Looking beyond the obviousGlobalization and new opportunities for growthJanuary 2013
Looking beyond the obvious►   Globalization continues to define our business landscape.►   Business leaders need to react ...
Agenda►   About the survey►   Key themes:    1.   Globalization will continue, but it’s different now    2.   Companies mu...
About the surveyWe conducted quantitative and qualitative research.Survey demographics:►  433 respondents from developed m...
Globalization will continue, but it’s different nowPage 5          Globalization – Looking beyond the obvious
How globalization is changingPage 6        Globalization – Looking beyond the obvious
Technology will be the driver of globalizationPage 7         Globalization – Looking beyond the obvious
Companies must make “big bets”Page 8       Globalization – Looking beyond the obvious
Big bets►   Organizations are faced with unprecedented uncertainty.►   It’s not always clear where the next opportunity li...
―You can’t play in every market. If you look at Nigeria with   180 million people and Indonesia with 180 million   people,...
The BRICs are still reliable options for nowPage 11        Globalization – Looking beyond the obvious
The BRICs►   The BRIC countries were the big bets of the previous decade.►   These remain critical markets — both in terms...
BRIC growth will outpace that of other indexcountriesPage 13       Globalization – Looking beyond the obvious
Protectionism remains a concernPage 14       Globalization – Looking beyond the obvious
‖ Emerging markets have had a bit of a rough ride over the past 12    months, proving once again that on a cyclical basis ...
But the momentum is shifting to other hot spotsPage 16        Globalization – Looking beyond the obvious
Hot growth markets►   Companies need to explore additional growth markets beyond the BRICs.►   Non-BRIC rapid-growth marke...
Non-BRIC markets have high levels ofintegration                       4.00                       3.50                     ...
Top competitive drivers for non-BRICemerging marketsPage 19       Globalization – Looking beyond the obvious
A source of new demand opportunityPage 20      Globalization – Looking beyond the obvious
An improving business environmentPage 21      Globalization – Looking beyond the obvious
But concerns about corruption remainPage 22       Globalization – Looking beyond the obvious
Are developed markets worth betting on?Page 23       Globalization – Looking beyond the obvious
Developed markets►   Developed markets are still major drivers of world economic activity.►   In certain sectors and areas...
Advanced economies remain key drivers ofeconomic activityPage 25      Globalization – Looking beyond the obvious
Developed markets remain key to the bottomlinePage 26       Globalization – Looking beyond the obvious
Companies plan to bring productioncapability back to developed marketsPage 27       Globalization – Looking beyond the obv...
Top export markets take advantage oftechnology integrationPage 28       Globalization – Looking beyond the obvious
―We brought back the manufacture of refrigeration units  from Mexico to the US for one very simple reason. It  takes eight...
Operational changes are essential to pickingthe right big betsPage 30        Globalization – Looking beyond the obvious
Operational challenges1.   Strategic planning: allocate resources in a bold and focused way2.   Execution: make your big-b...
1. Strategic planning: allocate resources in a   bold and focused way►   Companies need to make sure that they:    ► Choos...
2. Execution: make your big-bet investments   as local and granular as possible►   Companies need to make sure that they: ...
Big bets based on dataPage 34       Globalization – Looking beyond the obvious
3. Learning: transform your company into   a “learning organization”►   Companies need to make sure that they:    ►     Im...
Investing in ITPage 36           Globalization – Looking beyond the obvious
Case studiesPage 37        Globalization – Looking beyond the obvious
Heathrow: global decision-making takes off►   The passenger profile for UK visitors has changed.►   Heathrow’s capital str...
The NFL: scoring with technology►   The NFL has experienced numerous bumps on the road to    globalization.►   It is now f...
Tata Power: energizing the community►   Companies that invest in rapid-growth markets need to contribute to    society, no...
SectorsPage 41   Globalization – Looking beyond the obvious
Automotive: driving toward a granularapproach►   Automotive companies are looking beyond the BRICs for growth.►   Demograp...
Oil and gas: redrawing the global energy map►   Shale gas in the US is redrawing the global energy map.►   Cheap energy in...
Technology: understanding the fourtransformational forces1.    Mobile is creating an entirely different relationship betwe...
The Globalization IndexPage 45       Globalization – Looking beyond the obvious
The Globalization Index►   Globalization has become more nuanced since 2011.►   There is growth in the integration of good...
Updated methodology►   The index was developed in 2009 in conjunction with the Economist    Intelligence Unit.►   As globa...
2012 Globalization Index: 1 – 30                                                            *Special Administrative Region...
2012 Globalization Index: 31 – 60Page 49        Globalization – Looking beyond the obvious
2012 Globalization Index: indicators, sourcesand weightingsPage 50       Globalization – Looking beyond the obvious
Ernst & Young  Assurance | Tax | Transactions | Advisory  About Ernst & Young  Ernst & Young is a global leader in assuran...
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Looking beyond the obvious - Globalization and new opportunities for growth

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The changing face of globalization will have a profound impact on the business landscape. A constant challenge for business leaders is to anticipate and interpret how globalization is changing, while understanding the opportunities and risks it creates. Although there may be little they can do to change global demographic shifts or capital flows, business leaders can react effectively to the forces of globalization or, even better, anticipate them to their advantage.

Looking beyond the obvious: globalization and new opportunities for growth, looks at the most important elements of globalization for business. Drawing on three sources of research, including Ernst & Young’s 2012 Globalization Index, we explore the trends and issues business leaders must consider to move ahead.

In this uncertain world, companies will need to look for growth in new ways and from new places. The businesses that will ride the next wave of economic growth will be those that understand the significance of globalization and tailor their strategies accordingly.

www.ey.com/globalization

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Looking beyond the obvious - Globalization and new opportunities for growth

  1. 1. Looking beyond the obviousGlobalization and new opportunities for growthJanuary 2013
  2. 2. Looking beyond the obvious► Globalization continues to define our business landscape.► Business leaders need to react to and anticipate these trends.► Prospering in an environment where globalization is evolving requires constant refinement of strategy.► Companies need to explore new markets and establish well-rounded global portfolios.► It is time for business leaders to respond with flexibility, speed and unconventional thinking.Page 2 Globalization – Looking beyond the obvious
  3. 3. Agenda► About the survey► Key themes: 1. Globalization will continue, but it’s different now 2. Companies must make big bets 3. The BRICs are still reliable options for now 4. But the momentum is shifting to other hot spots 5. Are developed markets worth betting on? 6. Operational changes are essential to picking the right big bets and increasing their chances of a payoff► Case studies► Sectors► The globalization indexPage 3 Globalization – Looking beyond the obvious
  4. 4. About the surveyWe conducted quantitative and qualitative research.Survey demographics:► 433 respondents from developed markets► 297 from rapid-growth markets (139 from Brazil, Russia, India and China and 158 from other rapid-growth markets)► 23% have annual revenues greater than US$10 billion► 24% between US$1 billion and US$9.9 billion► 49% between US$100 million and US$999.9 million► 4% under US$4 millionInterviews:► We conducted a series of interviews with CEOs, leading academics and other globalization experts.Page 4 Globalization – Looking beyond the obvious
  5. 5. Globalization will continue, but it’s different nowPage 5 Globalization – Looking beyond the obvious
  6. 6. How globalization is changingPage 6 Globalization – Looking beyond the obvious
  7. 7. Technology will be the driver of globalizationPage 7 Globalization – Looking beyond the obvious
  8. 8. Companies must make “big bets”Page 8 Globalization – Looking beyond the obvious
  9. 9. Big bets► Organizations are faced with unprecedented uncertainty.► It’s not always clear where the next opportunity lies.► It may be tempting to stick to proven investment destinations.► To ride the next wave of growth, companies will need to make big bets that match or complement their existing competencies, on: ► Markets ► Categories ► TechnologiesPage 9 Globalization – Looking beyond the obvious
  10. 10. ―You can’t play in every market. If you look at Nigeria with 180 million people and Indonesia with 180 million people, Indonesia is probably an easier choice than Nigeria, although maybe in the longer term Nigeria may have a bigger potential. It’s those sorts of calls that we have to make.‖ — Ian Hudson, President for Europe, Middle East and Africa at DupontPage 10 Globalization – Looking beyond the obvious
  11. 11. The BRICs are still reliable options for nowPage 11 Globalization – Looking beyond the obvious
  12. 12. The BRICs► The BRIC countries were the big bets of the previous decade.► These remain critical markets — both in terms of growth and global integration.► Yet the challenges of operating in these markets are increasing.Page 12 Globalization – Looking beyond the obvious
  13. 13. BRIC growth will outpace that of other indexcountriesPage 13 Globalization – Looking beyond the obvious
  14. 14. Protectionism remains a concernPage 14 Globalization – Looking beyond the obvious
  15. 15. ‖ Emerging markets have had a bit of a rough ride over the past 12 months, proving once again that on a cyclical basis they are vulnerable to disappointments in other parts of the world. China wobbled this year, but with more stimulus, its growth should come back on track. India has struggled with a lack of supply, reform and investment in the right areas. Brazil, always a very cyclical economy, slowed significantly through the course of this year, and its recovery will depend to some extent on growth in other parts of the world.‖ — Stephen King, Chief Economist at HSBCPage 15 Globalization – Looking beyond the obvious
  16. 16. But the momentum is shifting to other hot spotsPage 16 Globalization – Looking beyond the obvious
  17. 17. Hot growth markets► Companies need to explore additional growth markets beyond the BRICs.► Non-BRIC rapid-growth markets are emerging as hot spots for global business.► These markets are becoming increasingly important sources of demand — not just low-cost investment destinations.► In many of these markets, the business environment is improving significantly.Page 17 Globalization – Looking beyond the obvious
  18. 18. Non-BRIC markets have high levels ofintegration 4.00 3.50 3.00 Rapid Growth Rapid-growth Markets ,Ex. BRICs Markets exc. BRICs BRICs 2.50 BRICs 2.00 2004 2007 2010 2000 2001 2002 2003 2005 2006 2008 2009 2011 2012 2013 2014 2015 2016 Source: Ernst & Young 2013 Globalization Index (Economist Intelligence Unit, 2012; Ernst & Young analysis)Page 18 Globalization – Looking beyond the obvious
  19. 19. Top competitive drivers for non-BRICemerging marketsPage 19 Globalization – Looking beyond the obvious
  20. 20. A source of new demand opportunityPage 20 Globalization – Looking beyond the obvious
  21. 21. An improving business environmentPage 21 Globalization – Looking beyond the obvious
  22. 22. But concerns about corruption remainPage 22 Globalization – Looking beyond the obvious
  23. 23. Are developed markets worth betting on?Page 23 Globalization – Looking beyond the obvious
  24. 24. Developed markets► Developed markets are still major drivers of world economic activity.► In certain sectors and areas, mature markets are making a comeback.► More and more developed market companies are exploring near-sourcing.► There is a revival of manufacturing in the US.► Developed markets continue to retain an edge in innovation and technology.Page 24 Globalization – Looking beyond the obvious
  25. 25. Advanced economies remain key drivers ofeconomic activityPage 25 Globalization – Looking beyond the obvious
  26. 26. Developed markets remain key to the bottomlinePage 26 Globalization – Looking beyond the obvious
  27. 27. Companies plan to bring productioncapability back to developed marketsPage 27 Globalization – Looking beyond the obvious
  28. 28. Top export markets take advantage oftechnology integrationPage 28 Globalization – Looking beyond the obvious
  29. 29. ―We brought back the manufacture of refrigeration units from Mexico to the US for one very simple reason. It takes eight hours to make a refrigerator in Mexico; it takes two hours to make a refrigerator in Louisville.‖ — Nani Beccalli-Falco President and CEO of GE InternationalPage 29 Globalization – Looking beyond the obvious
  30. 30. Operational changes are essential to pickingthe right big betsPage 30 Globalization – Looking beyond the obvious
  31. 31. Operational challenges1. Strategic planning: allocate resources in a bold and focused way2. Execution: make your big-bet investments as local and granular as possible3. Learning: transform your company into a ―learning organization‖Page 31 Globalization – Looking beyond the obvious
  32. 32. 1. Strategic planning: allocate resources in a bold and focused way► Companies need to make sure that they: ► Choose a small number of investments that offer the best chances of payoff ► Make an extended commitment to these investments despite volatility ► Ensure that there is flexibility in place to change course if necessary ► Make use of technology to aid decision-makingPage 32 Globalization – Looking beyond the obvious
  33. 33. 2. Execution: make your big-bet investments as local and granular as possible► Companies need to make sure that they: ► Tailor offerings to meet the exact needs of local customers ► Connect with local markets by contributing to their economic development ► Think about commonalities across markets so that economies of scale can be derived ► Consider which functions do not need local delivery and can be centralizedPage 33 Globalization – Looking beyond the obvious
  34. 34. Big bets based on dataPage 34 Globalization – Looking beyond the obvious
  35. 35. 3. Learning: transform your company into a “learning organization”► Companies need to make sure that they: ► Improve data collection and analysis to guide strategic decision-making ► Learn quickly, apply that knowledge to their strategic plan, execute on the plan, then begin the cycle again ► Use technology to react to change more efficiently ► Bypass traditional hierarchies to enable faster decision-makingPage 35 Globalization – Looking beyond the obvious
  36. 36. Investing in ITPage 36 Globalization – Looking beyond the obvious
  37. 37. Case studiesPage 37 Globalization – Looking beyond the obvious
  38. 38. Heathrow: global decision-making takes off► The passenger profile for UK visitors has changed.► Heathrow’s capital structure has also evolved.► Investors include CIC, Qatar Holding and Ferrovial.► International investors also own Heathrow’s debt.Page 38 Globalization – Looking beyond the obvious
  39. 39. The NFL: scoring with technology► The NFL has experienced numerous bumps on the road to globalization.► It is now focused on a number of key geographies, where it can create momentum.► It has also built up local organizations in those markets to drive interest.► New technology has been a powerful tool to distribute content.Page 39 Globalization – Looking beyond the obvious
  40. 40. Tata Power: energizing the community► Companies that invest in rapid-growth markets need to contribute to society, not just make a profit.► Tata Power pays close attention to how it can help communities.► When investing overseas, Tata Power has one key concern: not to act like a foreign company.► This philosophy is embedded in Tata’s governance.Page 40 Globalization – Looking beyond the obvious
  41. 41. SectorsPage 41 Globalization – Looking beyond the obvious
  42. 42. Automotive: driving toward a granularapproach► Automotive companies are looking beyond the BRICs for growth.► Demographic change and urbanization are key drivers of this.► Companies recognize that they need to take a granular approach — often at a city level.► Partnerships and alliances can be valuable to build the license to operate and access local knowledge.Page 42 Globalization – Looking beyond the obvious
  43. 43. Oil and gas: redrawing the global energy map► Shale gas in the US is redrawing the global energy map.► Cheap energy in the US will encourage companies to bring back energy-intensive activities to the US.► This will make the US more competitive than it has been for decades.► At some point the US will start to export gas to the rest of the world.Page 43 Globalization – Looking beyond the obvious
  44. 44. Technology: understanding the fourtransformational forces1. Mobile is creating an entirely different relationship between companies and their workforce.2. Social media is enabling companies to build new relationships with customers.3. Big data will enable companies to make better decisions.4. The cloud will allow companies to access storage and computing resources without the need to invest in infrastructure.Page 44 Globalization – Looking beyond the obvious
  45. 45. The Globalization IndexPage 45 Globalization – Looking beyond the obvious
  46. 46. The Globalization Index► Globalization has become more nuanced since 2011.► There is growth in the integration of goods and services, technology and capital.► Labor and cultural integration show less progress.► The biggest increases continue to be driven by technology.Page 46 Globalization – Looking beyond the obvious
  47. 47. Updated methodology► The index was developed in 2009 in conjunction with the Economist Intelligence Unit.► As globalization evolves, it is appropriate to review the methodology. This year, changes include: ► Revisions to the index scoring system, using dynamic normalization ► Several new sub-indicators ► Sub-indicator weights have been redistributed to reflect changes to the variable► These have created larger-than-normal revisions to the 2011 rankings but a more robust methodology.Page 47 Globalization – Looking beyond the obvious
  48. 48. 2012 Globalization Index: 1 – 30 *Special Administrative Region of ChinaPage 48 Globalization – Looking beyond the obvious
  49. 49. 2012 Globalization Index: 31 – 60Page 49 Globalization – Looking beyond the obvious
  50. 50. 2012 Globalization Index: indicators, sourcesand weightingsPage 50 Globalization – Looking beyond the obvious
  51. 51. Ernst & Young Assurance | Tax | Transactions | Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. Growing Beyond Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of In these challenging economic times, which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not opportunities still exist for growth. In Growing provide services to clients. For more information about Beyond, we’re exploring how companies can our organization, please visit www.ey.com. best exploit these opportunities — by expanding into new markets, finding new ways to innovate and taking new approaches to talent. You’ll gain © 2013 EYGM Limited. practical insights into what you need to do to All Rights Reserved. grow. Join the debate at EYG No. EX0194 www.ey.com/growingbeyond. This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor. ED NonePage 51 Globalization – Looking beyond the obvious

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