Ping Chih

Ping Chih

Word Count: 1,975, PIN: 10360

1

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

Changing World

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=118969922 Vikram, Pandit, “The Future of Global Financial Systems” Academic Search Premier(EBSCO)74, no. 8 (2008)http://app.search.lib.unimelb.edu.au/V/VB2VP4XJ1451XMYVYBNHJLFA9YBDYKLIIR2QHYQS8TLL6B3R67-57951?func=meta-3&short-format=002&set_number=041994&set_entry=000005&format=999

Ping Chih

Global Initiatives Symposium in Taiwan 2009

Ping Chih


2

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

3 Vikram, Pandit, “The Future of Global Financial Systems” Academic Search Premier(EBSCO)74, no. 8 (2008)http://app.search.lib.unimelb.edu.au/V/VB2VP4XJ1451XMYVYBNHJLFA9YBDYKLIIR2QHYQS8TLL6B3R67-57951?func=meta-3&short-format=002&set_number=041994&set_entry=000005&format=9994 Vikram, Pandit, “The Future of Global Financial Systems” Academic Search Premier(EBSCO)74, no. 8 (2008)http://app.search.lib.unimelb.edu.au/V/VB2VP4XJ1451XMYVYBNHJLFA9YBDYKLIIR2QHYQS8TLL6B3R67-57951?func=meta-3&short-format=002&set_number=041994&set_entry=000005&format=9995 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-the-economist.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=118969927 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-the-economist.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/VB2VP4XJ1451XMYVYBNHJLFA9YBDYKLIIR2QHYQS8TLL6B3R67-57951?func=meta-3&short-format=002&set_number=041994&set_entry=000005&format=999

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


3

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

9 Vikram, Pandit, “The Future of Global Financial Systems” Academic Search Premier(EBSCO)74, no. 8 (2008)http://app.search.lib.unimelb.edu.au/V/VB2VP4XJ1451XMYVYBNHJLFA9YBDYKLIIR2QHYQS8TLL6B3R67-57951?func=meta-3&short-format=002&set_number=041994&set_entry=000005&format=99910Walden, 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-the-economist.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. 12Stuart 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.


Ping Chih


4

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/VB2VP4XJ1451XMYVYBNHJLFA9YBDYKLIIR2QHYQS8TLL6B3R67-57951?func=meta-3&short-format=002&set_number=041994&set_entry=000005&format=99917 Vikram, Pandit, “The Future of Global Financial Systems” Academic Search Premier(EBSCO)74, no. 8 (2008)http://app.search.lib.unimelb.edu.au/V/VB2VP4XJ1451XMYVYBNHJLFA9YBDYKLIIR2QHYQS8TLL6B3R67-57951?func=meta-3&short-format=002&set_number=041994&set_entry=000005&format=99918 Vikram, Pandit, “The Future of Global Financial Systems” Academic Search Premier(EBSCO)74, no. 8 (2008)http://app.search.lib.unimelb.edu.au/V/VB2VP4XJ1451XMYVYBNHJLFA9YBDYKLIIR2QHYQS8TLL6B3R67-57951?func=meta-3&short-format=002&set_number=041994&set_entry=000005&format=999



5

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 Vikram, Pandit, “The Future of Global Financial Systems” Academic Search Premier(EBSCO)74, no. 8 (2008)http://app.search.lib.unimelb.edu.au/V/VB2VP4XJ1451XMYVYBNHJLFA9YBDYKLIIR2QHYQS8TLL6B3R67-57951?func=meta-3&short-format=002&set_number=041994&set_entry=000005&format=99920 Vikram, Pandit, “The Future of Global Financial Systems” Academic Search Premier(EBSCO)74, no. 8 (2008)http://app.search.lib.unimelb.edu.au/V/VB2VP4XJ1451XMYVYBNHJLFA9YBDYKLIIR2QHYQS8TLL6B3R67-57951?func=meta-3&short-format=002&set_number=041994&set_entry=000005&format=99921 Vikram, Pandit, “The Future of Global Financial Systems” Academic Search Premier(EBSCO)74, no. 8 (2008)http://app.search.lib.unimelb.edu.au/V/VB2VP4XJ1451XMYVYBNHJLFA9YBDYKLIIR2QHYQS8TLL6B3R67-57951?func=meta-3&short-format=002&set_number=041994&set_entry=000005&format=99922 "Wal-Mart Abandons German Venture." BBC News, July 28, 2006, Business section.


Ping Chih


6

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.toyota-boshoku.co.jp/en/investment/pdf/2008/p11-14.pdf 26 Toyota, “Toyota, environment & social report 2008.” http://www.toyota-boshoku.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



7

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

28 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-tantillos-30second-how-to.aspx 29 The coca-cola company, “The coca-cola company, citizenship report, 2002, http://www.thecoca-colacompany.com/ourcompany/pdf/2003_citizenship_report.pdf


Ping Chih


8

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.



9

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.


Ping Chih


10

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-the-economist.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/VB2VP4XJ1451XMYVYBNHJLFA9YBDYKLIIR2QHYQS8TLL6B3R67-57951?func=meta-3&short-format=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/257.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-30second-how-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



11

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.thecoca-colacompany.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.toyota-boshoku.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.


Ping Chih

Documents

Ping Chih