For a generation of managers, globalisation has been a fact of life. Since the Berlin Wall fell in 1989, the technology revolution of the late 1990s and the opening up of China, businesses have operated in a global marketplace.

And life was good: companies could count on a plentiful supply of labour; the prices of key goods and telecoms services fell steeply; and companies could access funding from almost anywhere in the world.

But not any more. Times are changing. One need only look at the Lindsey oil refinery in Lincolnshire, where bitter resentment over the use of foreign workers threatens to trigger wildcat strikes across the UK.

Tim Besley, a member of the Bank of England’s Monetary Policy Committee and a professor at the London School of Economics, has warned that the present contraction in global trade and capital flows may be a long-term phenomenon. “We’re going through a period of really quite striking deglobalisation in both goods and capital markets, and it’s impossible to know whether this is a temporary blip or the beginning of a more protracted reversal,” he said at the recent annual meetings of the European Bank for Reconstruction and Development in London.

“A lot of that depends on a diagnosis of the underlying causes of those reversals, which it’s very early days to make a call on.”

Yet the evidence is stacking up. The World Trade Organisation estimates that global trade will drop by 9 per cent this year, its biggest decline since the Second World War. Inflows of foreign direct investment have slumped by 21 per cent across the world and 34 per cent in Europe, the United Nations says. Cross-border bank lending shrank by $4.8 trillion in the final eight months of 2008, according to the Bank for International Settlements. The United States has a “Buy America” clause in its stimulus package, in Malaysia there is a “Buy Malaysian” campaign and in the Philippines a call to “Buy Filipino”.

The Economist Intelligence Unit (EIU) argues that globalisation has “stalled” and may even go into reverse over the next five years. More than half of the 82 countries that it surveyed will have a worse business environment in 2013 than they do now, it says. Britain slips from thirteenth to 25th in its rankings because of a “severe deterioration in the categories of market opportunities, the macroeconomic environment and financing”.

Why does this matter? Because globalisation has been good for business, which has benefited from the two-way street of selling goods and services overseas and accessing capital on the global financial markets.

Life in the deglobalised world would be very different. “The world would enter a lengthy vicious cycle of deflation, renewed financial turmoil and serious protectionism,” Richard Bew, the EIU chief economist, said. “This would greatly exacerbate negative trends in world trade and investment.”

Gary Campkin, head of international policy at the CBI, believes that companies must deal with a much more unsettled economic environment: “It is difficult to determine the extent to which this is due to deglobalisation or restructuring by business or a bit of both.”

Britain is more exposed than many other countries to a reverse of globalisation because of its exposure to the global economy. Foreign investors own 40 per cent of shares on the London stock market, a fifth of UK GDP comes from exports and 13 per cent of the workforce is from overseas.

The fear is that the downturn has exposed anti-globalisation attitudes that will remain when the economy returns to growth. “It is very easy in times of recession to say British jobs for British people when you are less than a year from a general election,” Hetal Mehta, senior adviser to the Ernst & Young ITEM Club, the economic forecaster, said. “But it is a worrying trend, because there’s a risk that a year or two down the line, when the new cycle starts, we may face a skills shortage.”

Mr Campkin believes that against such a backdrop the Government is right to pursue what Lord Mandelson, the Business Secretary, has called industrial activism: “It is not about picking winners but it is about creating a backdrop against which business can succeed. The UK should be a good place in which — and from which — to do business. We can’t be complacent but we need to recognise that the way we create and retain jobs is by creating the economic environment in which companies can succeed.”

One real concern is about damage to the global supply chain. Almost two thirds (63 per cent) of manufacturers surveyed by the EIU said that the collapse of their supply chain would have an immediate impact on their business.

Stephen Radley, chief economist at the EEF, the manufacturers’ association, said that even a small break in the chain would be costly to companies: “Supply chains are integrated so closely around the world that throwing even a bit of sand in the wheels would throw things off course.”

Recent examples of protectionism include Russia raising tariffs on used car imports and Ecuador raising tariffs on more than 600 items. The EIU cites non-tariff measures, such as Argentina’s imposition of new licensing requirements on automotive parts, textiles, televisions, toys, shoes and leather goods, and Indonesia’s requirement that transport of five categories of goods (including garments, footwear, toys, electronics and food) be permitted in only five ports and airports.

So far political leaders have managed to prevent a return to the Great Depression era that would include a drought of credit, a hardening of borders and the mass exodus of foreign labour that would signify deglobalisation. Nevertheless, managers and procurement executives should take a close look at where they are getting their staff, raw materials and financing while the economy and financial markets are under intense pressure. One possible response is for companies to source goods more locally, for fear of finding themselves shut out of international markets.

This could deliver unexpected benefits. By buying fewer goods from overseas, companies will be able to say that they lowered their carbon emissions, since sea and air transport are among the most polluting activities. It may help to sustain the British supply chain at a time when corporate bankruptcies are rising at an annual rate of 56 per cent. And a trend to “go local” may help with the UK’s trade deficit, which widened to £3 billion in April, from £2.7 billion in the previous month.

“As a country that imports quite a lot, we are net borrowers rather than net savers,” Ms Mehta said. “So in the short-term the UK may benefit from [other countries’] protectionist measures if we use and adapt them to protect British jobs and support our industries.”

Best for business until 2013

1 Finland 2 Singapore 3 Canada 4 Hong Kong 5 Switzerland 6 Denmark 7 Australia 8 Sweden 9 Norway 10 Netherlands 11 New Zealand 12 United States 13 Germany 14 Ireland 15 Chile 16 Taiwan 17 France 18 Belgium 19 Qatar 20 Austria

Source: Economist Intelligence Unit’s Business Environment Ranking 2009-2013

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