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					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
     International Business: Strategy, Management, and the New Realities   1
                                            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
        International Business: Strategy, Management, and the New Realities   2
    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.)
      International Business: Strategy, Management, and the New Realities   3
       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.
      International Business: Strategy, Management, and the New Realities   4
                                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


     International Business: Strategy, Management, and the New Realities   5
International Business: Strategy, Management, and the New Realities   6
     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.

        International Business: Strategy, Management, and the New Realities   7
                            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.

       International Business: Strategy, Management, and the New Realities   8
International Business: Strategy, Management, and the New Realities   9
          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.

     International Business: Strategy, Management, and the New Realities   10
International Business: Strategy, Management, and the New Realities   11
       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.

       International Business: Strategy, Management, and the New Realities   12
       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.

        International Business: Strategy, Management, and the New Realities   13
                           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.
         International Business: Strategy, Management, and the New Realities   14
       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
      International Business: Strategy, Management, and the New Realities   15
                      Vehicles of global integration

•   Global teams
•   Global information systems
•   Global product development
•   Global talent pools
•   Common business processes:
    Procurement; supply chain
    management; HR; etc.
       International Business: Strategy, Management, and the New Realities   16
  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
      International Business: Strategy, Management, and the New Realities   17
    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)

         International Business: Strategy, Management, and the New Realities   18
    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.

        International Business: Strategy, Management, and the New Realities   19
International Business: Strategy, Management, and the New Realities   20
                                       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.

      International Business: Strategy, Management, and the New Realities   21
                 Rank in MSU-         Middle-class        % of Income         GDP per capita
   Country       CIBER’s EMPI          population        held by middle       ( PPP, US $ )
                                         (millions)           class
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
             International Business: Strategy, Management, and the New Realities            22
International Business: Strategy, Management, and the New Realities   23
                                   Tata’s “People’s Car’




International Business: Strategy, Management, and the New Realities   24
International Business: Strategy, Management, and the New Realities   25
     Emerging Markets: Why Do they Matter?

1. Target markets
2. Manufacturing bases
3. Sourcing destinations
4. Builders or acquirers of global
   brands
5. Investors/financiers in the advanced
   economies
6. Impact on the environment
      International Business: Strategy, Management, and the New Realities   26
           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.

       International Business: Strategy, Management, and the New Realities   27
International Business: Strategy, Management, and the New Realities   28
                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

     International Business: Strategy, Management, and the New Realities   29
                               Linda Chen


International Business: Strategy, Management, and the New Realities   30
    Nokia Vertu
    Price: US $ 32,000
    Major Source of Buyers:
    Hong Kong, Mainland
    China, Singapore and
    Indonesia




International Business: Strategy, Management, and the New Realities   31
                          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.

        International Business: Strategy, Management, and the New Realities   32
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.
      International Business: Strategy, Management, and the New Realities   33
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)
      International Business: Strategy, Management, and the New Realities   34
“Campbell sells its upmarket Belgian chocolate brand Godiva to
                         Turkish firm Yildiz (Ulker) for $850m”




       International Business: Strategy, Management, and the New Realities   35
                                 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
     International Business: Strategy, Management, and the New Realities   36
                   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)

          International Business: Strategy, Management, and the New Realities   37
       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.
         International Business: Strategy, Management, and the New Realities   38
                  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   39
International Business: Strategy, Management, and the New Realities   40
International Business: Strategy, Management, and the New Realities   41
International Business: Strategy, Management, and the New Realities   42

				
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