GLOBALIZATION

LOOKING BEYOND THE OBVIOUS

• Globalization continues, but it is different this time around

• Overall rate of globalization is slowing and its character is different

• Companies need to make changes in assumptions and strategies

• Game changer is technology and the flow of ideas

Drivers of Globalization

• Technology advances greater and quicker cross-border communications

• Companies must make “big bets” on markets they may not have considered before

• Greater complexity & uncertainty: new globalization patterns, extensive technology integration and rapidly shifting demographics

• It is not clear where the next big opportunity lies – companies can no longer play safe!

Not obvious choices!

• The next wave of growth may come from markets that are not obvious choices today!

• Companies are developing multi-market approaches – BRIC and Non-BRIC emerging markets, secures a sustainable competitive advantage.

• NFL has gone global 0 technology the biggest enabler!

You can’t play in every market!

• Look at GDP growth, types of industries, and assess how it fits with your global competitive advantages and strategies

• What makes these choices even tougher is that companies need to make these choices now! Otherwise you will allow competitors to build presence and market share

• Establish leardership during the adoption phase

BRICS ARE STILL RELIABLE …

• Brazil, Russia, India & China were the big bets of the past decade

• However, slower growth rates, rising inflation, rising labor costs, red tape, and political instability are increasing challenges

• Protectionism is more likely to increase among BRIC countries

• But the momentum is shifting to other hot spots!

NON-BRIC COUNTRIES

• Emerging as hot spots for global business• Indonesia, Mexico, South Africa, Turkey• Hot spots because of their access to nearby markets,

labor cost, political stability, transport & technology• These countries are leapfrogging over the competition –

technology as the main driver• MNCs are looking at these new hot spots to expand

their demand base – demographics and income growth!• Do not act as foreign company: energy the community• Tata in South Africa – developing schools, water projects

AFRICA

• In Western Europe it is all about replacement, whereas in Africa it is about first time acquisition – more headroom for future growth

• A lot of pent-up demand across Africa, white goods, technology, services, etc

• African nations are the potential BRIC economies of the future

GRANULAR APPROACH

• The auto industry is embarking on a new wave of geographical expansion

• Specially in China & India, however, Non-BRIC countries are also becoming extremely attractive – portfolio diversification

• Mega cities: Cairo, Lagos, and Kinshasa• Granular approach: car markets are segmenting

these markets. China: luxury cars in coastal cities and smaller cars at the second and third tier cities

Are Developed Markets worth Betting on?

• Developer markets are still major drivers of world economic activity

• North America and Western Europe remain critical to protecting the bottom line.

• New trend: outsourcing more operational functions to providers in mature markets

• Mature markets offer several pockets of promise, innovation and exchange of technologies and ideas.

U.S.

• Strong revival of domestic manufacturing • Landmark discovery of new shale gas reserves• Increasing technology and export-fueled

growth, and narrowing labor differentials are repositioning the U.S. economy!

• 10-30% of chinese manufacturing imports could shift back to the U.S.

• Many U.S. MNCs are re-shoring manufacturing capacity

Re-Shoring

• GE re-shored its domestic appliance manufacturing business from Mexico to the U.S.

• It takes 8 hours to make a refrigerator in Mexico and only 2 hours in Louisville!

• Manufacturing technologies, logistics costs, management time + overseas overhead are driving manufacturing back to the U.S.

New Energy Frontiers

• New oil & gas markets!• By 2020 the U.S. will claim Saudi Arabia’s current

position as the world’s largest oil producer. • Natural prices of gas will be lower in the U.S.

than in Asia, changing the calculation of business where to locate energy intensive industries – U.S. manufacturing more competitive!

• Increasing use of natural gas in transportation displacing gasoline and diesel!

Operational Changes

• Lessons learned from globalization: • A) flexibility, b) agility, and c) localization• Next phase: prepare to make decisions on markets and

investments without always knowing all the possible outcomes• Foreign markets are a long-term proposition• Succeeding in the world’s new markets means becoming

immersed in them, tailoring offerings, forming close relationships, manufacturing locally, empowering local managers

• Glocalization strategies developing commonalities across markets and take success from one and repeat

INNOVATION LOWERS GEOGRAPHICAL BARRIERS

Transform your company into a learning organization – mobility solutions, social networking, business intelligence and analytics. Mobile: new relationship between employers and their workforceSocial media: enable companies to develop new relationships with customersBig data: analyzing data from social media and many other sources – helps companies identifies opportunities and resource utilizations

VUCA World

• A Learning organization also will be best equipped to manage successfully in a volatile, uncertain, complex and ambiguous world

• A learning organization can make effective use of real-time digital technology to react to changes more efficiently, bypassing traditional hierarchies to enable faster decisions-making and implementation of key strategies

GLOBALIZATION

Process of creating networks of connections among actors at multi-continental distances, mediated through a variety of flows including people, information and ideas, capital, services and goods.Globalization has the potential to erode national boundaries, integrate national economies, cultures, technologies and governance and produces complex relations of mutual interdependence.Economic globalization, political globalization and social globalization.

Globalization Index

• Ranking: Hong Kong (1), U.S. (25), Iran (60)• China (44), Brazil (45), Russia (48), India (54)

World Economic Prospects

• The global economy weakened considerably in 2012

• A number of economies have fallen into a double – digit recession

• Economic woes of the developed countries are spilling over to developing countries and economies in transition through weaker demand for their exports and heightened volatility in capital flows and commodity prices.

Low-Income Countries

• Are now facing intensified adverse spillover effects from the slowdown in both developed and major middle-income countries.

• Global growth expected to reach 2.4% in 2013 and 3.2% in 2014

• Global unemployment remains very high, 12% in the Euro Zone.

• Greece and Spain: 25% of their labor force is without a job

Unemployment

• If economic growth stays anemic in developed• Countries, employment rates will not return to

pre-crisis levels until far beyond 2016!• Global slowdown imply a much slower pace of

poverty reduction and narrowing of fiscal space for investments in education, health, basic sanitation and other critical areas

• Millennium Development Goals

Global Greenhouse Gas Emissions

• GHGs emitted by countries have fallen in the last few years – global recession

• However, GHG emissions in many LDCs are increasing at a rapid pace.

• The world is far from being on track to reduce emissions to the extent considered necessary for keeping carbon dioxide concentrations to less than 450 parts per million

International Trade and Commodity Prices

• Growth of world trade decelerated sharply from 12.6% in 2010, 6.4% in 2011, and 3.2% in 2012.

• Feeble global economic growth, specially in Europe and other developed markets is the major factor behind the deceleration.

Private Capital Flows Remain Volatile Reduced flows to countries like China, Brazil and India

Uncertainties & Risks

• A worsening of the euro crisis, the “fiscal cliff” in the U.S. and a hard landing in China could combine to cause a new global recession.

• Weakening economic growth and policy uncertainties cast a shadow over global economic outlook.

• Generate growth and create jobs: concerted actions: making fiscal policy more countercyclical, more supportive of jobs creation and more equitable.