international business: strategy, management, and the new realities 1 global business trends and...

International Business: Strategy, Management, and the New Realities 1

Global Business Trends and Implications for Managers

S. Tamer CavusgilFuller E. Callaway Professorial Chair

Director, Institute of International Business

Georgia State University

5 September 2008


Twin Mega Trends

• Globalization Ongoing reduction of trade barriers causes

greater economic integration A growing number of developing countries are

transforming to become ‘Emerging Markets’

• Technological Advances A faster pace of technological innovation Technological connectivity is transforming the

way people live and interact, and is empowering firms


Ubiquitous access to information

• Knowledge is increasingly available to people worldwide.

• The rise of search engines such as Google makes seemingly limitless information instantly available. Knowledge production itself is growing.

• Companies need to promote dissemination of information, knowledge, wisdom; and apply new models of knowledge production, access, distribution, and ownership.

• Firms also push for development of technologies that empower customers (e.g., RFID, CRM, ERP, HR systems, etc.)


More jobs will entail tacit interactions

• A growing proportion of workforce in advanced economies will carry out work that involves negotiations and conversations, knowledge, judgment, and ad hoc collaboration (Some 44% of total U.S. jobs by 2015).

• This workforce will use technology tools such as wikis (collaborative websites), virtual team environments, video conferencing, etc.

• Employees will need to be more than “knowledge workers” – they need to have people skills to be able to create value through interactions by working smarter and faster … across cultures.


The Euro Zone also gaining financial clout and influence

• Growing financial clout of the Euro zone countries and the significance of the Euro

• The Euro is gradually replacing the U.S. Dollar as reserve currency


Trends in global financial markets

• Growth and deepening of global capital markets. Investors pour more money into equities, debt securities, bank deposits, & other assets around the world.

• The volume of global financial assets (the value of all bank deposits, government debt securities, corporate debt securities, and equity securities) will continue to expand.

• Over the past 25 years, financial assets have grown robustly. In 2006, their value rose to $167 trillion, from $142 trillion the year before—a 17 percent increase, more than double the average annual growth rate (8%) from 1995 through 2005.


Growing clout of EMs in global financial markets

• Soaring growth of financial markets in emerging economies and the growing ties between financial markets in advanced and developing economies.

• Shift of financial weight in Asia from Japan toward China and other fast-growing EMs.

• Today, Asia (excluding Japan) accounts for 13% of world GDP, while Western Europe accounts for more than 30%. By 2025, these proportions will reverse as most global economic activity shifts towards Asia.


Oil-rich Middle Eastern countries as suppliers of capital to the world

• Oil-exporting countries now account for the largest source of global capital outflows, surpassing Asia.

• The Gulf nations now hold foreign assets worth $1.8 trillion.

• Rise of new financial hubs in the Middle East; they now complement the rapidly growing hubs in London and Asia.


The new Silk Road: The CHIME

• The flow of goods, capital, and people between the Gulf States and China & India has exploded since 2000.

• Total cross-border capital flows between the GCC (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE) and east Asia will rise from $15 b. today to $300 b. by 2020. Trade flows should increase by six-fold.

• In addition to petroleum and gas, projects involve telecoms, construction, and real estate development.


Growing demand for natural resources

• Use of natural resources growing at unprecedented rates.

• Demand for oil is likely to grow by 50% through 2025. In China, demand for copper, steel, and aluminum has tripled in recent years.

• Water shortages are increasingly common in much of the world. Climate change and gradual decay of the ozone require attention.

• Innovation in technology, regulation, and the use of resources are central to creating a world that can both drive robust economic growth and sustain environmental demands.

• Firms need to be able to manage operations in a way that is environmentally sound.


Intensified Competition for Talent

• The shift to knowledge-intensive industries highlights a growing scarcity of knowledge workers.

• Increasingly global nature of labor and talent markets: Firms increasingly leverage information and

communication technologies to employ well-educated individuals located in the EMs.

Increasing integration of global labor markets (e.g., China, India, and Eastern Europe), is opening vast new talent sources. EMs now have tens of millions of university-educated young professionals, more than double the number in advanced economies.


Integration and Coordination in the MNE

Desire and necessity for MNEs to:• Achieve scale economies• Capitalize on converging consumer trends and

universal needs• Provide uniform service to global customers• Shop globally for raw materials, components,

energy, and labor• Contend with global competitors• Tap transnational media that reaches

customers in multiple markets


Vehicles of global integration

• Global teams

• Global information systems

• Global product development

• Global talent pools

• Common business processes: Procurement; supply chain management; HR; etc.


Relentless drive for organizational productivity

• Enhance business processes• Increase speed of decision making• Develop greater responsiveness to external

changes• Improve ability to change organization, operating

model quickly enough to keep pace with technological developments

• Push innovation in products, services and business models

• Create new organizational structures: networked businesses; private equity


How firms intend to achieve operating efficiencies

• Automate business processes (29%)• Raise economies of scale (30%)• Reduce overhead costs (16%)• Reduce sales & marketing costs (8%)• Source materials from low-cost suppliers

(5%)• Transfer services to low-cost locations

(5%)(McKinsey survey, 2005)


More consumers, especially in the EMs

• Almost a billion new consumers will enter the global marketplace through 2015.

• They will have achieved a threshold level of $5,000 in annual household income.

• By 2015, consumer's spending power in EMs will increase to more than $9 trillion, nearly the current spending power of Western Europe.

• Meanwhile, population in advanced economies is aging -- there are fewer young people to work and pay taxes.

• Rising consumer awareness and activism compels firms to contribute to broader public good and to improve organization-wide risk management processes.


Growing middle class

• A sizeable and fast-growing middle class is the best indicator of market potential in EMs – not GDP per capita!

• Urbanization; rising aspirations; conspicuous consumption; loyalty to global brands…

• Leapfrogging phenomenon.• Complexity of tailoring products and services

to local customers needs and tastes; strong indigenous brands continue to do well.


CountryRank in MSU-

CIBER’s EMPI

Middle-class

population (millions)

% of Income held by

middle class

GDP per capita

( PPP, US $ )

China 1 587 45 6,800

India 8 534 49 3,300

Indonesia 20 105 48 3,600

Russia 12 67 47 11,100

Brazil 22 65 35 8,400

Mexico 13 42 41 10,000

Turkey 10 32 45 8,200

Thailand 14 28 45 8,300

South Korea

5 26 55 20,400


Tata’s “People’s Car’


Emerging Markets: Why Do they Matter?

1. Target markets2. Manufacturing bases3. Sourcing destinations4. Builders or acquirers of global

brands5. Investors/financiers in the advanced

economies6. Impact on the environment


1. Emerging Markets as Target Markets

• Industrialization, modernization, urbanization, privatization … have caused in boom consumer and business markets – substantial demand for electronics, automobiles, health care services, infrastructure…

• The largest EMs have doubled their share of world imports in the last few years.

• EMs are excellent targets for manufactured products, technology, and sophisticated technology:

• Textile machinery industry in India is huge• Oil and gas exploration plays a vital role in Russia• Agriculture is a major sector in China.


The Aspiring Consumer in EMs

• Young demographics• Rapidly urbanizing• Middle class coming into its own• Engaged in technological

leapfrogging• Exposed to western brands• Rising expectations• Eager to consume material things • Highly brand conscious


Linda Chen


Nokia Vertu

Price: US $ 32,000

Major Source of Buyers: Hong Kong, Mainland China, Singapore and Indonesia


2. EMs as Manufacturing Bases

• Home to low-wage, high-quality labor for manufacturing and assembly operations.

• Large reserves of raw materials and natural resources. • South Africa -- a key source for industrial diamonds. • Brazil - a center for mining bauxite, the main ingredient

in aluminum. • Thailand - manufacturing location for Japanese MNEs

such as Sony, Sharp, and Mitsubishi. • Malaysia and Taiwan - Motorola, Intel, and Philips

manufacture semiconductors there.• Mexico and China - platforms for consumer electronics

and auto assembly.


3. Emerging Markets As Sourcing Destinations

• MNEs have established call centers in Eastern Europe, India, and the Philippines.

• Dell and IBM outsource technological functions to knowledge workers in India.

• Intel and Microsoft have programming activities performed in Bangalore, India.

• Investments from abroad benefit emerging markets as they lead to new jobs and production capacity, transfer of technology and linkages to the global marketplace.


4. EMs as Builders or Acquirers of Western Brands

• Lenovo (IBM pc)• Haier• Samsung, LG • Thomson and RCA (TCL of China)• Swissotel (Raffles Holdings, Singapore)• Lotus cars• MG Rover (Nanjing Automotive;

SsangYong Motor (SAIC)• Arcelor (Mittal); Corus (Tata) • Godiva Chocolate (Ulker, Turkey)


“Campbell sells its upmarket Belgian chocolate brand Godiva to Turkish firm Yildiz (Ulker) for $850m”


The New Global Challengers(Boston Consulting Group Study)

Some 100 companies from EMs (called Rapidly Developing Economies in the BCG study) are poised to become important 21st-century multinationals:

Brazil: Embraer, Sadia & Perdiago, Natura Mexico: America Movil, Groupo Modelo

India: Ranbaxy, Infosys, Tata Tea, WIPRO

China: Galanz, Haier, Chunlan Group Corp., Lenovo, Pearl River Piano

Turkey: Koc Holding, Vestel, Sisecam


Six Strategic Globalization Patterns of the New Global Challengers from EMs

1. Taking RDE brands global (China’s Hisense, taking consumer electronics to Africa)

2. Turning RDE engineering into global innovation (India’s Wipro)

3. Assuming global category leadership (Hong Kong’s Johnson Electric)

4. Monetizing RDE natural resources (Brazilian food processors Sadia and Perdiago)

5. Rolling out new business models to multiple markets (Mexico’s cement conglomerate Cemex’s global acquisition strategy)

6. Acquiring natural resources (Shanghai Baosteel group expanding globally to secure stable iron-ore supplies)


5. EMs as Investors/Financiers in the West

• Surprisingly, EMs are net providers of capital to the rest of the world. In 2006, they invested $332 billion more abroad than they received in foreign investment.

• Total capital outflows from EMs reached a landmark $1 trillion in 2006.

• China, the biggest source of capital outflows from EMs, invested $383 billion abroad in 2006.

• Today, sovereign wealth funds (SWFs) investments amount to some $2.5 trillion; expected to reach $12 trillion by 2015.

• Abu Dhabi's ADIA ($875bn), Norway's Pension Fund ($380bn), Singapore's GIC ($330bn), and Saudi Arabia's ($300bn), China Investment Corporation ($200bn), Russia's Stabilization Fund $100bn are leading SWFs.


6. EMs and Global Environment

Water: About 1/3 of China's population lacks access to clean drinking water. Some 70% of the country's rivers and lakes are polluted, with more than 200m tons of sewage and industrial waste pouring into Chinese waterways.

Land: Desertification in China leads to the loss of about 5,800 square miles of grasslands every year, an area roughly the size of Connecticut.

Greenhouse gases. China is poised to become the world's biggest emitter of greenhouse gases, overtaking the U.S. as the globe's leading source of carbon emissions, by 2009. Coal accounts for over 2/3 of China's energy consumption and contributes to sulfur dioxide emissions causing acid rain, which falls on over 30% of the country.

international business: strategy, management, and the new realities 1 global business trends and...

Documents

new realities

financial clout

growth of financial

global business trends

information knowledge

global capital markets

shift of financial weight

growing ties