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Saturday, June 21, 2008

U.S. BUSINESS SCHOOL SYMPOSIUM

Trading off the benefits of a 'globalizing' world


Staff writer

Despite much hype about the world becoming flat and more global, the world is in fact becoming more regional than global, said Richard Rumelt, a professor of business strategy at UCLA Anderson Business School.

News photo
Richard Rumelt SATOKO KAWASAKI PHOTOS

"We find trade increasing all around the world, but we find trade is increasing inside regions faster than across regions, so the truth is, international trade data show that the world is becoming more regional, not more global," Rumelt told the June 6 symposium.

Citing a study by an American scholar, Rumelt went on to say that very few of the world's leading companies are "truly global" and that almost all companies are firmly tied to their home region.

According to a 2001 study by professor Alan Rugman of Indiana University, not many of the world's top 500 companies actually operate outside of their home regions, he said.

"Of the business carried out by large North American companies, about three-quarters was within the region, and only one-quarter of their sales activity is outside of North America," Rumelt said, adding that the figures were not much different for Asian firms.

Under Rugman's definition of a really "global company" — one that has 20 percent or more of its sales in each of the world's three major economic regions: North America, Asia and Europe — only nine of the world's 500 largest firms — Canon, Coca-Cola, Philips, Mazda, IBM, Nokia, Sony, Intel, LMVH — fit the definition, Rumelt noted.

Meanwhile, in a political context, increased international trade continues to mean disruption to domestic employment patterns and comparative advantage, and the political problems that it poses "have not changed in the last 100 years," he said.

News photo
Charla Griffy-Brown

"These kinds of shifts were very difficult for political systems to accommodate," Rumelt said. "The political problem is how can a society benefit from the gains to trade without there being unfair burdens on some. And conversely, how can we protect some people without destroying the gains from trade."

Globalization is not something that makes everyone better off, "but it's something where some people get better off a lot, and some people get worse off, and then they add up the numbers and say, well, in total we are all better off," he said.

"Whenever we get rises in international trade and rapid changes in comparative advantage, we have a severe political problem, we have to manage the dislocations that people are experiencing," he noted. "And the history of the world on this is not good. The history is that (the issue) is not managed well, and that people react in disruptive ways to this change that some people will have to bear."

Charla Griffy-Brown, an associate professor at Graziadio School of Business and Managementat Pepperdine University, discussed how a new generation of Internet technologies and networking is transforming the marketplace.

"The Web 2.0 is a set of technologies that allows rich collaboration, and layering of information and creation of knowledge in a very specific way," she said. It "presents themes that change some of the ways we socialize, interact and do business," she noted.

Citing the examples of YouTube, and social networking sites like MySpace and Mixi, Griffy-Brown pointed to the "power of this content linking," and "a very deep network in which the users are actually generating the products and the contents."

What does this mean for new product development? "The institutionally controlled elements of new product development have shrunk and the user-controlled elements of new product development are growing," she said. "The user elements are profoundly important in terms of transformation of the product, the features and capability available, and also how the product reaches the customer."

Organizations, meanwhile, are "turning more toward the network as opposed to a simple hardware and client-based platform, and they are choosing, mixing and matching choices among the types of things they want to use," she said.

And when organizations make decisions on the types of technologies that they use, "you want an architecture that is open . . . and an architecture that is certainly secure, but you also want what is called a software-oriented architecture, service-oriented architecture that allows you to integrate all of these different pieces of information people are using," she added.



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