global strategy hw

IMPACTS OF GLOBALIZATION

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What is Globalization?

• “Globalization refers to growing economic interdependence among countries as reflected in increasing cross-border flows of three types of entities: goods and services, capital, and know- how.” oMultiple level of aggregation: world, country, industry,

company, business unit

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http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS

Your Experience with Globalization

• How is your life or work affected, changed by globalization?

• Do you like it? Why or why not?

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Discussion: Is Globalization Good or Bad?

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Discussion: Is Globalization Good or Bad?

• Is globalization good or bad? oAround the world oAt the country level oFor people in different socioeconomic status

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The World From 1993 to 2016

GDP (current billion US$)

GDP per capita (current US$)

Population, total (Million)

Average yearly growth (1993-2016)

1993 (%) 2016 (%) 1993 2016 1993 2016 (Per Cent)

East Asia & Pacific 6552 25% 22480 30% 3462 9788 1892 2297 4.18

North America 7458 29% 20160 27% 25822 56082 289 359 2.50

European Union 7815 30% 16487 22% 16211 17173 482 511 1.74

Latin America & Caribbean 1565 6% 5300 7% 3332 3761 470 638 2.81

Middle East & North Africa 608 2% 3145 4% 2224 2269 273 437 3.82

Sub-Saharan Africa 300 1% 1513 2% 540 512 556 1033 4.21

Russian Federation 435 2% 1283 2% 2929 2663 149 144 1.72

World 25859 100% 75845 100% 4667 4937 5541 7442 2.90

Discussion: Is Globalization Good or Bad?

•Who Wins and Who Loses in globalization?

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Who Wins and Who Loses

• Overall, the world economy benefits, and most countries benefit, both rich and poor.

• Some developing countries have been able to exploit globalization to reduce poverty. But the poorest countries remain marginalized.

• The problem for most poor third-world countries o It is not that globalization is making them poorer. o It is that they are not part of the system that is making other countries

richer.

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Who Wins and Who Loses

• In richer countries, blue-collar and less-skilled labor tends to lose, while skilled labor usually wins

• The income gap widens

• The problem for most blue-collar labor o It is not that globalization is making them poorer. o It is that they are not part of the system that is making other skilled labor

richer.

• Every firm faces increased competition, some grow (even winner takes all) but others go out of business

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The Richest 1% Now Own More Than 50% of the World’s Wealth (2017) • There are increasing numbers of dollar millionaires

• Almost half of the new dollar millionaires are in the U.S.

• Despite higher mean wealth per adult, median wealth fell again this year in Africa, Asia-Pacific and Latin America

• Those with low wealth tend to be disproportionately found among the younger age groups

• Millennials are more likely to be unemployed or earning less, priced out of the housing market, and unable to get a pension. Baby boomers have most of the wealth and the housing, so “millennials are doing less well than their parents at the same age.”

• http://fortune.com/2017/11/14/credit-suisse-millionaires-millennials-inequality/

Inequity in the accumulation and distribution of wealth • Return to labor, down

• Return to knowledge, up

• Return to capital, up

• New trend in technologies, such as,

digitization increases economies of scale

• Individuals, Company, societies, policymakers, governments….

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What’s Next?

• Trade wars?

• Economic warfare is undermining economic integration (eg. Economic sanctions, trade wars)

• Multilateral alliances are becoming regional rather than global o Multiple “core-periphery” relationships o NAFTA to USMCA

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INSTITUTIONAL VOID

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Developing vs Developed Countries

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Let’s Start with easy of doing business

• Is it easier to conduct business in developing or developed countries?

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Let’s Start with Corruption

Are there more corruptions in developing or developed countries?

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19

-1

-0.5

0

0.5

1

1.5

2

Developing Economies

BRICS Emerging Industrial Economies

Transition Economies

OECD

Control of Corruption Reflects perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as "capture" of the state by elites and private interests.

From -2.5 (Weak) to 2.5 (Strong)

Source: Data from World Bank Indicators,2015

The Organization for Economic Co- operation and Development (OECD)

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-1

-0.5

0

0.5

1

1.5

2

Developing Economies

BRICS Emerging Industrial Economies

Transition Economies

OECD

Government Effectiveness

Scored from -2.5

(Weakest) to 2.5

(Strongest)

Source: Data from World Bank Indicators,2015

• Quality of public services • Quality of the civil service & its degree of independence from political pressures • Quality of policy formulation and implementation • The credibility of the governments commitment to such policies

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-1

-0.5

0

0.5

1

1.5

2

Developing Economies

BRICS Emerging Industrial

Economies

Transition Economies

OECD

Rule of Law Confidence in the rules of society, the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence.

Source: Data from World Bank Indicators,2015

Ease of Doing Business Indicators 2018 From low ranking score (Easy) to high (Less Easy)

Source: Data from World Bank, http://www.doingbusiness.org/rankings

145 139

128

111 112

59

72 60

55 49

24

100

125

82 78

35

48

30 27 34 31

20

7 6

0

20

40

60

80

100

120

140

160

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Intuitional Void

• When information problems, misguided regulations and inefficient judicial systems lead to the failure of proper functioning of economic activities (i.e. market failure).

• Lack of developed infrastructures (hardware) and institutions (software) that enable efficient business operations, factors that are taken for granted in advanced economies

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Institutional Voids in Emerging Countries

 Access to Products Markets

 Access to Labor markets

 Access to Capital markets

 Political and social systems

 Bureaucracy

Note: Not all characteristics apply to all emerging countries, and some of those can be found in some OECD countries.

As discussed in Khanna and Palepu (1997).