Is Global Trade Being Replaced by Digital Goods?



Rhetoric about the economic slowdown has become about as tiring as listening to yet more coverage of the US election.

So we know there are signs of slowdown everywhere you look, but it’s worth questioning whether these stats truly capture this brave new world of trade?  A few weeks ago the Wall Street Journal reported that orders for new long-haul rigs have plunged in the U.S. and inventories of unsold trucks have climbed to the highest levels since the financial crisis hit. The pile-up of inventory is not only a sign of weakness in the trucking market but also of a slowdown in the broader U.S. economy as there are simply too many trucks chasing after too little freight to be delivered. Reading that, it’s fair to presume that things are not looking that great, right?

Let’s add some more weight to this – the slowdown in trade extends far beyond the borders of the U.S. As noted by many economists and analysts, global trade has been in the doldrums ever since the world financial crisis. In fact, even before the 2008 financial crisis, the rate of growth of global trade in goods had begun to slow considerably, and in the years since then the value of global trade in goods actually appears to be declining. This has led to a debate among leading economic thinkers about whether global trade in goods may actually have peaked or the simply reflects a cyclical slowdown in the world economy. You can read more about the debate here.

But there is one very notable and under-analyzed area of growth in world trade that runs counter to this general slowdown. A recent report from McKinsey Global Institute highlights that while global trade in traditional goods remains flat or has recently declined, cross-border flow of data or digital goods continues to grow rapidly, providing significant benefits by enhancing business efficiency and productivity worldwide. You can listen to a podcast from McKinsey summarizing the report here.

As McKinsey breaks it down, the global flow of data or digital goods encompasses several significant components, including the following:

  • As much as 50% of the world trade in services falls under the heading of digital services. This includes payments services that are now an integral part of the financial system.
  • Digital services delivered on a global basis also include the flow of information through major internet companies such as Facebook, eBay and Google. According to McKinsey, as much as 50% of the services provided via major internet companies ends up crossing international borders, whether that’s a matter of connecting people to people or businesses to customers.
  • The global flow of digital information also directly fuels the global trade in physical goods inasmuch as e-commerce facilitates between 10 and 15% of the volume of global goods traded. When it comes to B2B commerce, McKinsey estimates e-commerce accounts for as much as 25% of global trade in goods.

According to McKinsey, the increase in the flow of data around the world has had a significant impact on the way business gets done. In McKinsey’s view, perhaps the most significant trend is to foster broader based participation or democratization of the global economy. That’s certainly part of our philosophy at BankerBay too.

Whereas in prior decades, large, multi-national companies dominated the global trade in traditional goods, ready access to the internet and distribution of data around the world now enables smaller businesses and even start-ups to participate directly in global commerce. As evidence of this trend, McKinsey points to the fact that there are 50 million small businesses on Facebook – a number that has doubled in the last two years – that now have a ready platform to reach customers around the world. Digging deeper into the numbers, McKinsey found that 30% of the Facebook friends of those small businesses are from outside their home base of operations. A similar phenomenon is occurring in China, where Alibaba now provides a platform that enables ten million small businesses in China to reach customers around the world.

We see these trends as very relevant to what we do here at BankerBay. Of course, by providing information to match investors and companies with opportunities worldwide, our own service falls directly under the heading of what McKinsey describes as the global trade in data.

We are a pipeline that provides data to fuel cross-border mergers and investments, including more than 4,300 currently active transactional opportunities. To add to that, since the beginning of 2015 over half the introductions provided by BankerBay to potential deal partners are to partners located in another country. This highlights the significant role we play in promoting cross border information exchange. Only a handful traditional investment banking deal originators can boast of such a high ratio of introductions made to potential investors or transaction partners across national boundaries. That’s why we say that signing up for membership on BankerBay really does provide you with access to a whole new world of opportunity.

Just as Facebook and Alibaba provide a platform that enables small and medium sized companies to reach customers around the world, BankerBay acts as a go-between for middle market companies and the world’s leading financial markets. So whether the slowdown in the global trade of physical goods is cyclical or structural, the increasing flow of data worldwide and the democratization of international trade are the vital trends driving the growth of BankerBay.

Ok, let’s get back to the US elections. … (Noooooo!).



Image Credit: CC by Harvey Barrison


About the author: Romesh Jayawickrama

Romesh is a specialist in emerging markets with over 18 years of Investment Banking experience under his belt. Before starting his IB Advisory business Amura, he was the Head of Equity Sales for CLSA (Singapore), Director of Equities at ING and VP of Equities at Nomura (London).

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