Managing and competing in the New World Economic Order

Dr. Dharma De Silva, PhD., FPBA, FCMI [UK]

(Rudd Distinguished Fellow, Professor and Director, Centre for International Business Advancement, Chair, World Trade Council of Wichita, Barton School of Business, WSU.USA.)

Managing today's business organization is directed by forces across cultures shaping the new world economic order where correspondingly, marketing its products or services is governed by hyper-competition in the world trading system.

A new world economic order and trading system is the byproduct of rapid gobalization - a phenomenon accelerated by trade liberalization brought about by eight successive successful GATT Rounds coupled with US and world tariff reductions.

Moreover, accompanying economic reforms of the world's two largest populated giants, China and India as well as the current composition of big emerging markets (BEM) included in the G-20, are contributing to a new world economic order, showing resilience to adjust to shifts that reflect a dynamic new global economic order - a reality in which BEMs are increasingly playing a bigger role. This paper examines the forces reshaping the new global economy's world trade order, resultant outcomes and implications to marketing in a global context, which is the core of business management. Simply stated there is no business without a customer and business management focusing on marketing, today, is in search of that customer across cultures worldwide - a new thesis "ABC Marketing" is born - ABC-All Business is Customers: Marketing in a global context!

Introduction

As we close the first decade and going into the 2010s of the 21st century, the new world order is positively shaped by China as the world's manufactory and India as the information technology/services global centre. Simultaneously the global chains harnessing technology and skills, excelling in the provision of value added materials, component parts and production processes have brought about a large number of emerging economies and markets as players in the new world order.

These big emerging economies are the new world redirecting the flow of trade, investments [FDI], capital, mergers and acquisitions.

These markets are redistributing and taking larger shares of global manufacturing output, world trade and investment. They are also accumulating enormous world foreign exchange reserves [Fig.A] and holders of international assets.

In turn, these emerging markets are providing a larger middle class of consumers than currently in traditional developed countries, enhancing the growth of world trade.

They have become educated, quality conscious and sophisticated consumers with information and knowledge of competing products and services available in the competitive global marketplace. Relationship marketing has become vogue. These attributes redefine marketing as the study of intelligent consumption and mastery of hyper-competition in the global marketplace.

At the same time, technological advancement is shrinking product life cycles forcing marketing management strategies to change equally fast to succeed in business. Thus, managing a business organization in the 2010s and beyond requires more than mere familiarity of the domestic macro-environment - "it's not yesterday anymore." It requires full knowledge of the dynamic global landscape and expertise of the global competitiveness in a changing new trading order. To achieve viability and succeed, managing and marketing must be synchronized, taking into account the following contributions to the new paradigm realities, as we move down the 21st Century odyssey, where:

* Trade liberalization resulting from 8 GATT Rounds and dramatic decline of barriers, records lowest USA & world trade tariffs in history [Fig.1]

* World trade growth has continued to grow faster than world [GDP]output in the past two decades [Fig 2]

* Foreign Direct Investment [FDI] has added to domestic sources as the driving force of the world economy in the past 10 years

* Capital movements along with Mergers and Acquisitions have become increasingly the main conduit of global business expansion

* The global economy dominates the landscape, making single country play a subordinate role and role of business to flourish

* The debate between capitalism, socialism or communism is less relevant as reforms have led to freer market economies

* Acceleration of technology, along with E-commerce has diminished the concern of national barriers and forces firms to reexamine their business and marketing models.

* The G-20 and new global economic governance including Asian input that emerged as a constructive force has agreed to expand their role in IMF funding and governance, ease the trade credit bottleneck, and advocate the standstill on trade barriers

* The rise of an entrepreneurial class engaging in international business operations in big emerging markets {BEM} including BRICKS, in larger numbers in China and India, is larger than in US and EU nations.

Alongside, the world economy has changed profoundly in the last two decades and changing dramatically into the 2010s with the emergence of global markets and competitiveness anew.

Concurrently, the integration of nations stands at over 50% [14] changing the landscape and integration among nations is particularly striking in the expanded European Union, NAFTA, ASEAN and further advanced by the proliferation of FTAs coupled with SEZs /FTZs resulting in preferential treatment to promote trading between partners.

Economic recovery measures by nations, calls for management focus on exporting to aid a revival of manufacturing, entrepreneurial innovation and job growth, thereby improving trade and current accounts in a number of nations.

Notwithstanding the global economic crisis, providing the backdrop for new insights into the complexities of the global competitive marketplace, the astonishing progress of China and India alone should force new thinking: how to manage and compete in the new world economic order.

Befitting to this discussion is management guru Peter Drucker's seminal insights on marketing, particularly his emphasis on an interdisciplinary approach, might point the way to new approaches to the way we conduct and manage businesses in a competing new world order. As Drucker puts it: "Because the purpose of business is to create a customer, the business enterprise has two-and only two-basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business."

Forces reshaping the new global economy's word order

Brought about by the China and India as the two populous leaders joining the TRIAD anchors [JUG - Japan, USA, Germany] to form a QUINTET and a mega-competitive force in the world trading system, is also joined in the 2010s by Brazil, Russia, Korea and S.Africa to be a part of the BRICKS thesis.

This new global economy is emerging to confront business enterprises in the traditional ways of doing business to rethink of core competencies and best practices of competitors from across cultures around the world. China, South Korea, Mexico, India.

Brazil, Taiwan, Singapore, Malaysia, Thailand, Indonesia, Philippines Vietnam are among the Big Emerging Markets [BEM] that are assuming leading economic roles challenging established economic powers JUG of TRIAD that have maintained their competitive strength in channelling a larger share of trade/investment activity.

The following identifiable 25 developments provide the rationale to add credibility to the forces reshaping and transforming the new global economy and world trade order, with consequences to managing and marketing in the competitive New World Order, viz.:

1. The unprecedented revival and intensification of global integration by international economic policies and reforms resulting from multilateral cooperation to accelerate the growth rate of world output and universally higher living standards. [9]

2. The wrenching financial crisis of the past two years provides the catalyst for a profound change in the global economy to shape future business conduct, management and marketing. Thus raising the following questions: What are the key features and forces reshaping this new world economic order? How should business enterprises prepare for the economic challenges ahead? What can nations do to position them for enhanced competitive advantage in the new world order and how can companies manage in a global competitive marketplace?

3. The world adapted to the collapse of the Soviet Union, and the emergence of formerly centrally planned economies as market-oriented economies into the global landscape.

4. The collapse of the Bretton Woods exchange rate system, currency adjustments w/Plaza Accord in 1985 and 2008-2009 global economic and financial crises created massive uncertainty and disruption of old ways of doing business and demanding a paradigm change.

5. Rising cost of energy throughout the world, following the 1973/74 - 1979/80 oil shocks initiated by OPEC and the impact of a $147.27/barrel on global commerce in 2008-09 and the crius that followed.

6. The open international trading and financial system coupled with falling costs of long distance transactions and trade liberalization aiding world trade expansion has served as an engine of growth for the past 1/4 century.

7. World trade has outpaced global output [GDP] During past 25 years - volume of world trade has grown twice as fast as world GDP (6 percent vs. 3 percent); value of exports has tripled, Exports are 1/5 of global GDP [10][18].

8. Massive foreign direct investment undertaken by MNCs have hit record levels [averaging 20 percent, last two decades] welcomed by host countries and emerging nations.

9. The recent integration of the global marketplace, and innovations in communications, technology and transportation, has led to profound worldwide economic restructuring. [6] These forces have impacted business organizations and management, the types of jobs, cities, suburbs, and the resident labour force.

10. Lester Thurow outlines five fundamental forces that are changing the global economic landscape: [I]. the old communist vs new market-oriented world. [ii].human-made brain power industries and skills as the only source of long-run sustainable advantage [iii].The demographics of elderly people who do not work and receive much of their income from the government.[iv]. A global economy in which anything can be made anywhere and sold anywhere else. [v]. The emergence of an era without a dominant economic power interested in preserving the global system. [16]

11. Friedman's Ten Flatteners: [i] Outsourcing [ii] Offshoring [iii] Open- Sourcing [iv] Insourcing [v] Supply Chaining [vi] In-forming (search engines) [vii] The Internet [viii] Fall of the Berlin Wall [ix] Netscape's Public Offering [x]Work Flow Software - The Steroids (Digital, Mobile, Personal and Virtual). [3a]

12. Accelerating rates of technological change, interacting with accelerating rates of globalization causing migration of industries across the globe.

13. This burgeoning technological tide is shifting resources from capital and labour intensive industries to technology and skill-intensive industries.

14. New product development and Shrinking Product-Life-Cycles [PLC] for existing products world-wide.

15. The geographical distribution of FDI falls into regional clusters centred on each TRIAD member.

16. The TRIAD's dominance has gradually declined in the global economy by China and India [CHINDIA] joining Dharma DeSilva's postulated QUINTET to make a mega-competitive force:3]

[i] The combined GDP of the TRIAD of 60 percent of world output increased to 65 percent with QUINTET and will further increase to 75 percent when combined with BRICKS & G20's BIG emerging nations;[ii] The TRIADS 60 percent of world trade increased to 65 percent with QUINTET will increase to 75 percent along with BRICKS and G20's BEM [iii] The TRIADs investment flows of 70 percent, increased to 75 percent will increase with BRICKS and G20's BEM to 85 percent; [iv] The TRIADs M and A of 65 percent increased to 70 percent with QUINTET and will increase with BRICKS and G20. BEM to 85 percent [v] The TRIADs meagre FX reserves of 25 percent (including 15 percent to Japan's credit) increased to 65 percent with QUINTET and will increase with BRICKS and G20's BEM to 85 percent.

17. Significantly, change in the locus of global economic activity, has come about with the rise China and India [CHINDIA] phenomenon, along with the rise of Asia's large population and growing middle class, with potential to increase consumption of goods/services to equal size.

18. The proliferation of FTAs has levelled the competitive playing fields between industrial and emerging market countries.

19. Global supply chains facilitate components to be made all across the globe and are often assembled in countries where the goods are to be sold (e.g. car assembly plants).

20. The increasing size and geographic reach of MNC is leading to new markets, taking advantage of economies of scale. At the same time, painful reallocation of resources from capital and labour intensive industries to technology and knowledge-intensive industries, causing job loss in some sectors and gains in others.

21. In today's new global economy, demographic changes have been accompanied by female labour force that has expanded over the last two decades.

22. Macroeconomic trends in the new global economy are truly evident in the wake of numerous challenges that impact on business management and marketing [15].

23. A mega-trend transforming cities is the shift in emphasis from historic economies of scale (where costs fall because the scale of output is increased) to economies of scope. The industrial paradigm that has dominated for the past century is one of economies of scale. Economies of scope are about synergies between many individual talents and activities in close proximity. Current trends suggest "mega cities" continue to grow because economies of scope. China and India are experiencing large migration from rural to urban areas as they advance economic growth. [21]

24. The rise of SMEs and entrepreneurial class engaging in international business operations in emerging BEM and G20 markets, especially in large numbers in BRICKS bringing a management style atypical of indigenous culture and family dominated business organizations; [6]

25. BRICKS era, expanded into G20-BEM, is strength on the horizon going into the 2010s and beyond. The emergence of these countries in international business has already begun to change the global economy in many ways to impact competitive markets, and the use and cost of resources along with operations of supply chains.

Significant outcomes of a New World Economic Order

In the first decade of the 21st c, 2000s, Goldman Sachs [4][5] and Price waterhouseCoopers [8] developed their own projections and so did Grant Thornton [6]. The large shift in economic power implied by these projections will have far reaching consequences for global economic governance, as well as for relationships among countries and geographic regions in the way future business is conducted.

Kenichi Ohmae's 1980s concept of a TRIAD[6] -a world economy led by the United States, Europe [Germany+3], and Japan - will be eclipsed by a new order consisting of China, the United States, and India - along with 'ole' TRIAD, postulated as QUINTET by Dharma De Silva [3] A New Triad of China, India and the United States will emerge as the world's three largest economies by 2050. In China and India alone, GDP is predicted to increase by nearly $60 trillion, the current size of the world economy.

However, the wide disparity in per capita GDP will remain Fig4b]. Other main findings include, China will become the world's largest economy in 2032, and grow to be 20 percent larger than the United States by 2050. China remains on a path to overtake the United States as the world's largest economic power within a generation, and India will join both as a global leader by mid 21st century, both in GNP terms at MER [Fig 4a, 5a and 5b].

New World Order of 2000s, Expanding into 2050:

Implications for Management and Marketing

Of significance to managing and marketing as key business functions in the global competitive marketplace are twelve trends driving the increasing importance of new world G20 EM country influences-technological catch up; demographic transition; rapidly rising middle class; high investment; changing volume of world trade;/appreciation of real exchange-rates; new global business structure of SMEs and entrepreneurs; battle for talent and skills, demand for resources; transparency/ethics/CSR; shift of geographic economic activity; and changing/expanding global consumer landscape. The implications for business management and marketing are far-reaching as competitive global markets dictate strategy decisions to focus on: [1][6][8][11].

[i] Economic Size: The GDP of emerging markets, currently about one third that of advanced economies, will grow to be about 1.3 times the size of advanced economies in 2050. China will be about twice the size of the United States in purchasing power parity (PPP) terms. [ii] Living Standards: Though developing economies will be among the largest economies, current advanced countries will remain far richer in terms of GDP per capita at MER. [iii] Income Distribution: Absolute poverty will decline and more members of the global middle and rich class (GMR) will reside in developing countries than in the advanced countries; [iv] Trade: Developing countries will account for two thirds of world trade by 2050. China will be involved in 4 of the 5 largest bilateral trade relationships enhancing trade & FDI. India is to follow.

Globalization is the driving force behind the products and services offered in the global competitive marketplace. Global growth and output mainly by the leading EM economies will loom large.

The share of world trade of EMs will double in four decades and reach 70 percent by 2050, coupled with high growth rates and rise of middle class to dominate the new world economic order.

By 2050, the world's GDP will have increased by more than four times, circa $220 trillion and the global population will have risen from 6.5bn to about 9.bn.

The rise of an entrepreneurial class engaging in international business operations in emerging BRICKS' markets, especially in large numbers in China and India, SMEs. The consumer landscape will change and expand significantly.

The role and behaviour of big business will come under increasingly sharp scrutiny. Demand for natural resources will grow, as will the strain on the environment.

New global industry structures are emerging. US now operates in a truly global economy, companies are outsourcing and spreading their value chains globally.

Management will go from art to science in a knowledge economy with a focus of management attention shift to innovation and customer service where 90 percent of global market is outside TRIAD powers.

Emerging countries already playing a larger role in world trade, and investment is expected to influence managing in a new hyper-competitive world economic order where marketing is at the core of business to meet discerning consumer preferences and choices across cultures - a new thesis of 'ABC Marketing in global context' is born.

(Excerpted from the Address at the PanPacicific XXVII confab at Bali on June 1. Dr. de Silva was Professor and Founding Dean Management Studies of the University of Sri Jayawardhanapura.)