For Hypergrowth, Multiplication Beats Addition

How does a law proposed in the early days of telecommunication networks apply to global networks?

Easy: When it comes to hypergrowth, multiplication beats addition any day.

Let me explain. According to Metcalfe’s Law, the value of a network is proportional to the square of the number of its users. The law, developed in the 1980s, provides a crucial insight into how a networks’ value grows.

As more users connect, network value grows exponentially, not linearly. This growth multiplies the potential for connections, interactions, and ultimately, value creation.

In other words, value = the square of the number of users. Or V = n^2

I think this law applies when comparing modern global networks to more limited international networks. The difference is stark and has profound implications for businesses, economies and global markets.

As a business leader, you want multiplication instead of addition. And you certainly don’t want subtraction.

Globalization Is More Than Internationalization

When businesses talk about expanding their reach, they often start with internationalization. They enter foreign markets, tailoring products to meet local demands, and gradually build a presence abroad.

In this additive process, each new market adds value, akin to adding one more phone to a network. Yet this significant step is just the beginning.

Globalization, on the other hand, is where the true power of Metcalfe’s Law comes into play. True success in international markets requires more than adding a country. It requires creating a tightly interconnected web of economies, cultures and populations. This interconnectedness leads to exponential growth in value.

Each new connection doesn’t just add value; it multiplies it.

Consider the following examples:

• Global supply chains: A business that integrates suppliers and manufacturers from different countries adds more than components. It multiplies its competitive advantages. Sourcing materials from various regions, managing risks better and improving production across borders enhances efficiency and resilience in ways that simple addition cannot achieve.
• Network effects: Platforms like social media or eCommerce sites illustrate the exponential nature of globalization. New users attract more users. New users also attach their network to the platform. Multiplying connections like that enhances the overall value for everyone.
• Innovation and knowledge sharing: Global collaboration accelerates innovation. Companies that conduct research and development across multiple countries tap into diverse perspectives, talents and resources. Instead of a sum of innovations, these companies increase their ability to multiply breakthroughs that would be impossible in isolation.

For example, let’s take a business operating in Brazil. Internationalizing that business could involve expanding into the United States. Because the U.S. is a large market, that move will result in a nice addition to the Brazilian business. 

Then, that business gets a toehold in Portugal. That toehold in Portugal serves as a gateway to the European Union.

Pretty soon, oh my, my! That company has the potential for hypergrowth.

Depending upon the Brazilian business’ vertical, goods, services and the exchange of ideas grow exponentially. Synergies flow across three different continents and numerous countries.

Russia Shows the Pitfalls of Isolation

The contrast between global integration and isolation becomes painfully clear when examining recent geopolitical shifts, particularly in Russia.

Russia was once deeply embedded in the world economy. Ever since it invaded Ukraine, those international connections have declined. As global businesses and countries distanced themselves, Russia’s economy and global standing started to shrink. The country engages in international trade on a less-than-global scale.

Russia is increasingly isolated, relying heavily on a shrinking list of partners, primarily China.

However, even this relationship shows the limitations of internationalization when compared to globalization. Recently, Newsweek reported that Chinese banks have begun distancing themselves from Russian accounts.

This shows the fragility of relying on a single partner. Many Russian traders have nowhere else to turn because sanctions have subtracted from their global network. This demonstrates the dangers of subtracting from the network rather than multiplying connections.

Perversely, trying to keep your national economy strong often weakens your country’s economy.

How Tariffs Subtract Business Opportunities

That’s why tariffs are evil. They are antiglobalization. But many countries enact tariffs because other countries don’t play fair.

Take China, for example. Despite joining the World Trade Organization (WTO) in 2001, the country has hindered foreign companies. Those barriers include tariffs, import restrictions and requirements that companies form joint ventures with Chinese companies or turn over technology to China.

Whether justified or not, those tariffs result in subtraction. Often, tariffs force your business to leave markets, sell less in those markets or buy less from suppliers in those markets. In business, subtraction is never good.

Sure, China and the U.S. might protect certain domestic interests with tariffs and trade restrictions. But businesses pass those costs to the consumers. Consumers buy less. And each country retreats from the full potential of globalization.

Everyone misses out on the exponential benefits of an open, interconnected network.

Choose Global Scale Instead of 1 + 1

For business leaders, your takeaway is clear. Long-term success requires embracing globalization and the multiplicative power of interconnected networks.

Internationalization should be your first step. But that global approach – the one that leverages Metcalfe’s Law – unlocks exponential growth, innovation and resilience.

In today’s interconnected world, limiting your business to internationalization could leave you outpaced by competitors who embrace globalization.

The difference isn’t just a matter of scale; it’s a matter of exponential potential. In a world where multiplication drives success, addition alone is no longer enough.

Even in an age where many cry that deglobalization is the rage, the lesson from recent global events is clear. To thrive, businesses must move beyond borders and fully engage in the global network, where the real value lies.