Week One – Globalization and Global Business: Opportunity, Risk and Sustainability

Assignment/Conference Activity

Globalization, to some, is an overused term that has little meaning. What is it to you? A word with little meaning, or a word with important meaning. Think about it. What does globalization mean to you?

Perhaps an example is the best means to illustrate what global and globalization is all about. I bring the following mini-case study from my industry-based day job as marketing director for a company www.iogen.ca with the technology to convert straw and other agriculture residues into ethanol. The global issues that follow matter to us a great deal.

Brazil - a case worthy of our attention.

Brazil is seen as the 700 pound gorilla in the fuel ethanol scene. Brazil has a perfect climate for sugar cane farming, an ideal feedstock for ethanol production, and vast lands that have yet to be put into cultivation. This combination seems like an ideal setting for massive increases in ethanol exports. However, a number of external and internal pressures impact on the situation:

The World Trade Organization (WTO) http://www.wto.org/ has put pressure on the European Union (EU) to eliminate subsidies on sugar beet production which will turn Europe into a net sugar importer instead of a serious sugar exporter. Sugar prices will increase globally, making ethanol less attractive to produce as sugar-for-human- consumption becomes increasingly attractive for Brazilian agricultural interests.
Brazil is becoming ever more prosperous largely through exports and a stable and a more enlightened government. Increased prosperity in Brazil means there are more vehicles in use. Also, an increased domestic consumption of transportation fuels including ethanol – exceeding consumption of other countries. Brazil’s move to ethanol as a gasoline replacement is driven to a large extent by the high prices of crude oil which, in turn, are controlled by OPEC http://www.opec.org/home/ in their quest to maximize their global revenues through high crude oil prices.

OPEC’s interest in keeping prices high is partially triggered by the fall in the US dollar related to other currencies. Thus the declining US dollar price for a barrel of crude means less euros and yen per barrel. To compensate for a reduced global spending power, US- priced crude oil is held off the world market to increase prices through the fundamentals of supply and demand.

Meanwhile back in Brazil, their efforts to put the plough to virgin pampas is environmentally very unsound and raises the ire of environmental NGO’s such as the Sierra Club http://www.sierraclub.org/ and the WWF http://www.worldwildlife.org/ . Also, those countries that signed the Kyoto Protocol (a UN convention) http://unfccc.int/2860.php are crying foul as the long sequestered carbon in virgin soil is being released into the atmosphere at a rate of several tones per acre.

· At the same time, Japanese and South Koreans want to implement their Kyoto commitment through transportation fuels -- ethanol is a green fuel of choice. Having no low-cost biomass of their own, they look to Brazil as a logical source. The shared needs of these two Asian Neighbors could exceed the foreseeable export capability of Brazil if Brazil is forced to stay away from opening new environmentally sensitive areas for sugar cane production. Against this backdrop, and at the same time, Europeans and the USA are taking no chances and are concerned about Brazil and its potential to upset their respective ethanol industries. As a result, and not surprising, non tariff barriers are emerging.

The above is a highly interrelated global scenario involving the WTO, OPEC, currency exchange rates, the EU, the UN (Kyoto), environmental NGO’s, and several countries in a complex dynamic that involve opportunity, risk and sustainability.

My prognosis of the above – Brazil, a single country, will be a player in the world ethanol market and will mostly supply the ethanol product needs of Japan and South Korea, but will have little capacity to expand into markets where Brazil faces domestic competition and market barriers.

There are hundreds of other commercial scenarios where one must be able to put all the pieces of the global puzzle together – doing so requires a global mindset. The assigned article by Kedia and Mukherji presents what global mindset entails.

Kedia, B.L. & Mukherji, A. (1999). Global managers: developing a mindset for global competitiveness. Journal of World Business, 34(3). (B)

Case Study

Perhaps the list used to prepare a profile of the company might include:

What global influences are at play?
- world commodity supplies and prices

-impact of multilateral and international organizations such as the WTO, NAFTA

-climatic issues – drought (food and fibre market sensitive), extremes in temperature (energy sensitive)

-political issues

-global and regional competitors

Selecting pairs of countries

In economic terms, countries tend either to mostly trade, mostly compete or mostly ignore each other. These comments may be helpful to you as you select your case study countries. Here is how I rate some of the countries and their relationships:

Russia vs. China – mostly trade – China wants Russian raw materials

Brazil Vs Argentina – mostly compete – similar agricultural base

Poland vs. Hungary – mostly compete but will soon have integrated economies and new EU members

South Africa vs. Nigeria – mostly ignore

Singapore vs. Korea – mostly compete

Japan vs. India – mostly trade

Australia vs. Canada – mostly compete

Mexico vs. Chile – mostly compete

United Kingdom vs. France – mostly trade as economies are integrated but formerly mostly competed

United Arab Emirates vs. Saudi Arabia – mostly compete in petroleum

Italy vs. Ireland similar to UK and France

Others may have different views but basically those with similar economies normally compete and dissimilar ones trade unless there is an integration such as in the EU and NAFTA were the economies are no longer national but regional thus encouraging trade as if a domestic market existed Occasionally there is the South Africa/Nigeria mix where commerce does not really define the relationship.

Yours,

Maurice Hladik

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