Ping Chih by Joe Huang

Ping Chih

Word Count: 1,975, PIN: 10360

Find the Next Wave to Ride on- New Business Strategies in the Changing World

Ping Chih

I. Introduction The changing global economy is characterized by intensifying globalization, the emergence of new economies and concerns about the sustainability of current business practices. The proliferation in the global integration of the movement of goods, capital and jobs1 is partly attributed to reductions in trade barriers and thus minimizing the associated complications and costs. As a consequence, the emerging economies: Brazil, Russia, India and China (BRIC) have experienced astounding growth.2 Nevertheless, this significant increase in economic growth has also put a strain on both natural resources and human capital. Furthermore, the current global economic crisis has highlighted the interdependence of domestic economies. This paper will first discuss the impact of these developing trends on multi-national corporations (‘MNCs’) and subsequently evaluate business strategies adopted by MNCs trying to navigate through the increased complexity, risk and uncertainty; to create opportunities and drive value. In conclusion, this paper will form a view as to the key strategies successfully used by global companies including sustainable business development. II. Developing Trends in the Global Economy A. Trends in Global Finance Globalization of finance is of critical international importance, comprised of expanding cross-border financial flows and emerging growth in the BRIC nations, meaning people who never required financial services suddenly being introduced to the concept of 1

Buttonwood, “Fuel for Thought” The Economist 388, no. 8592 (2008) http://www.economist.com/research/articlesbysubject/displaystory.cfm?subjectid=2512631&story_id=11896992 2 Vikram, Pandit, “The Future of Global Financial Systems” Academic Search Premier(EBSCO)74, no. 8 (2008) http://app.search.lib.unimelb.edu.au/V/VB2VP4XJ1451XMYVYBNHJLFA9YBDYKLIIR2QHYQS8TLL6B3R6757951?func=meta-3&short-format=002&set_number=041994&set_entry=000005&format=999

Ping Chih

Word Count: 1,975, PIN: 10360

banking. 3 These trends are already reflected in emerging market banks now being part of the Global top 20 in terms of market capitalization. 4 Despite the relative stability of banking systems in China, India and Brazil, their less established and less liberalized systems5 increase the risk exposure of syndicated facilities for banks in developed countries. The current global financial crisis, which many argue arose from disparate rules leading to loopholes and “regulatory arbitrage”, creates a scenario which further exacerbates the complexity in the financial services industry. The banking industry as a whole must react strategically, rather than indiscriminately reducing lending and thus exerting greater pressure on the economy.6 According to the World Bank, net private debt and equity flows to developing countries will fall from $1 trillion in 2007 to $530 billion in 2009.7 B. Trends in Emerging Economies According to forecasts, it is likely that the combined GDP of the BRIC economies will be larger than the G6 in the next 20 years.8 Additionally, the World Bank predicts that by 2030, the number of people in the 'emerging middle class' will more than double with

Vikram, Pandit, “The Future of Global Financial Systems” Academic Search Premier(EBSCO)74, no. 8 (2008) http://app.search.lib.unimelb.edu.au/V/VB2VP4XJ1451XMYVYBNHJLFA9YBDYKLIIR2QHYQS8TLL6B3R6757951?func=meta-3&short-format=002&set_number=041994&set_entry=000005&format=999 4 Vikram, Pandit, “The Future of Global Financial Systems” Academic Search Premier(EBSCO)74, no. 8 (2008) http://app.search.lib.unimelb.edu.au/V/VB2VP4XJ1451XMYVYBNHJLFA9YBDYKLIIR2QHYQS8TLL6B3R6757951?func=meta-3&short-format=002&set_number=041994&set_entry=000005&format=999 5 Walden, Bello, “ Turning their Backs on the World-The integration of the world economy is in retreat on almost every front”, The Economist (2009) http://focusweb.org/focus-walden-bello-coined-ther-term-deglobalisation-theeconomist.html?Itemid=1 6 Buttonwood, “Fuel for Thought” The Economist 388, no. 8592 (2008) http://www.economist.com/research/articlesbysubject/displaystory.cfm?subjectid=2512631&story_id=11896992 7 Walden, Bello, “ Turning their Backs on the World-The integration of the world economy is in retreat on almost every front”, The Economist (2009) http://focusweb.org/focus-walden-bello-coined-ther-term-deglobalisation-theeconomist.html?Itemid=1 8 Vikram, Pandit, “The Future of Global Financial Systems” Academic Search Premier(EBSCO)74, no. 8 (2008) http://app.search.lib.unimelb.edu.au/V/VB2VP4XJ1451XMYVYBNHJLFA9YBDYKLIIR2QHYQS8TLL6B3R6757951?func=meta-3&short-format=002&set_number=041994&set_entry=000005&format=999

Global Initiatives Symposium in Taiwan 2009

Word Count: 1,975, PIN: 10360

China, India, and Brazil leading the way. 9 Nevertheless, the future of emerging economies is extremely uncertain much of which is due to the global financial crisis. In India, where exports are around 15% of GDP, “the government recently said growth in the year to April 2009 would be 7.1%. In Brazil the economy has been harder hit by falling commodity prices and declining exports. In addition, Chinese exports fell 18% and imports 43% in the year to January”. 10 C. Increased Responsibility for Environmental Impact Surfacing more recently, is the trend towards stricter environmental standards and the rise in a customers’ willingness-to-pay for environmentally friendly commodities.11 Part of the rationale behind changing attitudes is higher incomes and an increase in both education levels and living standards. 12 Consequently, it is common for developed countries to invest more in environmental management than developing nations. 13 III. Implications of Developing Trends on Business Entities

Globalization has serious implications for the management strategies of MNCs given that demand far exceeds supply in a variety of areas including human capital and natural

Vikram, Pandit, “The Future of Global Financial Systems” Academic Search Premier(EBSCO)74, no. 8 (2008) http://app.search.lib.unimelb.edu.au/V/VB2VP4XJ1451XMYVYBNHJLFA9YBDYKLIIR2QHYQS8TLL6B3R6757951?func=meta-3&short-format=002&set_number=041994&set_entry=000005&format=999 10 Walden, Bello, “ Turning their Backs on the World-The integration of the world economy is in retreat on almost every front”, The Economist (2009) http://focusweb.org/focus-walden-bello-coined-ther-term-deglobalisation-theeconomist.html?Itemid=1 11 Stuart Whitten, Martin van Bueren and Drew Collins “An Overview of Market-Based Instruments and Environmental Policy in Australia.” Paper presented at 2003 AARES Symposium, Auckland, New Zealand, October 6-7, 2003. 12 Stuart Whitten, Martin van Bueren and Drew Collins “An Overview of Market-Based Instruments and Environmental Policy in Australia.” Paper presented at 2003 AARES Symposium, Auckland, New Zealand, October 6-7, 2003. 13 Stuart Whitten, Martin van Bueren and Drew Collins “An Overview of Market-Based Instruments and Environmental Policy in Australia.” Paper presented at 2003 AARES Symposium, Auckland, New Zealand, October 6-7, 2003.

Find the Next Wave to Ride On - New Business Strategies in the Changing World

Ping Chih

Word Count: 1,975, PIN: 10360

resources. 14 In response to the global war for talent, businesses are increasingly utilizing outsourcing and offshoring methods to reallocate production and distribution around the globe. 15 This translates to a deeper labor pool for corporations to draw from and thus the ability to be more selective during recruitment. Another consequence of accelerating trade is the tradability of all goods, resulting in drastic growth in over-the-counter markets. 16 Last year, “notional amounts of all categories of OTC derivatives contracts rose by 15% to almost $600 trillion.” 17 However, despite a reduction in trade barriers, the global financial crisis has seen virtually every developed nation aggressively bail out their own countries, resulting in a discernible nationalistic slant to trade. The U.S. has been fairly vocal about their protectionist business leanings. Obviously, globalization is more 'efficient' in the sense of comparative advantages, but in terms of risk it removes the buffer which existed with restricted trade, i.e. lower correlation of risk between countries because their economies were less dependent on international trade. As a result, it is likely that there will be an increase in propaganda for ‘Australian made’ or ‘Buy US.’ Ultimately, this will spill over to businesses who will mobilize by shifting focus to domestic consumption. To amplify these trends, technological innovation is proliferating at an astounding rate. Innovation allows business entities to manipulate service delivery by creating more accessible channels and simplifying client offerings. 18 The ultimate outcome is 14

Stuart Whitten, Martin van Bueren and Drew Collins “An Overview of Market-Based Instruments and Environmental Policy in Australia.” Paper presented at 2003 AARES Symposium, Auckland, New Zealand, October 6-7, 2003. 15 Stuart Whitten, Martin van Bueren and Drew Collins “An Overview of Market-Based Instruments and Environmental Policy in Australia.” Paper presented at 2003 AARES Symposium, Auckland, New Zealand, October 6-7, 2003. 16 Vikram, Pandit, “The Future of Global Financial Systems” Academic Search Premier(EBSCO)74, no. 8 (2008) http://app.search.lib.unimelb.edu.au/V/VB2VP4XJ1451XMYVYBNHJLFA9YBDYKLIIR2QHYQS8TLL6B3R6757951?func=meta-3&short-format=002&set_number=041994&set_entry=000005&format=999 17 Vikram, Pandit, “The Future of Global Financial Systems” Academic Search Premier(EBSCO)74, no. 8 (2008) http://app.search.lib.unimelb.edu.au/V/VB2VP4XJ1451XMYVYBNHJLFA9YBDYKLIIR2QHYQS8TLL6B3R6757951?func=meta-3&short-format=002&set_number=041994&set_entry=000005&format=999 18 Vikram, Pandit, “The Future of Global Financial Systems” Academic Search Premier(EBSCO)74, no. 8 (2008) http://app.search.lib.unimelb.edu.au/V/VB2VP4XJ1451XMYVYBNHJLFA9YBDYKLIIR2QHYQS8TLL6B3R6757951?func=meta-3&short-format=002&set_number=041994&set_entry=000005&format=999

Global Initiatives Symposium in Taiwan 2009

Word Count: 1,975, PIN: 10360

increasing business complexity implied by a nearly infinite variety of products and delivery channels. 19 While growth and complexity has always existed, the potentially enormous scale of business operations is truly novel. To illustrate, global retail banking sales via the internet are expected to be 17 percent of total sales in 2010 versus 2% in 2000. 20 Additionally, mobile payment transactions are expected to grow at a remarkable 80% percent per year for the next 5 years. Therefore, the implications for businesses include the ability to reach new customers. 21 The combination of the breakdown in trade barriers, the acceleration of trade, the rapid developments in technology, the non-uniformity in financial regulation have resulted in increasing unpredictability in the business world. The financial crisis has shown us the devastating ramifications of a financial system that is globalised and banking institutions that have enormous exposures to one another. Consequently, notions of ‘risk’ and ‘efficiency’ will need to be reformed. IV. Evaluation of Business Strategies responding to Developing Trends A. Geographic Expansion The successes and pitfalls of Wal-Mart’s growth strategy are a lesson for all businesses seeking geographic expansion. Wal-Mart stumbled in overseas markets in South Korea and Germany by misjudging local tastes and becoming “embroiled in controversy over pay and conditions.” 22 It is imperative that the decision to geographically diversify arises from a logical connection with the company’s strengths. Wal-Mart identified India as a target due to fragmentation in the existing supermarket industry and the presence of 19

Find the Next Wave to Ride On - New Business Strategies in the Changing World

Ping Chih

Word Count: 1,975, PIN: 10360

an expanding middle class. Nevertheless, the key differentiating factor from past failures is the entrance strategy via a joint venture with Bharti Enterprises, whom provided a deep understanding of local markets as “India’s most aggressive company.” 23 The key strength provided by Wal-Mart is its advanced inventory control and logistics expertise which also helped overcome resistance from authorities by convincing them that they would ultimately create new business markets. 24

B. Dealing with Changing Policies and Attitudes Changing policies and consumer sentiment to society’s environmental impact is mirrored in: the European Union’s agreement with the European Automobile Manufacturers Association to reduce automobile emissions by 25% over 10 years25 and the Kyoto Protocol 1997 pushing for emissions cuts.26 Therefore, businesses and sometimes entire industries are being forced to shift to sustainable business practices through either regulatory or market forces. Sustainable business development involves a consideration of external stakeholders previously outside the contemplation of most companies; and requires long-term focus emphasizing value maximization rather than being purely profit-driven. Researchers at the University of Massachusetts Amherst identified Proctor & Gamble as the 52nd largest corporate air pollution producer in the US. Following this, Proctor & Gamble stated an emissions reduction goal of 10% by 2012.27 Proctor & Gamble’s brand management is the cornerstone of its dominance in many categories of consumer products and thus they must be perceived as environmentally conscious. Environmental 23

Anand Giridharadas and Saritha Rai, "Wal-Mart to Open Hundreds of Stores in India", The New York Times." November 27, 2006, World Business Section, New York Times Electronic Edition. 24 Charles Fishman, comment on “Wal-Mart in India,” The New Economist Blog, comment posted on 01 December, 2006, http://neweconomist.blogs.com/new_economist/2006/12/walmart_in_indi.html. 25 Toyota, “ Toyota, environment & social report 2008” http://www.toyotaboshoku.co.jp/en/investment/pdf/2008/p11-14.pdf 26 Toyota, “Toyota, environment & social report 2008.” http://www.toyotaboshoku.co.jp/en/investment/pdf/2008/p11-14.pdf 27 Food, Nutrition and Science “ Sustainability Series: Proctor & Gamble” http://www.foodnutritionscience.com/index.cfm/do/monsanto.article/articleId/257.cfm

Global Initiatives Symposium in Taiwan 2009

Word Count: 1,975, PIN: 10360

compatibility has transformed into a key element of quality in the public’s mind and thus providing the impetus for sustainable business development. 28

C. Consumer Products: The importance of a customer centric focus Previously, this paper discussed the issue of increased business complexity and customer expectations for simple, innovative and user-friendly products. With product design, one strategy is to build global recognition and reputation for meeting the needs and expectations of most customers in different market conditions and situations; similar to MNCs such as Coca Cola and Pepsi.29 Alternatively, companies can utilize mass customization which involves creating a product platform that allows producers to change product configuration to meet unique specifications of specific customers or market segments. Microsoft Windows’ operating systems illustrate this strategy through product offerings in different languages, cultures, costs and applications. Corporations must reconcile the choice between standardization and specialization and the appropriate degrees of each. Standardization has the advantage of allowing high volume, cost effective and resource-efficient production and distribution, while customization allows creation of specific solutions and hence minimizing resource-use and waste. This decision is dependent on the business environment in which companies operate as well the way the company intends to compete, which involves long-term considerations. D. Financing Strategies

Barry Horstman, comment on “How To Learn From GE and P&G When The World Is About To Change,” Marketing Doctor Blog, comment posted on 06 June 2008, http://blog.marketingdoctor.tv/2008/06/06/dr-tantillos30second-how-to.aspx 29 The coca-cola company, “The coca-cola company, citizenship report, 2002, http://www.thecocacolacompany.com/ourcompany/pdf/2003_citizenship_report.pdf

Find the Next Wave to Ride On - New Business Strategies in the Changing World

Ping Chih

Word Count: 1,975, PIN: 10360

In light of the current financial crisis, a paper discussing the changing global economy would be incomplete without canvassing the issue of financing strategies. As mentioned earlier, liquidity has drastically decreased and hence placing pressure on business operations internationally. To navigate through the financial crisis, businesses need to adequately plan in order to execute effectively during economic downturns. Businesses must understand their financial positions to create balance sheets with the flexibility to respond to rapid market changes. Specifically, financing strategies generally relate to management of balance sheet impacts or the income statement. Balance sheet management can include repairing balance sheets damage caused by large asset write downs or incurring excessive bad debts. Solutions for increasing liquidity or reducing debt include selling assets and leasing them back. Businesses now require a reformation in the proportions of debt and equity they rely on. Many corporations have mirrored this mentality by raising money through rights issue to reduce debt, even at heavily discounted prices. Furthermore, businesses should consolidate their financial statements in order to provide a true and fair view of their financial and operating conditions to assist planning. Businesses should also be aware of the sensitivities of asset prices which underlie their debts. Contrastingly, income statement management aims to minimize tax. Adequate information combined with the analytical capability to understand one’s financial position can determine a businesses’ financial strategy to successfully steer through a multitude of conditions.

Conclusion: Summary of Key Business Strategies in the Changing Economy A common thread which runs through successful strategies of the MNCs discussed, include the connectivity of structures and networks through information sharing and standardized methods which allow the exploitation of advanced technology and the accumulation of knowledge regarding changing consumer preferences; to ultimately create customer-centric products. In reference to products and service delivery, businesses must proactively seek convenient, simple and hassle-free forms. 8

Global Initiatives Symposium in Taiwan 2009

Word Count: 1,975, PIN: 10360

Additionally, this paper has briefly introduced the notion of sustainable business development, which consists of inclusiveness, transparency and innovation. In the changing economy, companies must seek to transcend the traditional “profit and loss” mentality towards the idea of value maximization, which adopts a more holistic view of business strategy. In order to adopt this holistic perspective, companies must possess the analytical capability to recognize market trends through a deep understanding of industry drivers, various types of risks, emerging competitors, consumer preferences and the political and regulatory framework. The central implication of the developing trends is uncertainty. As the world becomes increasingly complex compared to earlier this century or during the industrial age, unexpected, large impact events are occurring much more frequently. The firms that will survive in this new era are the dynamic and responsive ones. The successful businesses are the Googles, which constantly evolve to respond to consumer feedback, rather than the stagnant car manufacturers failing to cater to consumer tastes. Consequently, business responses need to be more deliberate, rapid and thoroughly considered.

Find the Next Wave to Ride On - New Business Strategies in the Changing World

Ping Chih

Word Count: 1,975, PIN: 10360

BIBLIOGRAPHY 1. Bello, Walden, “ Turning their Backs on the World-The integration of the world economy is in retreat on almost every front”, The Economist (2009) http://focusweb.org/focus-walden-bello-coined-ther-term-deglobalisation-theeconomist.html?Itemid=1 2. Buttonwood, “Fuel for Thought” The Economist 388, no. 8592 (2008) http://www.economist.com/research/articlesbysubject/displaystory.cfm?subjectid =2512631&story_id=11896992 3. Pandit, Vikram, “The Future of Global Financial Systems” Academic Search Premier(EBSCO)74, no. 8 (2008) http://app.search.lib.unimelb.edu.au/V/VB2VP4XJ1451XMYVYBNHJLFA9YBDY KLIIR2QHYQS8TLL6B3R67-57951?func=meta-3&shortformat=002&set_number=041994&set_entry=000005&format=999 4. Fishman, Charles comment on “Wal-Mart in India,” The New Economist Blog, comment posted on 01 December, 2006, http://neweconomist.blogs.com/new_economist/2006/12/walmart_in_indi.html. 5. Food, Nutrition and Science “ Sustainability Series: Proctor & Gamble” http://www.foodnutritionscience.com/index.cfm/do/monsanto.article/articleId/25 7.cfm 6. Giridharadas, Anand and Rai, Saritha "Wal-Mart to Open Hundreds of Stores in India", The New York Times." November 27, 2006, World Business Section, New York Times Electronic Edition. 7. Horstman, Barry, comment on “How To Learn From GE and P&G When The World Is About To Change,” Marketing Doctor Blog, comment posted on 06 June 2008, http://blog.marketingdoctor.tv/2008/06/06/dr-tantillos-30secondhow-to.aspx 8. Milbank, Dana “Aluminum’s envious rivals turn green rush to show they too are recyclable” Wall Street Journal, Sep 18, 1991 9. Noorbakhsh, Sarah, “Marketing 101” Japanese inc Magazine Articles no. 78, July 3, 2008

Global Initiatives Symposium in Taiwan 2009

Word Count: 1,975, PIN: 10360

10. Rainey, David L., Sustainable Business Development, Cambridge University Press, 2006. 11. Tanzer, Andrew “Profit from the Fantastic Four,” Kiplinger’s Personal Finance 62 (2008) 8 12. The coca-cola company, “The coca-cola company, citizenship report, 2002, http://www.thecocacolacompany.com/ourcompany/pdf/2003_citizenship_report.pdf 13. The Economist (US), “Redesigning Global Finance” The Economist 389 (2008) 8606 14. Toyota, “ Toyota, environment & social report 2008” http://www.toyotaboshoku.co.jp/en/investment/pdf/2008/p11-14.pdf 15. "Wal-Mart Abandons German Venture." BBC News, July 28, 2006, Business section. 16. Whitten, Stuart, Van Bueren, Martin and Collins, Drew “An Overview of Market-Based Instruments and Environmental Policy in Australia.” Paper presented at 2003 AARES Symposium, Auckland, New Zealand, October 6-7, 2003.

11 Find the Next Wave to Ride On - New Business Strategies in the Changing World

Ping Chih

Global Initiatives Symposium in Taiwan 2009