Transcript Globalization Trends: An Emerging Markets Response to

Globalization Trends: An
Emerging Markets Response to
Americanization
LIR 554
October 28, 2008
Joshua Dahms, Sam Leibold, Tyler
Micenheimer, Gus Otalvora
Americanization
• Traditional Globalization
flowed from developed
markets to emerging markets.
– Often dubbed,
“Americanization”
• Flow has begun to reverse
with emerging markets
expanding into developed
markets
– Drastic increase in the number
of emerging marketing
companies acquiring
developed market companies
– In 2005, emerging economies
accounted for half of the
world’s GDP for the first time
since the industrial age
• Booming emerging market growth is evidenced by
their increasing presence in the Fortune 500
– 62 companies in the Fortune 500 from emerging
markets
– Largest increases in BRIC countries
Emerging Market Transformation
•
Rapid growth in home-market
consumers
– Increasing middle class
• Growing by 70 million per year
– Better understanding of home
market than established market
companies
•
Development of domestic financial
markets
– Stock exchanges
– Corporate debt markets
• Providing necessary capital to
expand abroad
•
Opening of established capital
markets
– NYSE seeks to list shares on
Shanghai stock exchange
•
Previous volatility and bad
economic policy has made
emerging market business leaders
flexible and comfortable with rapid
change
– Forced to concentrate on cutting
costs, raising productivity, and
keeping a strong cashflow
IBM/Lenovo
• Chinese computer maker
Lenovo purchases IBM
P.C. division for $1.75
billion in 2005
– Decision prompted by
massive Chinese GDP
growth, per-capita income
growth, and demand
growth
– “It took 25 years for the PC
to get to the first billion
consumers; the next billion
should take seven years
• Lenovo CEO, Bill Amelio
Tata/Land Rover-Jaguar
• Indian conglomerate Tata
purchases the two companies
for approx. $2 billion.
– Took advantage of Ford’s
short-sighted search for
liquidity
– Plans to capitalize on rising
per-capita income in India and
growth in the luxury car
market
– Follows the company’s
strategy of deep
decentralization
• Company sells some of the
cheapest and most expensive
cars in the world (i.e. Tata
Nano $2500, Jaguar $7580,000)
Sovereign Wealth Funds
• Sub-prime crisis leads U.S.
banks to seek capital infusion
from abroad
– $69 billion in capital from
developing countries in 10
months
• Foreign direct investments
(FDI) in strategic infrastructure
have caused concerns
– Govt. of Dubai seeks to
acquire U.S. port operator
• Many funds only take minority
stakes fearing a protectionist
backlash
Implications:
Protectionist Backlash
• Many Americans feel this
trend will lead to loss of
American jobs to
emerging markets
– Academic evidence wholly
disagrees with this claim
• Techno-nationalists fear
innovation will shift from
America to the
developing world.
– Microsoft and IBM’s
establishment of R&D
centers in India and China
• Concerns over National
Security
– Investments in strategic
infrastructure
– Risk that funds may abuse
financial markets holding
too much power
– Congress initially blocked
sale of IBM P.C. division
over concerns of
intellectual property abuse
by Chinese Govt.
The Dangers of Protectionism
• Protectionism will slow
the rise of emerging
markets from poverty
– Leaving vast unrealized
potential
• FDI helps the economy
adjust to imbalances and
to spread financial
capital, technology, and
knowledge
– Gives countries stakes in
each other’s prosperity
“Hot, Flat, and Crowded”: A Call to
Action for America
• In a time of increased
environmental concern and
general uncertainty,
protectionism becomes even
more dangerous
– Now more than ever there
needs to be collaboration and
innovation on a global scale
• A defensive America will not
capitalize on the capabilities of
its people, but merely protect
outside influences from forcing
growth in those capabilities.
– Again this has serious
implications regarding a global
energy crisis—innovation has
become critical
“Hot, Flat, and Crowded”: A Call to
Action for America
• “An America living in a defensive crouch cannot fully
tap the vast rivers of idealism, innovation,
volunteerism, and philanthropy that still flow through
our nation. And it cannot play the vital role it has long
played for the rest of the world - as a beacon of hope
and the country that can always be counted on to
lead the world in response to whatever is the most
important challenge of the day. We need that America
- and we need to be that America - more than ever
today.”