ANALYZING GLOBAL TRENDS

for Business and Society

Week 1

Globalization

Mauro F. Guillén

Mini-Lecture 1.1

• What’s this class about?

• Manifestations of globalization.

• What’s the global economy?

Welcome to

Analyzing Global Trends!

• Global trends and their effects on:

– Consumer markets.

– Labor markets.

– Financial markets.

– Politics.

– Geopolitics.

– Natural resources.

– Global relationships.

I’m Mauro Guillén

• Professor at the Wharton School.

• Director of the Lauder Institute at the

University of Pennsylvania.

• I am originally from Spain.

• I have a passion: analyzing global trends.

• I’ve written 10 books and myriad articles on

various aspects of globalization.

Trends

• Global trends affect regions,

countries, industries, and even

firms in heterogeneous ways.

• They are tornadoes, not tsunamis.

• Trends entail both challenges and

opportunities.

• Uncertainty will be a key feature of

the 21st century: the new normal.

What’s needed?

• New programs, new products?

• New business models?

•New decision models?

•New mindset?

Some Initial Discussion Questions

• As of today, do more people in the world

live in cities or in the countryside?

• Are there more people suffering from

hunger or from obesity?

• Are the largest consumer markets, in the

U.S. and Europe, or in China and India?

• Is the number of failed states greater or

smaller than the number of dictatorships?

Some answers…

• More people live in cities than in the

countryside since 2009.

• There are more people suffering from

obesity than from hunger since about 2010.

• The largest consumer markets are in Europe

and the U.S. today, but within 20 years they

will be in India and China.

• There are more failed states than

dictatorships since the late 1980s.

What you will learn…

• Concepts and tools to analyze how the

world is changing.

• The direction and intensity of trends in the

global marketplace.

• The relevance of the main risks threatening

businesses and societies around the world.

How to Take this Class1. Take each week’s opinion survey. I will

post the results 24 hours after the deadline.

2. Watch the mini-lectures.

3. Try to answer the discussion questions.

4. Consult the powerpoint presentations.

5. Do the readings.

6. Answer the quiz or test at the end of each

week.

7. Participate in discussion forums and social

media.

Manifestations of Globalization

• Increased cross-border activity.

• Supra-national organizations and forums.

• Attempts at supra-national political

organization.

• Spread of ideas and practices.

• Awareness.

What is the Global Economy?

• Increasing flows of labor, money, goods, services,

and information.

• It is not just a discrete linking of nation-states.

• It’s “an economy with the capacity to work as a

unit in real time on a planetary scale.”*

• It is very different from the “world economy” of

the 14th, 16th, and 19th centuries.

• In its present form, it came into being during the

1980s.

* Manuel Castells, The Rise of the Network Society. Cambridge, MA: Blackwell (1996), p. 92.

Why so Fascinating?

• Because it puts two kinds of liberalism on a

collision course:

– Liberalism of the market, which is boundary-

transgressing. “The division of labor is limited

by the extent of the market.”

– Liberalism of citizenship, which seeks to

establish and maintain boundaries. “Relationship

between an individual and a state, with

associated individual rights and obligations.”

“Join the international anti-globalization movement.”

Mini-Lecture 1.2

• Can we measure globalization?

• Basic definitions and conventions.

• Making projections into the future.

Two Approaches to Measurement

• Aggregate indicators such as trade,

investment, Internet use, tourism, etc.

• Networks: Data on dyadic relationships.

Aggregate Globalization IndicatorsIndicators: 1980 1985 1990 1995 2000 2005 2010

A. Economic:

Exports + imports of goods & services, % world GDP 38.4 37.8 38.0 41.8 48.8 53.7 56.0

Developed countries, % GDP 39.5 39.1 38.0 40.9 48.1 52.0 55.9

Emerging & Developing countries, % GDP 32.8 31.2 38.1 46.4 52.5 62.0 56.7

Inward foreign direct investment stock, % world GDP 6.5 8.3 9.4 11.3 23.1 25.2 29.7

Developed countries, % GDP 4.9 6.5 8.9 10.8 22.7 25.3 30.7

Emerging & Developing countries, % GDP 11.8 14.7 13.6 16.4 40.1 50.2 60.3

Emerging & developing economies:

% of global GDP, at purchasing power parities 31.7 32.7 32.7 33.0 34.2 38.5 45.2

% of global outward foreign direct investment stock 13.1 9.6 7.0 9.2 11.0 11.5 17.8

% of global foreign exchange reserves … … … 32.9 37.1 51.9 66.6

B. Financial:

Daily currency exchange turnover, % world GDPa 0.7 1.3 3.8 5.6 6.8

4.6

k 6.3

Cross-border banking external assets, % world GDPb 13.7 19.9 28.1 28.5 34.2 54.0 47.9

Cross-border bank loan & deposit stock, % world GDPb 13.9 19.9 34.3 33.1 37.6 39.1 34.9

C. Internet:

Users, % world population: … … 0.1 0.8 6.7 16.0 30.2

Developed countries, % population … … 0.3 3.7 30.5 59.4 73.4

Emerging & Developing countries, % population … … 0.0 0.0 1.5 7.3 21.5

D. Demographic:

Stock of international migrants, % world population 2.2 2.3 3.0 2.9 2.9 3.0 3.1

Refugee population, % world population … … … 0.3 0.2 0.1 0.2

Worker’s remittances, % of world GDP

E. Political:

0.41 0.39 0.42 0.36 0.43 0.63 0.75m

Nation-states with membership in the United Nations

International organizations, number:

154 159 159 185 189 191 192

Intergovernmental 337i 378 300

j … 243 244 253

Non-governmental 4265 i 4676 4621

j … 6357 7412 8198

F. Social & Cultural

International tourist arrivals, % world population 3.5 6.7 8.6 9.5 11.4 13.0 13.7

Books on the topic of globalization e

577 1107 2152 4853 10525 22405 38440

Notes: … Data not available. a Data are for 1979, 1984, 1989, 1995, 1998 and 2004. b Data

are for 1981, 1986, 1991, 1995, 2000, and 2006. d Excludes international calls using cellular

phones or private networks. e Books with the subject or title keywords “global” or

“globalization,” published in any language until each year, as searched on August 20, 2010. f

1991. g 2002. h 1998. i 1981. j 1989. k 2004. l 2007. m 2009.

Sources: World Development Indicators; World Investment Report; Bank for International

Settlements; United Nations; International Monetary Fund; International Telecommunication

Union, Key Global Telecom Indicators; Yearbook of International Organizations; Bowker’s

Global Books in Print.

For background information, see Mauro F. Guillén, “Is Globalization Civilizing, Destructive

or Feeble? A Critique of Five Key Debates in the Social-Science Literature.” Annual Review

of Sociology 27 (2001):235-260.

Compiled by Mauro F. Guillén, The Wharton School of the University of Pennsylvania,

guillen@wharton.upenn.edu

How Fast is ‘Fast’?

Variable

Index 2010

(1980=100)

Exports plus imports 146

Foreign direct investment stock 457

Daily currency exchange turnover 900

Nongovernmental international organizations 192

International migration stock 141

International tourism 391

Books in print on globalization 6662

Global Internet Traffic

Source: TeleGeography : www.telegeography.com.

Reproduced by permission.

Submarine Cables

Free reproduction allowed: https://github.com/telegeography/www.submarinecablemap.com

Definitions

• Gross Domestic Product:

– The total value of goods and services produced

in an economy during a given year.

• The economy consists of:

– Households.

– Firms.

– Financial institutions.

– Government.

Simple Calculations: Ratio

• Ratio: one number divided by another.

– Example: The total dependency ratio is the

ratio of the sum of the population aged 0-19 and

that aged 65+ to the population aged 20-64. For

China, it is about 0.5 nowadays but is predicted

to grow to 1.0 by 2075.

– A ratio can also be expressed as a percentage

(%) by multiplying it by 100.

Simple Calculations: Rate

• Rate: is the pace or rhythm at which a

magnitude changes over a certain period of

time. Typically expressed as a percentage.

– Example: The GDP growth rate in 2012 was

7.8% in China, compared to just 2.2% in the

United States.

– Example: The inflation rate in China during

2012 was 2.6%.

– Nota bene: The “unemployment rate” is more

properly called the “unemployment ratio.”

Simple Calculations: Index Number

• Index number: reveals the change in a

magnitude between two points in time. The

first of those two points is called the base.

The base is typically set at a value of 100.

– Example: If Chinese GDP grew by 7.8% during

2012, then the index number for the end of the

year is 107.8.

Simple Calculations: Proportion

• Proportion: A measure of a part with respect

to the whole. Typically expressed as a

percentage (%).

– Example: The income of the one-percent richest

Americans was 7.8% of total income in 1970.

By 2012, it had grown to 19.3%.

Large Numbers

• In the United States:

– 1 billion = 1,000,000,000

– 1 trillion = 1,000,000,000,000

• In your part of the world, perhaps:

– 1 billion = 1,000,000,000,000

– 1 trillion = 1,000,000,000,000,000,000

• In this class, we will use the U.S.

convention.

World population projections 2011-2100 (in billions)

Source of the data: United Nations Population Division, World Population Prospects: The 2012 Revision.

Discussion Question

• Which of the four projections do you

believe is least likely?

Mini-Lecture 1.3

• International trade.

• Foreign investment.

• Multinational firms.

International Trade

• Cross-border flows of goods & services.

• Why does it take place? Theory of comparative advantage.

• Free trade may be good overall, but it does generate winners & losers.

Absolute Advantage

Adam Smith (1776)

“If a foreign country can supply us with a

commodity cheaper than we ourselves can

make it, better buy it of them with some part

of the produce of our own industry, employed

in a way in which we have some advantage.”

Relative Advantage

David Ricardo (1819)

Unit Labor Costs Cloth Wine

Britain 100 110

Portugal 90 80

Other Considerations

• Transportation costs.

• Other costs of trade.

• Scale economies.

• Product differentiation.

Aggregate Globalization IndicatorsIndicators: 1980 1985 1990 1995 2000 2005 2010

A. Economic:

Exports + imports of goods & services, % world GDP 38.4 37.8 38.0 41.8 48.8 53.7 56.0

Developed countries, % GDP 39.5 39.1 38.0 40.9 48.1 52.0 55.9

Emerging & Developing countries, % GDP 32.8 31.2 38.1 46.4 52.5 62.0 56.7

Inward foreign direct investment stock, % world GDP 6.5 8.3 9.4 11.3 23.1 25.2 29.7

Developed countries, % GDP 4.9 6.5 8.9 10.8 22.7 25.3 30.7

Emerging & Developing countries, % GDP 11.8 14.7 13.6 16.4 40.1 50.2 60.3

Emerging & developing economies:

% of global GDP, at purchasing power parities 31.7 32.7 32.7 33.0 34.2 38.5 45.2

% of global outward foreign direct investment stock 13.1 9.6 7.0 9.2 11.0 11.5 17.8

% of global foreign exchange reserves … … … 32.9 37.1 51.9 66.6

B. Financial:

Daily currency exchange turnover, % world GDPa 0.7 1.3 3.8 5.6 6.8

4.6

k 6.3

Cross-border banking external assets, % world GDPb 13.7 19.9 28.1 28.5 34.2 54.0 47.9

Cross-border bank loan & deposit stock, % world GDPb 13.9 19.9 34.3 33.1 37.6 39.1 34.9

C. Internet:

Users, % world population: … … 0.1 0.8 6.7 16.0 30.2

Developed countries, % population … … 0.3 3.7 30.5 59.4 73.4

Emerging & Developing countries, % population … … 0.0 0.0 1.5 7.3 21.5

D. Demographic:

Stock of international migrants, % world population 2.2 2.3 3.0 2.9 2.9 3.0 3.1

Refugee population, % world population … … … 0.3 0.2 0.1 0.2

Worker’s remittances, % of world GDP

E. Political:

0.41 0.39 0.42 0.36 0.43 0.63 0.75m

Nation-states with membership in the United Nations

International organizations, number:

154 159 159 185 189 191 192

Intergovernmental 337i 378 300

j … 243 244 253

Non-governmental 4265 i 4676 4621

j … 6357 7412 8198

F. Social & Cultural

International tourist arrivals, % world population 3.5 6.7 8.6 9.5 11.4 13.0 13.7

Books on the topic of globalization e

577 1107 2152 4853 10525 22405 38440

The Multinational Enterprise

(MNE)

• A company with operations in at least two

different nation-states.

• Another important term: foreign direct (as

opposed to portfolio) investment, or FDI.

• It is a very controversial species… … …

How Important are MNEs?

• There are 104,000 MNEs in the world.

• They control about 790K subsidiaries.

• 71% of all MNEs are based in rich countries.

• The 500 largest MNEs account for 25% of world product, and 50% of world trade.

• MNEs receive 80% of all payments for technology royalties and fees.

Multinationals as “Citizens of the World”

“The Tommy Hilfiger Corporation [is] headquartered

in Hong Kong, incorporated in the British Virgin

Islands, listed on the New York Stock Exchange,

owned primarily by international institutional

investors, held its annual meeting [of shareholders]

in Barbados, sourced production to manufacturers

in Mexico and Asia, licensed its name to producers

globally, and retailed its ‘classic American

clothing’ in Europe and North America.”

Gerald F. Davis, in the Handbook of Economic

Sociology, pp. 480-481.

Discussion Questions

• Which do you think is the country whose

firms have invested the most abroad right

up to the present time?

• And the country ranked in second place?

Country

$ billion % of GDP

1990 2012 1990 2012

China 4.5 509.0 1.1 6.3

Hong Kong 11.9 1,309.8 15.5 509.1

Taiwan 30.4 226.1 18.4 47.5

India 0.1 118.2 0.0 6.4

Singapore 7.8 401.4 21.2 148.4

South Korea 2.3 196.4 0.9 17.0

Malaysia 0.8 120.4 1.7 39.7

Argentina 6.1 32.9 4.3 6.9

Brazil 41.0 232.8 9.4 10.3

Chile 0.2 97.1 0.5 36.5

Colombia 0.4 31.6 1.0 8.6

Mexico 2.7 137.7 1.0 11.7

Panama 3.9 37.7 73.4 106.5

Peru 0.1 4.0 0.4 2.0

Venezuela 1.2 20.9 2.6 5.5

Russia … 413.2 … 20.9

Turkey 1.2 30.5 0.6 3.9

UAE 0.1 60.3 0.0 17.1

Egypt 0.2 6.3 0.4 2.5

South Africa 15.0 82.4 13.4 21.1

Ireland 14.9 357.6 31.2 170.5

Spain 15.7 627.2 3.0 46.4

USA 731.8 5,191.2 12.6 33.1

France 112.4 1,496.8 9.0 57.3

Germany 151.6 1,547.2 8.8 45.6

Italy 60.2 565.1 5.3 28.1

Holland 106.9 975.6 35.9 126.3

United Kingdom 229.3 1,808.2 23.1 74.3

Japan 201.4 1,054.9 6.7 17.8

Developed countries 1948.6 18,672.6 11.1 43.3

Emerging and developing countries 145.2 4,459.4 4.1 17.5

World total 2086.8 23,592.7 9.9 33.1

Stocks of

Foreign

Direct

Investment

Source: World

Investment Report

(2013).

Firm Country Industry Global Market Position

Arcor Argentina Confectionery #1 candy manufacturer

Bimbo Mexico Food processing #1 in bread

JBS Brazil Food processing #1 in meat

Modelo Mexico Beverages #1 import beer brand

Vale Brazil Mining #3

Tenaris Argentina Steel #1 in seamless tubes

Bharat Forge India Metals #2 in forgings

Cemex Mexico Cement #1 in ready-mix concrete

Haier China Household appliances #1 in white goods

Braskem Brazil Bioplastics #1

BYD China Batteries #1 in Ni-Cd batteries

Acer Taiwan Personal computers #2

Lenovo China Personal computers #4

Samsung Electronics S Korea Consumer electronics #1 in chips & LCDs, #2 in phones

Embraer Brazil Aircraft #1 in regional jets

Cosan Brazil Energy #1 in biofuels

Tata Communications India Telecom operator #1 wholesale voice carrier

Mini-Lecture 1.4

• Financial globalization.

• Financial interconnectedness.

Global Financial Markets

• Foreign portfolio investment.

• Currency markets:

– Only 10% are commercial transactions.

– Discussion Question: What accounts for the

other 90%?

• Financial globalization has grown faster

than economic globalization.

Globalization IndicatorsIndicators: 1980 1985 1990 1995 2000 2005 2010

A. Economic:

Exports + imports of goods & services, % world GDP 38.4 37.8 38.0 41.8 48.8 53.7 56.0

Developed countries, % GDP 39.5 39.1 38.0 40.9 48.1 52.0 55.9

Emerging & Developing countries, % GDP 32.8 31.2 38.1 46.4 52.5 62.0 56.7

Inward foreign direct investment stock, % world GDP 6.5 8.3 9.4 11.3 23.1 25.2 29.7

Developed countries, % GDP 4.9 6.5 8.9 10.8 22.7 25.3 30.7

Emerging & Developing countries, % GDP 11.8 14.7 13.6 16.4 40.1 50.2 60.3

Emerging & developing economies:

% of global GDP, at purchasing power parities 31.7 32.7 32.7 33.0 34.2 38.5 45.2

% of global outward foreign direct investment stock 13.1 9.6 7.0 9.2 11.0 11.5 17.8

% of global foreign exchange reserves … … … 32.9 37.1 51.9 66.6

B. Financial:

Daily currency exchange turnover, % world GDPa 0.7 1.3 3.8 5.6 6.8

4.6

k 6.3

Cross-border banking external assets, % world GDPb 13.7 19.9 28.1 28.5 34.2 54.0 47.9

Cross-border bank loan & deposit stock, % world GDPb 13.9 19.9 34.3 33.1 37.6 39.1 34.9

C. Internet:

Users, % world population: … … 0.1 0.8 6.7 16.0 30.2

Developed countries, % population … … 0.3 3.7 30.5 59.4 73.4

Emerging & Developing countries, % population … … 0.0 0.0 1.5 7.3 21.5

D. Demographic:

Stock of international migrants, % world population 2.2 2.3 3.0 2.9 2.9 3.0 3.1

Refugee population, % world population … … … 0.3 0.2 0.1 0.2

Worker’s remittances, % of world GDP

E. Political:

0.41 0.39 0.42 0.36 0.43 0.63 0.75m

Nation-states with membership in the United Nations

International organizations, number:

154 159 159 185 189 191 192

Intergovernmental 337i 378 300

j … 243 244 253

Non-governmental 4265 i 4676 4621

j … 6357 7412 8198

F. Social & Cultural

International tourist arrivals, % world population 3.5 6.7 8.6 9.5 11.4 13.0 13.7

Books on the topic of globalization e

577 1107 2152 4853 10525 22405 38440

Economic & Financial Governance

• Capitalism needs certain institutions:

– Protection of property rights.

– Rule of law.

– Stable payment system and financial system.

• Can global capitalism exist in the absence of global governance?

• Options:

– Multilateral organizations: IMF, World Bank.

– Hegemonic economic power (USA, China, etc.).

– G5, G7, G8, G20?

– Global body with elected officials.

Financial

Interconnectedness

http://www.imf.org/external/np/pp/eng/2010/100410.pdf

Reproduced with permission. http://www.imf.org/external/pubs/ft/wp/2011/wp1174.pdf

Cross-Border Bank Lending

The Great RecessionProportion of OECD Countries

with at least two consecutive quarters of GDP decline

Source: Figure 2.2 in Guillen and Ontiveros, Global Turning Points (Cambridge Univ Press, 2012).

Mini-Lecture 1.5

• Globalization and the concept of

isomorphism.

• Drivers of globalization.

Isomorphism

• Is the tendency of actors, organizations or

other types of entities to become more

similar or to adopt common patterns of

behavior over time.

• Isomorphism can result from several

dynamics, which we shall call “drivers.”

Examples of Isomorphism

• The modern nation-state.

• The ministry of foreign affairs.

• Prohibition of child labor.

• General schooling.

• Tourism promotion offices.

• Newspapers.

• Blue jeans.

• Pop music.

Drivers of Globalization:

Isomorphic PressuresDriver: Mechanism: Examples:

Normative Shared ideologies, worldviews,

frameworks, or templates

Keynesianism, neo-

liberalism, democracy,

legal traditions, culture

Coercive Power, dependency Hegemonic states,

multilateral organizations,

multinational firms

Mimetic Frequency-based imitation to

cope with uncertainty and/or

secure legitimacy

Bandwagons, fads,

fashions

Emulative Trait-based imitation driven by

the legitimacy of the source

Hegemonic states, states

considered to be

successful or innovative

Competitive Performance Markets

Boundary Conditions

• Certain countries are more exposed to

isomorphic pressures:

– Dependent states.

– States more embedded in trade.

– Democratic states.

– States with smaller levels of public spending.

• Discussion question: Why are countries

with smaller levels of public spending more

exposed?

Mini-Lecture 1.6

• The paradoxes of globalization.

Three Paradoxes• Paradox of predictability:

– The global system is highly structured and predictable.

– It is also prone to unpredictable disruptions, crises, and even

systemic breakdown.

• Paradox of coupling:

– Tight coupling among system components, especially

financially, economically, environmentally, and

demographically.

– There is increasing institutional decoupling between adoption

dynamics and outcomes.

• Paradox of differentiated convergence:

– Isomorphic pressures towards convergence.

– Differentiation and specialization.

Mini-Lecture 1.7

• The consequences of globalization.

• Winners and losers.

Effects of Globalization

• Civilizing.

• Destructive.

• Feeble.

Discussion Questions

• Is there more or less inequality in the world

today compared to, say, 10, 20 or 30 years

ago?

• Is globalization responsible for changes in

inequality?

Income Inequality Across Countries

Gini coefficients measured vertically. Mauro F. Guillén. Source: World Development Indicators.

Inequality Within Countries:Income Gini Coefficients: Developed Countries

Mauro F. Guillén. Data Source: All the Ginis Dataset, World Bank.

Inequality Within Countries:Income Gini Coefficients: Developing Countries

Mauro F. Guillén. Data Source: All the Ginis Dataset, World Bank.

Winners & Losers (?)

• Capital.

• Educated workers.

• Strong states.

• Economy ministry.

• Rich countries.

• Labor.

• Unskilled workers.

• Weak states.

• Labor & social ministry.

• Poor countries.

Mini-Lecture 1.8

• Tensions and institutions.

• Systemic global disruptions.

Key Tensions

• They occur at the border between the four

key subcomponents:

– Economic (including financial).

– Socio-Demographic.

– Political.

– Geopolitical.

Key Institutions

• Labor market.

• Political representation system.

• The state.

• The international system of states.

Week 1 Suggested Readings

• Mauro F. Guillén and Emilio Ontiveros,

Global Turning Points, chapter 1.

• ALL READINGS ARE FREE AND

AVAILABLE ONLINE.

Global Literacy Test

• Now that we have covered the basics,

please take the Global Literacy Test.

• I will ask you to take it again upon

completion of this course.