IB Assignment

Toward a Better Future Beyond 2015 Group 18

Abhigyan Mundhra (PGP-11-091) Aditya Narang (PGP-11-097) Anirudh Kunjal (PGP-11-103) Nimisha Gupta (PGP-11-130) Prashanth Cecil (PGP-11-139) Swati Karle (PGP-11-168) Juliette Caillet (PGP-11-183)

FORECASTS ABOUT GLOBALIZATION

Pankaj Ghemawat has limited belief in forecasts and he puts them to come out of thin air . The author seems to suggest that semi-Globalization is here to stay for few more years. As in 2012 it still holds true in 2015 to a large extent. 1) Power, world politics and dynamics are shifting, with stagnation in Japanese economy and economy of Euro-zone still not recovered from the Greek crisis. China is reaching saturation while India, with its infrastructure in place is gradually picking up with China. But despite these shifts, Globalization still has not altered much. Hence, as Ghemawat says, semi-Globalization will persist for some time to come. 2) Cross border trade has been increasing steadily over the last few years and despite angry protests by unemployed Americans (and it still being a burning election issue), American companies still prefer to outsource their work. Despite repulsive forces, the shift in outsourcing is still a positive one. 3) Euro-zone is under a severe crisis. PIIGS countries are reeling under debt crisis whereas countries like Germany are thinking of going back to their original currency which would again be a backward shift or a blip as Ghemawat would put it, in the growth of Globalization. But despite this ever-so-dynamic world, the rate of change in Globalization will not alter substantially in the next few years.

4) Ghemawat critiques forecasts and the methodology behind it, but he seems to be fairly confident that semi-Globalization would persist for few decades. It is a pretty strong statement that has made. More so because of the advancement in technology that is happening every day. From the point of view of In the 1980 s, the rhetoric of economics and world trade, his predications Globalization concentrated on could be termed logical but he does not seem to markets. In the 2000 s, it incorporate the changes in science and seems much more focused on technology that could happen in next few production. In the period from decades. Could economists have predicted the now (2015) till the end of the emergence of outsourcing as revolutionary force first quarter of this century in Globalization by predicting the surfacing of Globalization will be high speed internet and optic fibres and the way concentrated on much the same it would change and integrate the world? Hence, driving force that is production, prediction of Globalization is not a function of but will be severely empowered economics and economists alone but it is equally by technology, demographics (if not more) dependent upon technology and among other factors communication, prediction of which is beyond Mr. Ghemawat.

5) Rapid technological advances, availability of implementable software frameworks to analyze and calculate the prospective profitability in expanding businesses, drawing up

plans country to country based on forecasted gain in off-shoring production as well as analyzing the market potential have made entering new profitable countries as well as exiting unprofitable markets much easier.

RISE IN STATE C APITALISM IN E MERGING NATIONS FASTER, WIDER, MORE SOPHISTICATED . BUT HAVE THEY TRULY EMERGED IN 2015?
6) Emerging nations like Brazil and India are production houses due to different strengths of their own. The rise and rise of India owing to its younger population, as compared to China, and also the conservative yet focused growth has drawn huge resources in terms of FDI year on year. The world will see the emergence of India as an economic powerhouse by 2025. 7) The focus of Brazil to ensure that the reliance on exports is considerably reduced and with a growing middle class, and large infrastructure projects under way, private consumption and domestic investment are now major sources of growth. 8) Russia s move from wild privatization to renationalization and development of national champions has now paid rich dividends and accounts for 80% of the country s GDP. A number of spectacular acquisitions have resulted, something which even China have followed suit successfully. 9) Resilience to recession is something not many powerhouse nations have been able to successfully handle. The recession that struck in late 2012 has left its mark on the free market.

PATH TO THE FUTURE

y ANTICIPATE BUMPS EVEN IF THE WORLD IS INTEGRATED: Since 2007 (when the book was written by Pankaj Ghemawat) there has been a massive spread of Information Technology, both in terms of using data analytic techniques such as SPSS to project for the future, providing for unexplained variations in projections, as well as a growing stress on accurate projections, very close to ex-post business developments. Trends can now be studied more carefully than before y PAY ATTENTION TO PREDICTABLE SURPRISE : The development of a resilient organisation in the face of innovations, climate change, restless states requires the presence of shared operating systems for managing global risk. Every organisation needs to be embedded with a challenge function , which takes care of keeping the organisation duly aligned with the international economic climate. For example, the US Defence Agency is employed solely to prevent surprise for the US. At the same time, new regulatory mechanisms to manage the cross-border capital flows are imperative. y INDUSTRY LEVEL DYNAMICS: Mr. Ghemawat talks about far-reaching events having effects on different industries in different ways. The free market economies, capital account convertibility and financial deregulation could have been potential cause of concern, but the massive growth in the standard of living of the 7bn population, has made domestic consumption more a point of intervention for the State.

y IMPORTANCE OF BUSINESS IN SHAPING BROAD OUTCOMES: The Chinese retail market for example is projected to grow to $2.4 trillion from the present day $1.7tn.Walmart, entered China in 2005, since then the go global, go up-market and go native policy of the company has changed the very business climate in China. It has forced changes in the way Chinese suppliers operate. Countries have become largely democratic, and businesses realise the impact they have on each other and the society at large. Thus, we see an increasing number of collaborations and alliances as companies discover the dual advantage from a co-optation strategy growth in business as well as GNP. y THE PRESENT VERSUS THE FUTURE: So where do we go from here? The Globalization drive started in the 1830 s with cross border trading of commodities and has reached a stage of a borderless world today. However, what need to be kept in mind are the inherent differences in culture, climate, attitude and the soft factors which will always distinguish two nationalities. The increased competition and struggle for survival requires that the organizations realign their business processes, management control systems, staff training, and adjustments in the product portfolio and operational plans in tune with the dynamic international scenario. y CAPITALISM: The future of Globalization is not fixed; states and nonstate actors including both private companies and NGOs struggle to shape its contours. The benefits of Globalization are not equal. China, which used its export led growth model aptly has seen more development in the past decade than maybe even the US. Marx showed the inherent downfall of the capitalistic world in his book Das Kapital and famously said The history of all existing society is the history of class struggles . Your margin = industry margin + your competitive advantage

5 STEP FRAMEWORK FOR GETTING STARTED

PERFORMANCE REVIEW: The presence of global databases like IMF, UNCTAD, World Bank reports
enable companies and individuals to view the performance and follow companies across the globe. These databases also give reliable projections for the next few years and investors can do a full performance appraisal before investing.

INDUSTRY

AND COMPETITIVENESS ANALYSIS: For example, the www.imf.org gives data and statistics related to various countries and allows users to plot and compare data across nations and industries. Using these databases, users can find out relevant information, such as market share distribution, cross border trade, growth in trade YoY, study various relationships between profitability and increase in scale and so on.

CAGE FRAMEWORK: Globalization is often associated with words such as footloose free-flowing capital and information. But that is not a reality. Inherently existing cultural, administrative, geographical and economic factors act as barriers to the concept of perfect Globalization. The state s role in this changing environment is certainly changed, from regulator to facilitator, but is not especially lessened.
OF STRATEGIC OPTIONS AROUND THE AAA FRAMEWORK: Arbitrage opportunities exist across borders, as is seen in the tax havens in Hong-Kong : China and Maldives: India also, the liberal policy regulations in Singapore, make it a favored trade destination. Aggregation opportunities which allow for economies of scale, for example, clustering of all IT firms in the Silicon valley in US, allows for reduction in costs Adaptation, well reflected in the word Glocalisation , is followed by industries all over, most commonly seen in the Food industry, where the flavours of the product change from place to place, while keeping the quality of service similar.

DEVELOPMENT

The richest 1% of people in the world receives as much [money] as the bottom 57% Income gaps have grown between different segments of society as a result of economic Globalization and it has also grown between countries. Companies therefore keep innovating, reducing costs and adding value to value chain to retain their market standing. Example: The Daimler Chrysler merger shows that sometimes profitability is not related to volume & the company might become shakier and investors might view it as a risky proposition. Globalization is not a perfect scenario, and the presence of State Capitalism is testimony to the need for Keynesian economics, because left to its own, capitalism, as Marx put it, is a doomed system . It is the presence of the State that adds a third dimension in this faceoff and plays the much needed balancing role.

EVALUATION OF STRATEGIC OPTIONS WITH ADDING VALUE SCORECARD: