No end in sight for globalization

The first global crisis will make the world more global

Angel Cabrera, ThunderbirdSept. 2009

Unsustainable growth path…

-1000

-800

-600

-400

-200

0

200

400

600

800

1000

2000 2001 2002 2003 2004 2005 2006 2007 2008

Total World Industrial Developing

US$ Billions

Current Account Balance

Source: IMF

Unsustainable growth path…

-1000

-800

-600

-400

-200

0

200

400

2000 2001 2002 2003 2004 2005 2006 2007 2008

US Europe Asia Middle East

Current Account Balance

US$ Billions

Source: IMF

G-20 agreements

• To launch a framework that lays out the policies and the way we act together to generate strong, sustainable and balanced global growth. – We need a durable recovery that creates the good jobs our people

need. • To make sure our regulatory system for banks and other financial

firms reins in the excesses that led to the crisis. – Where reckless behavior and a lack of responsibility led to crisis, we

will not allow a return to banking as usual.• To reform the global architecture to meet the needs of the 21st

century. – After this crisis, critical players need to be at the table and fully vested

in our institutions to allow us to cooperate to lay the foundation for strong, sustainable and balanced growth.

G-20 agreements

• To take new steps to increase access to food, fuel and finance among the world’s poorest while clamping down on illicit outflows. – Steps to reduce the development gap can be a potent driver of global

growth.• To phase out and rationalize over the medium term inefficient fossil

fuel subsidies while providing targeted support for the poorest. – Inefficient fossil fuel subsidies encourage wasteful consumption, reduce

our energy security, impede investment in clean energy sources and undermine efforts to deal with the threat of climate change.

• To maintain our openness and move toward greener, more sustainable growth.

G-20: Reforming compensation practices to support financial stability

• Excessive compensation in the financial sector has both reflected and encouraged excessive risk taking. Reforming compensation policies and practices is an essential part of our effort to increase financial stability. We fully endorse the implementation standards of the FSB aimed at aligning compensation with long-term value creation, not excessive risk-taking, including by

– (i) avoiding multi-year guaranteed bonuses; – (ii) requiring a significant portion of variable compensation to be deferred, tied to

performance and subject to appropriate clawback and to be vested in the form of stock or stock-like instruments, as long as these create incentives aligned with long-term value creation and the time horizon of risk;

– (iii) ensuring that compensation for senior executives and other employees having a material impact on the firm’s risk exposure align with performance and risk;

– (iv) making firms’ compensation policies and structures transparent through disclosure requirements;

– (v) limiting variable compensation as a percentage of total net revenues when it is inconsistent with the maintenance of a sound capital base; and

– (vi) ensuring that compensation committees overseeing compensation policies are able to act independently.

What does this all mean?

• Global trade has outpaced economic output by more than two times in the last decade… the crisis will only be a bump on the road

• Global economic integration has brought unprecedented growth in both the developed and the developing world… and it will continue to do so

• But global economic integration has also linked world economies and widened channels for contagion

• We have witnessed the first truly global crisis: – together we got into the mess and only together we will come out of it– G20 summit

• The financial crisis is only one of the problems ahead of the world– New model of growth– Poverty and all associated issues– Energy, food and water

A new world of opportunities…

Best brands in the world

1. Coca-Cola 68,734 ($m)

2. IBM 60,211 ($m)

3. Microsoft 56,647 ($m)

4. GE 47,777 ($m)

5. Nokia 34,864 ($m)

6. McDonald's 32,275 ($m)

7. Google 31,980 ($m)

8. Toyota 31,330 ($m)

9. Intel 30,636 ($m)

10. Disney 28,447 ($m)

• Most leading brands are still in the developing world

• But success won’t be guaranteed unless global strategies are successfully executed

Competencies to survive and win in the global economy• Global mindset — They are able to influence people and

organizations outside their own country and culture. They are not paralyzed by cultural and institutional differences, but actually energized by them.

• Global entrepreneurship — Not satisfied with managing differences, they have the ability and passion to turn those differences into innovative value-creating business propositions.

• Global connections — They are boundary spanners; network constructors who build bridges and establish cooperative arrangements among otherwise isolated or even mistrusting parties.

• Global citizenship — They understand the impact of their business in the world around them and are driven by a desire to make a difference.

In fewer words…

• Learn Chinese!

BRIC performance• Emerging economies, such as the so-called BRIC countries -- Brazil, Russia, India

and China -- achieved relatively decent economic performances amidst the crisis while the developed world struggled.

• Russia was the hardest hit and its economic outlook remains grim: Global economists project Russia’s economy shrinking at least 5 percent and as much as 7 percent in 2009. Weaker domestic consumption, higher unemployment, rising nonpayment on loans by companies and stress in the country's banking sector all lie ahead

• The BRIC countries have maintained fast growth in recent years with considerable economic expansion to boot. Between 2006 and 2008, the BRIC countries achieved an average growth rate of 10.7 percent, the IMF reported.

• In 2008, the BRIC countries accounted for about 15 percent of the world economy and 13 percent of the world's trade volume. They also contributed 50 percent of the world's economic growth.

• During the next 20 years, Goldman Sachs predicts, the four nations' economies will exceed that of the G7.

• Goldman Sachs forecasts that the world economy will contract 1.1 percent this year while the BRIC countries would grow by an average of 4.8 percent. The investment bank also forecasts growth of 3.3 percent for the world economy in 2010 and 8.8 percent for the BRIC countries.

China’s Emergence• Business leaders in Asia and elsewhere say the crisis has further shifted economic

power to Asia.• Many say the region, particularly China, will have more say in shaping the future.

China has overtaken Germany to become the world’s third- largest economy with annual gross domestic product of about $3.9 trillion, according to Bloomberg data.

• Despite being affected by the current financial crisis, China's economy is still likely to achieve 8 percent growth this year and is expected to lead the world economy out of the recession.

• Thanks to a 4 trillion yuan (586 billion dollar) stimulus plan announced last November, China's economy is now recovering from the global downturn.

• Bloomberg said that China's stimulus plan not only boosted its own economy, but also helped the whole world because the plan benefited businesses in China and abroad.

•  At the same time, China, together with other emerging economies, has called on the world to protect the interests of developing countries as reforms of the international financial system are being considered. China also has repeatedly reiterated its position against protectionism and support for open trade and investment.

• ChinaView.com: http://news.xinhuanet.com/english/2009-09/16/content_12062241.htm

Brazil on way to swift recovery

• Brazil is forecast to be one of the first countries to emerge from the global recession: economic growth projected to be as high as 4.5 percent in 2010.

• Brazil’s gross domestic product shows the economy growing by 1.9 per cent in the second quarter from the first period, putting an end to a short recession.

• Brazil last month recorded the biggest monthly jump in new jobs since the global economic crisis began, providing further evidence that it is emerging from a short recession and may return to growth as early as next year.

• Figures from the employment ministry showed a net 242,126 formal jobs were created in August.

• Total formal job creation so far this year stands at 680,034, with 10.8m people hired and 10.1m fired.

• The country's willingness to embrace globalization and the economic policies of President Luiz Inacio Lula da Silva have led to Brazil's economic resilience.

India’s showing early signs for recovery• So far, India has fared much better than the industrialized economies and much

better than any other developing economy. • Indian economy has done much better than others and its growth rate is expected to

be anywhere between 6–8% depending on what happens to the global economy and what happens domestically.

• India's economy expanded 6.1% in the April-June quarter compared with a year earlier, as it gathered momentum on public spending and interest-rate cuts.

• The increase in economic output in the quarter ended June 30 -- the first in India's fiscal year -- was driven by trade, hotel and transportation services, as well as by mining and manufacturing.

• The figures for the latest quarter were in line with expectations and show how Asia's third-largest economy is emerging from the global slump in better shape than many of its regional peers.

• Indian government officials said economic growth, which sagged in the global financial crisis, would pick up in coming quarters, buoyed by increased output in manufacturing and services sectors.

• The Reserve Bank of India expects the economy to expand 6% with an "upward bias," while the federal government has forecast growth between 6.25% and 7.75%.

G-20 agreements

• To launch a framework that lays out the policies and the way we act together to generate strong, sustainable and balanced global growth. – We need a durable recovery that creates the good jobs our people

need. • To make sure our regulatory system for banks and other financial

firms reins in the excesses that led to the crisis. – Where reckless behavior and a lack of responsibility led to crisis, we

will not allow a return to banking as usual.• To reform the global architecture to meet the needs of the 21st

century. – After this crisis, critical players need to be at the table and fully vested

in our institutions to allow us to cooperate to lay the foundation for strong, sustainable and balanced growth.

G-20 agreements

• To take new steps to increase access to food, fuel and finance among the world’s poorest while clamping down on illicit outflows. – Steps to reduce the development gap can be a potent driver of global

growth.• To phase out and rationalize over the medium term inefficient fossil

fuel subsidies while providing targeted support for the poorest. – Inefficient fossil fuel subsidies encourage wasteful consumption, reduce

our energy security, impede investment in clean energy sources and undermine efforts to deal with the threat of climate change.

• To maintain our openness and move toward greener, more sustainable growth.

G-20: Reforming compensation practices to support financial stability

• Excessive compensation in the financial sector has both reflected and encouraged excessive risk taking. Reforming compensation policies and practices is an essential part of our effort to increase financial stability. We fully endorse the implementation standards of the FSB aimed at aligning compensation with long-term value creation, not excessive risk-taking, including by

– (i) avoiding multi-year guaranteed bonuses; – (ii) requiring a significant portion of variable compensation to be deferred, tied to

performance and subject to appropriate clawback and to be vested in the form of stock or stock-like instruments, as long as these create incentives aligned with long-term value creation and the time horizon of risk;

– (iii) ensuring that compensation for senior executives and other employees having a material impact on the firm’s risk exposure align with performance and risk;

– (iv) making firms’ compensation policies and structures transparent through disclosure requirements;

– (v) limiting variable compensation as a percentage of total net revenues when it is inconsistent with the maintenance of a sound capital base; and

– (vi) ensuring that compensation committees overseeing compensation policies are able to act independently.