Globalization Trends: An Emerging Markets Response to

Americanization

LIR 554October 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 $75-80,000)

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.”