Friday, December 9, 2022

Vertical globalization: Emergence of new geopolitical technology blocs

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The emergence of technology blocs worldwide has created a new geopolitical development, resulting in vertical globalization.

The world is being split along technological fault lines. Today’s major powers are engaged in comprehensive global technology politics. The weaponization, mastering, and control of technologies is the new ‘Great Game’. These power dynamics are helping shape technological spheres of influence. This is the era of vertical globalization – or the emergence of geopolitical blocs based on technology dominance. Organizations are seriously affected by these emerging geopolitical blocs, forcing companies to take sides, leave countries, terminate contracts, and face legal fallouts. and rejig supply chains.

More than 1000 companies left Russia

The Yale School of Management recorded more than 1,000 companies withdrawing or divesting themselves from Russia alone, either as a result of sanctions or in protest of Russian actions. This has created major challenges for organizations, which had to redeploy resources, fire employees in countries engaged in war, and negotiate with agencies like the United Nations to maintain essential services in some of those countries.

Exodus from China

And, as the US-China trade war and dispute over Taiwan rumbles on – and relations between other liberal democracies and Beijing deteriorate due to everything from intellectual property (IP) theft to human rights violations in Xinjiang and the erosion of Hong Kong’s autonomy – many globally-renowned companies are deserting China. Research firm Gartner revealed that a third of supply chain leaders had plans to move at least some of their manufacturing out of China before next year. Covid-related sales slumps, supply chain disruption, and rising production costs have also hastened the exodus.

Digital Silk Road

China is luring countries into technological dependencies to undermine their political sovereignty through its Digital Silk Road (DSR) initiative. Beijing also shields its own citizens from foreign influence with its ‘great firewall’ and develops industrial strategies to secure its technological autonomy from the West. Russia is also leveraging and restricting mass media and social networks to protect its interests, shielding its population from democratic temptations, and waging an information war against the West and its allies to undermine citizens’ faith in democracy.

US bans technology exports

The United States tries to offset Chinese and Russian influence by maintaining its cutting-edge advantage on military artificial intelligence (AI) and other technologies, besides backing and protecting the interests of its major technology companies globally. It also denies other nations access to key technologies, monitors critical investments in the technology sector to avoid security risks, seeks to secure and control critical supply chains (especially of semiconductors), and imposes export controls and even embargoes on sensitive technologies.

EU shaping data protection standards

As for the European Union, the Brussels institutions are trying to shape global standards of privacy and data protection, digital platforms, and AI according to European values using the attractiveness and power of its internal market. The EU also promotes digital partnerships with like-minded countries and allies – and announced, in December 2021, the “Global Gateway” initiative as the EU version of China’s DSR.

The Lithium Alliance

As nations worldwide look to transition to electric vehicles, a new geopolitical bloc is forming in Latin America that could “call the shots” for everybody — from China to Tesla. This new “lithium alliance” being eyed by Mexico, which nationalized its lithium industry earlier this year, would bring the country together with Argentina, Bolivia, and Chile — the four nations controlling most of the world’s lithium — as they seek to govern the production and trade of a resource that’s fast becoming one of the most critical commodities in the world.

But this isn’t an isolated event. The world is entering a period of “vertical globalization,” with new geopolitical blocs forming across the globe. And as the world splits into multiple groups, these new blocs — formal (i.e., alliances) and informal (i.e., trade corridors) — could reshape everything from supply chains to sustainability.

The Chip-4 semiconductor alliance

In the Indo-Pacific, the United States has proposed “Chip 4,” a semiconductor alliance with Japan, South Korea and Taiwan, to establish supply chains for chips that don’t rely on China and stop Beijing’s technological rise. The alliance is being pushed just as the “Semiconductor Manufacturing International Corporation” — the largest chipmaker in China — unveils an advanced bitcoin mining chip in defiance of U.S. sanctions and as new radical ideas are surfacing in Chinese society, like levying a 400 per cent tax on smartphones sold in the country that use foreign chips rather than Chinese ones. Meanwhile, in the Middle East, Israel and the United Arab Emirates (UAE) have joined hands with India and the U.S. to launch “I2U2,” a new bloc to advance innovation.

The group’s first meeting concluded with an array of agreements, ranging from the UAE building “food parks” that employ “climate-smart technologies” across India to the US funding solar power projects in India to create more sustainable energy options for the world. And in Central Asia, while Kazakhstan wants to redesign the flow of physical and digital trade across Eurasia, China has been building what’s known as the “Northern Corridor” — a corridor connecting Asia and Europe via Russia and Belarus — as part of the Belt and Road Initiative (BRI) for several years.

The Kazakh Middle Corridor

As the war in Ukraine is now making this corridor unstable, however, Kazakhstan has proposed the alternative “Middle Corridor” — also within the context of the BRI — which would connect Asia and Europe via Turkey. This creates a new conundrum for the U.S., which wants Europe to decouple from Russia but may well end up pushing European companies deeper into China’s arms.

With all these emergent new blocs, the world is rapidly moving away from a “one group for all” approach. The old era of globalization is ending, and the new alliances and corridors that are forming will only drive more global fragmentation, generating big shocks for governments and businesses alike. For one, many of these new exclusive blocs created by the U.S. no longer involve America’s traditional allies, like Canada, France or Germany. Instead, besides the United Kingdom, the U.S. is doubling down on the Indo-Pacific, which presents a dilemma for its old partners in Europe and the Middle East: Should they stick with the US or place their bets elsewhere?

Corporate impact

Companies will also be affected by whatever geopolitical blocs their governments join, and as such, they’re creating their own blocs as well. A pact has already been signed between SK Telecom and Deutsche Telekom to build a “Metaverse Alliance,” and companies like Tesla have expressed interest in building their own supply chains for resources. Lastly, while all eyes are on the West or Asia, Africa is entering the spotlight too.

Recently, the African Union (AU) held its 3rd Africa Integration Day under the theme of African integration and de-globalization. And the AU is already making it clear to the continent’s companies that they should become self-reliant and not depend on the rest of the world. The global economy has been open and accessible for decades now, but there’s a new realignment underway, splitting the world along new fault lines.

Many of these fault lines are ideological — a massive shift from recent decades when ideology appeared to be disappearing. Equally important, it is clear that the decisions these new blocs make won’t be felt by countries or companies but also by ordinary people. In the near future, multiple blocs will compete to govern the world. And these blocs will have to coexist with one another while finding creative ways to bring countries — and companies — into their corner. The question is, how far will these blocs go to enforce their ideas? And what happens when coexistence inevitably proves difficult?

Also Read: The jobs of the future will be what Artificial Intelligence can’t do

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