Economy Business Lecture 1 Global Challenges

Economy & Business Lecture 1 Global Challenges

What are some of the Challenges? • The Communications Divide • Natural Resources and the Ecological Footprint • The World of Inequality • World Conflict and the Flow of Refugees • HIV/AIDS: The Plague of Our Times • Terrorism

The Communications Divide Internet Usage 2011 • 19. 8% of the world’s population had access to the Internet in 2011. In North America 74. 5 % of the population had Internet access. • Asia = 13. 8% • Africa = 4. 6% • Australia = 58. 9%

The Communications Divide • Globally 1 person in 5 has a mobile phone. • The Chinese and the Vietnamese are not even putting in landlines at this time, jump straight to mobile. • Kenya introduced mobile phones in rural areas in 2005 • IT: Bridging the communications divide • What does the communication divide mean for business?

The Digital Age • Convergence between computing and communications technologies and the spread of the Internet. • Ongoing increase in the power of the computing and communications technologies coupled with the decline in the cost of these technologies

The Digital Age • Emergence of ubiquitous point and click interfaces that are based on open standards, are cheap to establish and run and are truly global. • The anticipated rollout of broadband communications technologies over the next five to ten years across major parts of the world.

The Digital Age • The global shareholder is going to be an evertougher taskmaster. It’s mathematically impossible for every company to be No. 1 or 2 in its market and for every fund manager to be in the upper quartile. As performance becomes more transparent and information more accessible, the pressure on companies will only increase. There will be no rest no matter how great the weariness”. » Daniel Yergin.

Natural Resources and the Ecological Footprint • The Ecological Footprint is the global measure of environmental sustainability • The footprint is the land water area (in hectares) needed to supply the resources one person consumes and to absorb the waste • The area available for every person is 1. 8 hectares

Natural Resources and the Ecological Footprint • In 2009, on average, each person was using 2. 2 hectares • The burning of fossil fuels, the growth and production of food and increased air travel has the greatest impact on the ecological footprint • At present, the average Australian uses 7. 7 hectares. Australia has the 4 th largest footprint globally

Natural Resources and the Ecological Footprint • China, the world’s largest population, has a footprint of 1. 5 hectares. This is due to a combination of: - diet (green vegetables, rice and low meat intake), lifestyle (low levels in car ownership, energy usage and aeroplane travel). • Our demand for natural resources is exceeding supply. • If all of the world’s people consumed resources and produced waste at this rate, we would require 4. 3 Earths to maintain our current lifestyle.

The World of Inequality • In 2009, over 3 billion people lived on less than $2. 70 USD a day. • Denial of basic human rights • 114 million children do not receive a basic education • 584 million women cannot read or write • 3 million people die each year from Malaria • In 2009, nearly 4000 people were executed in 74 countries that still have the death penalty. 97% of these were executions in China, Iran, Vietnam and the USA.

The World of Inequality • HDI – Human Development Index – is used to measure the quality of life. (life expectancy, adult literacy and years spent at school and the GDP In 2010 Norway was first and Niger was last. • GNI – in 2009 Japan had a GNI of $37, 180 USD, compared with $330. 00 USD a year in Tanzania. • More than 60% of the world’s working hours are carried out by women – India 32% of the workforce are women and they earn less than men. • What effect do these issues have on global business?

World Conflict and the Flow of Refugees In 2005 there were 12 major armed conflicts in 27 locations around the world. • Massive destruction • Kill, injure and displaces thousands of people each year • Refugees globally What does this mean for global business?

World Conflict and the Flow of Refugees • Global Military Expenditure in 2009 – More than US$1035 billion is spent on arms – US accounts for 44% of the world’s expenditure on arms – Australia is the 15 th largest purchaser of weapons and spends US$10 billion annually Do we see the above as a global business?

HIV/AIDS: The Plague of Our Times • HIV/AIDS leading cause of death worldwide • UN predicts 70 million will die from AIDS over the next 20 years. • In 2009 over 40 million people were living with HIV/AIDS • 95% infected live in low or middle income countries.

Global HIV/AIDS Statistics 2009 • Approximately 1% of the total world population is infected with HIV/AIDS • Approximately 12, 000 people are newly infected with HIV every day. • Every day 8500 people die from AIDS • More than 2. 3 million children worldwide are HIV positive • There are 12 million AIDS orphans in Africa • Australia has 14, 840 people living with AIDS • Why is this situation a global business challenge?

Global Challenge • What do we mean when we say that we live in an increasingly global world? • Ideological change and technology revolution are making globalisation one of the most important issues facing companies today

Terrorism • Terrorism knowledge base – Sept. 11/2001 – Indonesia – Bali twice – London – Spain – Etc • Security • What does Terrorism cost global business?

Global Challenge • “Every business must be considered a global industry and every business a knowledge business” • “Globalisation is no longer an option but a strategic imperative for all but the smallest corporations”

Akio Morita Co-founder of Sony • Advised companies to “Think Globally, Act Locally. ” • His philosophy was christened ‘Glocal’ and this led to the new word ‘Glocalization’.

Henry Wendt former CEO Smith Kline Beecham Cross border alliances will be the potential savior of the American pharmaceuticals industry …He recognised that internationally based strategic alliances would become important if not vital. Advocate of the ‘Sprinkler Model for market penetration’.

Walter Wriston Former CEO Citibank • “Globalisation is an imperative not because of management or business theories, but because of technological breakthroughs. ” • Competition between banks can no longer be based on banking services, but on acquiring better technology. • Effectively, the company that is able to make decisions quicker, often in the fraction of a nanosecond will be the winners.

Citibank • John Reid (current CEO) a technologist, MIT graduate. • Rationale for the appointment – “Hard to teach technology to an established banker, but relatively easy to teach banking to a technologist. • Citibank currently the world’s largest bank.

Relevant Question about Globalisation • Is your company a leader or a laggard in engineering and exploiting ongoing globalisation of your industry? Discuss

Road Map for Smart Globalisation • “People must ensure that their company leads the industry in identifying market opportunities worldwide and in pursuing these opportunities by establishing the necessary presence in all key markets”

Road Map for Smart Globalisation • “People must work relentlessly to convert global presence into global competitive advantage”.

Road Map for Smart Globalisation • “People must cultivate a global mindset” • Cultural and geographic diversity must be viewed as opportunities

Road Map for Smart Globalisation • “People should constantly strive to reinvent the rules of the global game” • Who are our target customers? • What value do we want to deliver to these customers? • How will we create this value?

What is Globalisation? • Globalisation refers to growing economic interdependence among countries as reflected in increasing cross -border flows of three types of entities: goods, services, capital and knowledge”. • Is the world truly becoming more global?

Global Markets • • 2006 USA China Japan 2056 China India USA • How do you see the global markets developing in the future?

What is a Global Company?

What is Driving Globalisation? • Globalisation is becoming more feasible • Globalisation is becoming more desirable

What is Driving Globalisation? • An ever increasing number of countries are embracing free market ideology – EU, NAFTA, ASEAN Mercosur – WTO – EURO and Dollarization

What is Driving Globalisation? • Technological advances continue their onward march • Economic center of gravity is shifting from developed to the developing countries

What is Driving Globalisation? • The opening of borders to trade, invest, and technology transfers is rarely a one way street. While it opens up new and much larger market opportunities for companies, it also opens up their home markets to competition from abroad. • “Global oligopolies are as inevitable as the sunrise” » Louis Galambos

Why Globalisation is here to stay. • Global Village • Emerging digital era of globalisation will continue to develop and grow

Implications for Companies • The economic map of the world will change more radically in the next twenty years than it has in the last twenty. • The regional composition of the world’s five hundred to one thousand large corporations will be different in twenty years from what it is today. As a consequence, industry competition will become significantly more intense.

Implications for Companies • The ongoing technology revolution will make real time co-ordination of globally dispersed operations routine. • What must be (versus is) the extent of your market presence in the world’s major markets, particularly the major emerging markets, for your products and services? How should you build the necessary global presence?

Implications for Companies • What must be (versus is) the extent to which you capture the cost reducing and quality enhancing potential of optimal locations around the globe for the execution of various activities for your company?

Implications for Companies • What must be (versus is) the effectiveness with which you are able to exploit global presence and turn it into true global competitive advantage, as opposed to global mediocrity or even global mess?

Last Word • “Follow, Lead or Get Out of the Way” » Ted Turner