distributed flows, highlighting its diversified connections. With the UK also poised to join the CPTTP, it’s important businesses continue to investigate where FTAs are in place – particularly in a post-Brexit world.

While globalisation remains strong, North America is the one region showing a clear nearshoring trend. Mexico represents a key nearshoring destination for the country, driving intra-regional trade as North American companies aim to diversify previously China-centric supply chains. However, while 85 per cent of Mexico’s exports went to the United States and Canada, these countries provided only 46 per cent of Mexico’s imports, demonstrating that Mexico, a CPTPP member country, is maintaining diverse connections globally. With an FTA in place between the two countries, there is huge potential for UK-based companies to trade in Mexico.

Despite the trend towards nearshoring in North America, it remains the largest market for UK exporters outside Europe, and international flows continue to span stable or longer distances, rather than being confined to major geographic regions. This increasing and extensive connectivity of global trade offers significant opportunities for businesses. With trade growth forecast to accelerate substantially in 2024, now is the time for businesses worldwide to rethink their international market strategies.

E-commerce has become a critical channel for international trade. Although most e-commerce sales occur within national borders, cross-border e-commerce is growing rapidly. Companies engaged in it are benefiting from a strong share of international sales, which reached 28 per cent in 2023. In the coming years, cross-border e-commerce sales are expected to outpace domestic sales, with Juniper Research predicting a 16 per cent annual growth rate from 2023 to 2028, compared with 8 per cent for domestic sales.

By expanding into new markets, e-commerce businesses can tap into a global customer base, far beyond the constraints of their regional market. By leveraging FTAs and specialist guidance from partners, businesses can scale up their operations and diversify revenue streams, reducing risks and creating new growth opportunities that deliver both immediate and long-term results.