Looking beyond the obvious - Globalization and new opportunities for growth

Looking beyond the obvious

Globalization and new opportunities for growth

January 2013

Globalization – Looking beyond the obvious

Looking beyond the obvious

► Globalization continues to define our business landscape.

► Business leaders need to react to and anticipate these trends.

► Prospering in an environment where globalization is evolving requires

constant refinement of strategy.

► Companies need to explore new markets and establish well-rounded global

portfolios.

► It is time for business leaders to respond with flexibility, speed and

unconventional thinking.


Agenda

► About the survey

► Key themes:

1. Globalization will continue, but it’s different now

2. Companies must make big bets

3. The BRICs are still reliable options for now

4. But the momentum is shifting to other hot spots

5. Are developed markets worth betting on?

6. Operational changes are essential to picking the right big bets and increasing

their chances of a payoff

► Case studies

► Sectors

► The globalization index


About the survey

We conducted quantitative and qualitative research.

Survey demographics:

► 433 respondents from developed markets

► 297 from rapid-growth markets (139 from Brazil, Russia, India and China and 158 from

other rapid-growth markets)

► 23% have annual revenues greater than US$10 billion

► 24% between US$1 billion and US$9.9 billion

► 49% between US$100 million and US$999.9 million

► 4% under US$4 million

Interviews:

► We conducted a series of interviews with CEOs, leading academics and other

globalization experts.


Globalization will continue, but it’s different now


How globalization is changing


Technology will be the driver of globalization


Companies must make “big bets”


Big bets

► Organizations are faced with unprecedented uncertainty.

► It’s not always clear where the next opportunity lies.

► It may be tempting to stick to proven investment destinations.

► To ride the next wave of growth, companies will need to make big bets that

match or complement their existing competencies, on:

► Markets

► Categories

► Technologies


―You can’t play in every market. If you look at Nigeria with 180 million people and Indonesia with 180 million people, Indonesia is probably an easier choice than Nigeria, although maybe in the longer term Nigeria may have a bigger potential. It’s those sorts of calls that we have to make.‖ — Ian Hudson, President for Europe, Middle East and Africa at Dupont


The BRICs are still reliable options for now


The BRICs

► The BRIC countries were the big bets of the previous decade.

► These remain critical markets — both in terms of growth and global integration.

► Yet the challenges of operating in these markets are increasing.


BRIC growth will outpace that of other index countries


Protectionism remains a concern


‖ Emerging markets have had a bit of a rough ride over the past 12

months, proving once again that on a cyclical basis they are

vulnerable to disappointments in other parts of the world. China

wobbled this year, but with more stimulus, its growth should come

back on track. India has struggled with a lack of supply, reform and

investment in the right areas. Brazil, always a very cyclical

economy, slowed significantly through the course of this year, and

its recovery will depend to some extent on growth in other parts of

the world.‖

— Stephen King, Chief Economist at HSBC


But the momentum is shifting to other hot spots


Hot growth markets

► Companies need to explore additional growth markets beyond the BRICs.

► Non-BRIC rapid-growth markets are emerging as hot spots for global

business.

► These markets are becoming increasingly important sources of demand —

not just low-cost investment destinations.

► In many of these markets, the business environment is improving significantly.


Non-BRIC markets have high levels of integration

Source: Ernst & Young 2013 Globalization Index (Economist Intelligence Unit, 2012;

Ernst & Young analysis)

2.00

2.50

3.00

3.50

4.00

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

Rapid Growth Markets Ex. BRICs

BRICs

Rapid-growth

Markets , exc.

BRICs

BRICs


Top competitive drivers for non-BRIC emerging markets


A source of new demand opportunity


An improving business environment


But concerns about corruption remain


Are developed markets worth betting on?


Developed markets

► Developed markets are still major drivers of world economic activity.

► In certain sectors and areas, mature markets are making a comeback.

► More and more developed market companies are exploring near-sourcing.

► There is a revival of manufacturing in the US.

► Developed markets continue to retain an edge in innovation and technology.


Advanced economies remain key drivers of economic activity


Developed markets remain key to the bottom line


Companies plan to bring production capability back to developed markets


Top export markets take advantage of technology integration


―We brought back the manufacture of refrigeration units from Mexico to the US for one very simple reason. It takes eight hours to make a refrigerator in Mexico; it takes two hours to make a refrigerator in Louisville.‖ — Nani Beccalli-Falco President and CEO of GE International


Operational changes are essential to picking the right big bets


Operational challenges

1. Strategic planning: allocate resources in a bold and focused way

2. Execution: make your big-bet investments as local and granular as possible

3. Learning: transform your company into a ―learning organization‖


1. Strategic planning: allocate resources in a bold and focused way

► Companies need to make sure that they:

► Choose a small number of investments that offer the best chances of payoff

► Make an extended commitment to these investments despite volatility

► Ensure that there is flexibility in place to change course if necessary

► Make use of technology to aid decision-making


2. Execution: make your big-bet investments as local and granular as possible


► Tailor offerings to meet the exact needs of local customers

► Connect with local markets by contributing to their economic development

► Think about commonalities across markets so that economies of scale can be

derived

► Consider which functions do not need local delivery and can be centralized


Big bets based on data


3. Learning: transform your company into a “learning organization”


► Improve data collection and analysis to guide strategic decision-making

► Learn quickly, apply that knowledge to their strategic plan, execute on the

plan, then begin the cycle again

► Use technology to react to change more efficiently

► Bypass traditional hierarchies to enable faster decision-making


Investing in IT


Case studies


Heathrow: global decision-making takes off

► The passenger profile for UK visitors has changed.

► Heathrow’s capital structure has also evolved.

► Investors include CIC, Qatar Holding and Ferrovial.

► International investors also own Heathrow’s debt.


The NFL: scoring with technology

► The NFL has experienced numerous bumps on the road to

globalization.

► It is now focused on a number of key geographies, where it can

create momentum.

► It has also built up local organizations in those markets to drive

interest.

► New technology has been a powerful tool to distribute content.


Tata Power: energizing the community

► Companies that invest in rapid-growth markets need to contribute to

society, not just make a profit.

► Tata Power pays close attention to how it can help communities.

► When investing overseas, Tata Power has one key concern: not to act

like a foreign company.

► This philosophy is embedded in Tata’s governance.


Sectors


Automotive: driving toward a granular approach

► Automotive companies are looking beyond the BRICs for growth.

► Demographic change and urbanization are key drivers of this.

► Companies recognize that they need to take a granular approach —

often at a city level.

► Partnerships and alliances can be valuable to build the license to

operate and access local knowledge.


Oil and gas: redrawing the global energy map

► Shale gas in the US is redrawing the global energy map.

► Cheap energy in the US will encourage companies to bring back

energy-intensive activities to the US.

► This will make the US more competitive than it has been for decades.

► At some point the US will start to export gas to the rest of the world.


Technology: understanding the four transformational forces

1. Mobile is creating an entirely different relationship between

companies and their workforce.

2. Social media is enabling companies to build new relationships with

customers.

3. Big data will enable companies to make better decisions.

4. The cloud will allow companies to access storage and computing

resources without the need to invest in infrastructure.


The Globalization Index


The Globalization Index

► Globalization has become more nuanced since 2011.

► There is growth in the integration of goods and services, technology

and capital.

► Labor and cultural integration show less progress.

► The biggest increases continue to be driven by technology.


Updated methodology

► The index was developed in 2009 in conjunction with the Economist

Intelligence Unit.

► As globalization evolves, it is appropriate to review the methodology.

This year, changes include:

► Revisions to the index scoring system, using dynamic normalization

► Several new sub-indicators

► Sub-indicator weights have been redistributed to reflect changes to the variable

► These have created larger-than-normal revisions to the 2011 rankings

but a more robust methodology.


2012 Globalization Index: 1 – 30

*Special Administrative Region of China


2012 Globalization Index: 31 – 60


2012 Globalization Index: indicators, sources and weightings


Ernst & Young

Assurance | Tax | Transactions | Advisory

About Ernst & Young

Ernst & Young is a global leader in assurance, tax,

transaction and advisory services. Worldwide, our

167,000 people are united by our shared values and an

unwavering commitment to quality. We make a

difference by helping our people, our clients and our

wider communities achieve their potential.

Ernst & Young refers to the global organization of

member firms of Ernst & Young Global Limited, each of

which is a separate legal entity. Ernst & Young Global

Limited, a UK company limited by guarantee, does not

provide services to clients. For more information about

our organization, please visit www.ey.com.

© 2013 EYGM Limited.

All Rights Reserved.

EYG No. EX0194

This publication contains information in summary form and is therefore

intended for general guidance only. It is not intended to be a substitute

for detailed research or the exercise of professional judgment. Neither

EYGM Limited nor any other member of the global Ernst & Young

organization can accept any responsibility for loss occasioned to any

person acting or refraining from action as a result of any material in this

publication. On any specific matter, reference should be made to the

appropriate advisor.

ED None

Growing Beyond

In these challenging economic times,

opportunities still exist for growth. In Growing

Beyond, we’re exploring how companies can

best exploit these opportunities — by expanding

into new markets, finding new ways to innovate

and taking new approaches to talent. You’ll gain

practical insights into what you need to do to

grow. Join the debate at

www.ey.com/growingbeyond.

Looking beyond the obvious - Globalization and new opportunities for growth

Business

Transcript of Looking beyond the obvious - Globalization and new opportunities for growth