Old playbook for globalisation has changed: IMD Business School report

Key Concepts

• Globalization 2.0: A shift from a focus on scale and efficiency to a priority on security, reliability, and resilience.
• China Plus One: A strategy where companies diversify their manufacturing and supply chains by adding locations outside of China to mitigate risk.
• De-risking: The process of reducing dependency on a single market (specifically China) without fully decoupling from it.
• Digital Sovereignty: The requirement for nations or companies to control their own digital infrastructure and data, which now influences investment decisions.
• Strategic Navigation: The transition for business and political leaders from "optimizers" (seeking lowest cost) to "navigators" (managing volatility and geopolitical risk).

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1. The Shift in Globalization

Professor David Bach of IMD Business School argues that globalization has not ended but has fundamentally changed its purpose. The "old playbook," which prioritized cost-efficiency and global scale, is being replaced by a framework centered on security and reliability. In the current geopolitical climate, businesses and nations must prioritize the resilience of their supply chains and operations over pure economic optimization.

2. Geopolitics as the Primary Driver

A critical argument presented is the inversion of decision-making sequences for international business:

• Historical Approach: Economics first (efficiency, scale, cost), followed by politics (FDI regulations, IP protection).
• Current Approach: Politics first. Companies now evaluate the geopolitical relationship between a host country and major trading hubs, digital sovereignty requirements, and operational freedom before considering economic efficiency.

3. Southeast Asia’s Position and Strategy

Southeast Asia sits at a "geopolitical fault line," maintaining deep connections with both the United States and China.

• The "China Plus One" Benefit: The region continues to benefit as Western firms seek to de-risk their exposure to China. Countries like Vietnam, Thailand, Indonesia, and Malaysia are primary beneficiaries.
• The Volatility Challenge: Because the region is highly trade-dependent, it is acutely sensitive to global fragmentation. Professor Bach suggests that winners in this environment will be those who move away from "picking one bet" toward maintaining a portfolio of bets to hedge against volatility.

4. Leadership and Resilience

Professor Bach emphasizes that leaders must evolve from "optimizers" to "navigators." Key actionable insights for leaders include:

• Building Resilience: Strengthening resilience at the individual, team, and organizational levels.
• Energy Security: Energy sovereignty is identified as a top-tier vulnerability. The closure of the Strait of Hormuz serves as a case study for why energy security is paramount.
• Energy Transition: To remain competitive, Southeast Asian nations must move beyond cost-based energy models. Investing in hydro, renewables, and potentially nuclear energy is essential to ensure the reliability required for modern manufacturing.

5. Notable Quotes

• "Globalization used to be very much about scale and efficiency... That’s changed. It’s much more about security and reliability at this point." — Professor David Bach
• "It’s less about optimizing and more about navigating. It’s less about picking that one bet and having instead an index, a portfolio of bets that is going to work out." — Professor David Bach

6. Synthesis and Conclusion

The report concludes that while Southeast Asia faces significant challenges—such as inflation, trade deficits, and geopolitical pressure—its growth prospects remain strong if it adapts to the new reality of "security-first" globalization. The region’s ability to balance its proximity to China with its trade relationships with the West, combined with a strategic pivot toward energy sovereignty and diversified supply chain portfolios, will determine its long-term competitiveness. The era of prioritizing efficiency above all else is over; the era of strategic navigation has begun.