Transcript International Business Strategy, Management & the New

Global Business Trends and
Implications for Managers
S. Tamer Cavusgil
Fuller E. Callaway Professorial Chair
Director, Institute of International Business
Georgia State University
5 September 2008
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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
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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.)
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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 welleducated 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.
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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
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Vehicles of global integration
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Global teams
Global information systems
Global product development
Global talent pools
Common business processes:
Procurement; supply chain
management; HR; etc.
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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
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How firms intend to achieve operating efficiencies
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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)
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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.
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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.
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Rank in MSUCIBER’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
Country
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Tata’s “People’s Car’
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Emerging Markets: Why Do they Matter?
1.
2.
3.
4.
Target markets
Manufacturing bases
Sourcing destinations
Builders or acquirers of global
brands
5. Investors/financiers in the advanced
economies
6. Impact on the environment
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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.
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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
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Linda Chen
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Nokia Vertu
Price: US $ 32,000
Major Source of Buyers:
Hong Kong, Mainland
China, Singapore and
Indonesia
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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.
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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.
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4. EMs as Builders or Acquirers of Western Brands
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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)
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“Campbell sells its upmarket Belgian chocolate brand Godiva to
Turkish firm Yildiz (Ulker) for $850m”
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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
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Six Strategic Globalization Patterns of the
New Global Challengers from EMs
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2.
3.
4.
5.
6.
Taking RDE brands global (China’s Hisense, taking
consumer electronics to Africa)
Turning RDE engineering into global innovation (India’s
Wipro)
Assuming global category leadership (Hong Kong’s Johnson
Electric)
Monetizing RDE natural resources (Brazilian food
processors Sadia and Perdiago)
Rolling out new business models to multiple markets
(Mexico’s cement conglomerate Cemex’s global acquisition
strategy)
Acquiring natural resources (Shanghai Baosteel group
expanding globally to secure stable iron-ore supplies)
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5. EMs as Investors/Financiers in the West
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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.
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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.
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