ANALYZING GLOBAL TRENDS

for Business and Society

Week 1
Globalization
Mauro F. Guilln
Mini-Lecture 1.1
Whats this class about?
Manifestations of globalization.
Whats the global economy?
Welcome to
Analyzing Global Trends!
Global trends and their effects on:
Consumer markets.
Labor markets.
Financial markets.
Politics.
Geopolitics.
Natural resources.
Global relationships.
Im Mauro Guilln
Professor at the Wharton School.
Director of the Lauder Institute at the
University of Pennsylvania.
I am originally from Spain.
I have a passion: analyzing global trends.
Ive written 10 books and myriad articles on
various aspects of globalization.
Trends
Global trends affect regions,
countries, industries, and even
firms in heterogeneous ways.
They are tornadoes, not tsunamis.
Trends entail both challenges and
opportunities.
Uncertainty will be a key feature of
the 21
st
century: the new normal.
Whats needed?
New programs, new products?
New business models?
New decision models?
New mindset?
Some Initial Discussion Questions
As of today, do more people in the world
live in cities or in the countryside?
Are there more people suffering from
hunger or from obesity?
Are the largest consumer markets, in the
U.S. and Europe, or in China and India?
Is the number of failed states greater or
smaller than the number of dictatorships?
Some answers
More people live in cities than in the
countryside since 2009.
There are more people suffering from
obesity than from hunger since about 2010.
The largest consumer markets are in Europe
and the U.S. today, but within 20 years they
will be in India and China.
There are more failed states than
dictatorships since the late 1980s.
What you will learn
Concepts and tools to analyze how the
world is changing.
The direction and intensity of trends in the
global marketplace.
The relevance of the main risks threatening
businesses and societies around the world.
How to Take this Class
1. Take each weeks opinion survey. I will
post the results 24 hours after the deadline.
2. Watch the mini-lectures.
3. Try to answer the discussion questions.
4. Consult the powerpoint presentations.
5. Do the readings.
6. Answer the quiz or test at the end of each
week.
7. Participate in discussion forums and social
media.
Manifestations of Globalization
Increased cross-border activity.
Supra-national organizations and forums.
Attempts at supra-national political
organization.
Spread of ideas and practices.
Awareness.
What is the Global Economy?
Increasing flows of labor, money, goods, services,
and information.
It is not just a discrete linking of nation-states.
Its an economy with the capacity to work as a
unit in real time on a planetary scale.
*
It is very different from the world economy of
the 14
th
, 16
th
, and 19
th
centuries.
In its present form, it came into being during the
1980s.
* Manuel Castells, The Rise of the Network Society. Cambridge, MA: Blackwell (1996), p. 92.
Why so Fascinating?
Because it puts two kinds of liberalism on a
collision course:
Liberalism of the market, which is boundary-
transgressing. The division of labor is limited
by the extent of the market.
Liberalism of citizenship, which seeks to
establish and maintain boundaries. Relationship
between an individual and a state, with
associated individual rights and obligations.
Join the international anti-globalization movement.
Mini-Lecture 1.2
Can we measure globalization?
Basic definitions and conventions.
Making projections into the future.
Two Approaches to Measurement
Aggregate indicators such as trade,
investment, Internet use, tourism, etc.
Networks: Data on dyadic relationships.
Aggregate Globalization Indicators
Indicators: 1980 1985 1990 1995 2000 2005 2010
A. Economic:
Exports + imports of goods & services, % world GDP

38.4 37.8 38.0 41.8 48.8 53.7 56.0
Developed countries, % GDP

39.5 39.1 38.0 40.9 48.1 52.0 55.9
Emerging & Developing countries, % GDP

32.8 31.2 38.1 46.4 52.5 62.0 56.7

Inward foreign direct investment stock, % world GDP 6.5 8.3 9.4 11.3 23.1 25.2 29.7
Developed countries, % GDP 4.9 6.5 8.9 10.8 22.7 25.3 30.7
Emerging & Developing countries, % GDP 11.8 14.7 13.6 16.4 40.1 50.2 60.3

Emerging & developing economies:
% of global GDP, at purchasing power parities 31.7 32.7 32.7 33.0 34.2 38.5 45.2
% of global outward foreign direct investment stock 13.1 9.6 7.0 9.2 11.0 11.5 17.8
% of global foreign exchange reserves 32.9 37.1 51.9 66.6

B. Financial:
Daily currency exchange turnover, % world GDP
a
0.7 1.3 3.8 5.6 6.8

4.6
k
6.3
Cross-border banking external assets, % world GDP
b
13.7 19.9 28.1 28.5 34.2 54.0 47.9
Cross-border bank loan & deposit stock, % world GDP
b
13.9 19.9 34.3 33.1 37.6 39.1 34.9

C. Internet:
Users, % world population: 0.1 0.8 6.7 16.0 30.2
Developed countries, % population 0.3 3.7 30.5 59.4 73.4
Emerging & Developing countries, % population 0.0 0.0 1.5 7.3 21.5

D. Demographic:
Stock of international migrants, % world population 2.2 2.3 3.0 2.9 2.9 3.0 3.1
Refugee population, % world population 0.3 0.2 0.1 0.2
Workers remittances, % of world GDP

E. Political:
0.41 0.39 0.42 0.36 0.43 0.63 0.75
m

Nation-states with membership in the United Nations
International organizations, number:
154 159 159 185 189 191 192
Intergovernmental 337
i
378 300
j
243 244 253
Non-governmental 4265
i
4676 4621
j
6357 7412 8198

F. Social & Cultural

International tourist arrivals, % world population 3.5 6.7 8.6 9.5 11.4 13.0 13.7
Books on the topic of globalization
e
577 1107 2152 4853 10525 22405 38440


Notes: Data not available.
a
Data are for 1979, 1984, 1989, 1995, 1998 and 2004.
b
Data
are for 1981, 1986, 1991, 1995, 2000, and 2006.
d
Excludes international calls using cellular
phones or private networks.
e
Books with the subject or title keywords global or
globalization, published in any language until each year, as searched on August 20, 2010.
f
1991.
g
2002.
h
1998.
i
1981.
j
1989.
k
2004.
l
2007.
m
2009.
Sources: World Development Indicators; World Investment Report; Bank for International
Settlements; United Nations; International Monetary Fund; International Telecommunication
Union, Key Global Telecom Indicators; Yearbook of International Organizations; Bowkers
Global Books in Print.
For background information, see Mauro F. Guilln, Is Globalization Civilizing, Destructive
or Feeble? A Critique of Five Key Debates in the Social-Science Literature. Annual Review
of Sociology 27 (2001):235-260.
Compiled by Mauro F. Guilln, The Wharton School of the University of Pennsylvania,
guillen@wharton.upenn.edu
How Fast is Fast?
Variable
Index 2010
(1980=100)
Exports plus imports 146
Foreign direct investment stock 457
Daily currency exchange turnover 900
Nongovernmental international organizations 192
International migration stock 141
International tourism 391
Books in print on globalization 6662
Global Internet Traffic
Source: TeleGeography : www.telegeography.com.
Reproduced by permission.
Submarine Cables
Free reproduction allowed: https://github.com/telegeography/www.submarinecablemap.com
Definitions
Gross Domestic Product:
The total value of goods and services produced
in an economy during a given year.
The economy consists of:
Households.
Firms.
Financial institutions.
Government.
Simple Calculations: Ratio
Ratio: one number divided by another.
Example: The total dependency ratio is the
ratio of the sum of the population aged 0-19 and
that aged 65+ to the population aged 20-64. For
China, it is about 0.5 nowadays but is predicted
to grow to 1.0 by 2075.
A ratio can also be expressed as a percentage
(%) by multiplying it by 100.
Simple Calculations: Rate
Rate: is the pace or rhythm at which a
magnitude changes over a certain period of
time. Typically expressed as a percentage.
Example: The GDP growth rate in 2012 was
7.8% in China, compared to just 2.2% in the
United States.
Example: The inflation rate in China during
2012 was 2.6%.
Nota bene: The unemployment rate is more
properly called the unemployment ratio.
Simple Calculations: Index Number
Index number: reveals the change in a
magnitude between two points in time. The
first of those two points is called the base.
The base is typically set at a value of 100.
Example: If Chinese GDP grew by 7.8% during
2012, then the index number for the end of the
year is 107.8.
Simple Calculations: Proportion
Proportion: A measure of a part with respect
to the whole. Typically expressed as a
percentage (%).
Example: The income of the one-percent richest
Americans was 7.8% of total income in 1970.
By 2012, it had grown to 19.3%.
Large Numbers
In the United States:
1 billion = 1,000,000,000
1 trillion = 1,000,000,000,000
In your part of the world, perhaps:
1 billion = 1,000,000,000,000
1 trillion = 1,000,000,000,000,000,000
In this class, we will use the U.S.
convention.
World population projections
2011-2100 (in billions)
Source of the data: United Nations Population Division, World Population Prospects: The 2012 Revision.
Discussion Question
Which of the four projections do you
believe is least likely?
Mini-Lecture 1.3
International trade.
Foreign investment.
Multinational firms.
International Trade
Cross-border flows of goods &
services.
Why does it take place? Theory of
comparative advantage.
Free trade may be good overall, but
it does generate winners & losers.
Absolute Advantage
Adam Smith (1776)
If a foreign country can supply us with a
commodity cheaper than we ourselves can
make it, better buy it of them with some part
of the produce of our own industry, employed
in a way in which we have some advantage.
Relative Advantage
David Ricardo (1819)
Unit Labor Costs Cloth Wine
Britain 100 110
Portugal 90 80
Other Considerations
Transportation costs.
Other costs of trade.
Scale economies.
Product differentiation.
Aggregate Globalization Indicators
Indicators: 1980 1985 1990 1995 2000 2005 2010
A. Economic:
Exports + imports of goods & services, % world GDP

38.4 37.8 38.0 41.8 48.8 53.7 56.0
Developed countries, % GDP

39.5 39.1 38.0 40.9 48.1 52.0 55.9
Emerging & Developing countries, % GDP

32.8 31.2 38.1 46.4 52.5 62.0 56.7

Inward foreign direct investment stock, % world GDP 6.5 8.3 9.4 11.3 23.1 25.2 29.7
Developed countries, % GDP 4.9 6.5 8.9 10.8 22.7 25.3 30.7
Emerging & Developing countries, % GDP 11.8 14.7 13.6 16.4 40.1 50.2 60.3

Emerging & developing economies:
% of global GDP, at purchasing power parities 31.7 32.7 32.7 33.0 34.2 38.5 45.2
% of global outward foreign direct investment stock 13.1 9.6 7.0 9.2 11.0 11.5 17.8
% of global foreign exchange reserves 32.9 37.1 51.9 66.6

B. Financial:
Daily currency exchange turnover, % world GDP
a
0.7 1.3 3.8 5.6 6.8

4.6
k
6.3
Cross-border banking external assets, % world GDP
b
13.7 19.9 28.1 28.5 34.2 54.0 47.9
Cross-border bank loan & deposit stock, % world GDP
b
13.9 19.9 34.3 33.1 37.6 39.1 34.9

C. Internet:
Users, % world population: 0.1 0.8 6.7 16.0 30.2
Developed countries, % population 0.3 3.7 30.5 59.4 73.4
Emerging & Developing countries, % population 0.0 0.0 1.5 7.3 21.5

D. Demographic:
Stock of international migrants, % world population 2.2 2.3 3.0 2.9 2.9 3.0 3.1
Refugee population, % world population 0.3 0.2 0.1 0.2
Workers remittances, % of world GDP

E. Political:
0.41 0.39 0.42 0.36 0.43 0.63 0.75
m

Nation-states with membership in the United Nations
International organizations, number:
154 159 159 185 189 191 192
Intergovernmental 337
i
378 300
j
243 244 253
Non-governmental 4265
i
4676 4621
j
6357 7412 8198

F. Social & Cultural

International tourist arrivals, % world population 3.5 6.7 8.6 9.5 11.4 13.0 13.7
Books on the topic of globalization
e
577 1107 2152 4853 10525 22405 38440


The Multinational Enterprise
(MNE)
A company with operations in at least two
different nation-states.
Another important term: foreign direct (as
opposed to portfolio) investment, or FDI.
It is a very controversial species
How Important are MNEs?
There are 104,000 MNEs in the world.
They control about 790K subsidiaries.
71% of all MNEs are based in rich
countries.
The 500 largest MNEs account for 25% of
world product, and 50% of world trade.
MNEs receive 80% of all payments for
technology royalties and fees.
Multinationals as Citizens of the World
The Tommy Hilfiger Corporation [is] headquartered
in Hong Kong, incorporated in the British Virgin
Islands, listed on the New York Stock Exchange,
owned primarily by international institutional
investors, held its annual meeting [of shareholders]
in Barbados, sourced production to manufacturers
in Mexico and Asia, licensed its name to producers
globally, and retailed its classic American
clothing in Europe and North America.
Gerald F. Davis, in the Handbook of Economic
Sociology, pp. 480-481.
Discussion Questions
Which do you think is the country whose
firms have invested the most abroad right
up to the present time?
And the country ranked in second place?
Country
$ billion % of GDP
1990 2012 1990 2012
China 4.5 509.0 1.1 6.3
Hong Kong 11.9 1,309.8 15.5 509.1
Taiwan 30.4 226.1 18.4 47.5
India 0.1 118.2 0.0 6.4
Singapore 7.8 401.4 21.2 148.4
South Korea 2.3 196.4 0.9 17.0
Malaysia 0.8 120.4 1.7 39.7
Argentina 6.1 32.9 4.3 6.9
Brazil 41.0 232.8 9.4 10.3
Chile 0.2 97.1 0.5 36.5
Colombia 0.4 31.6 1.0 8.6
Mexico 2.7 137.7 1.0 11.7
Panama 3.9 37.7 73.4 106.5
Peru 0.1 4.0 0.4 2.0
Venezuela 1.2 20.9 2.6 5.5
Russia 413.2 20.9
Turkey 1.2 30.5 0.6 3.9
UAE 0.1 60.3 0.0 17.1
Egypt 0.2 6.3 0.4 2.5
South Africa 15.0 82.4 13.4 21.1
Ireland 14.9 357.6 31.2 170.5
Spain 15.7 627.2 3.0 46.4
USA 731.8 5,191.2 12.6 33.1
France 112.4 1,496.8 9.0 57.3
Germany 151.6 1,547.2 8.8 45.6
Italy 60.2 565.1 5.3 28.1
Holland 106.9 975.6 35.9 126.3
United Kingdom 229.3 1,808.2 23.1 74.3
Japan 201.4 1,054.9 6.7 17.8
Developed countries 1948.6 18,672.6 11.1 43.3
Emerging and developing countries 145.2 4,459.4 4.1 17.5
World total 2086.8 23,592.7 9.9 33.1
Stocks of
Foreign
Direct
Investment
Source: World
Investment Report
(2013).
Firm Country Industry Global Market Position
Arcor Argentina Confectionery #1 candy manufacturer
Bimbo Mexico Food processing #1 in bread
JBS Brazil Food processing #1 in meat
Modelo Mexico Beverages #1 import beer brand
Vale Brazil Mining #3
Tenaris Argentina Steel #1 in seamless tubes
Bharat Forge India Metals #2 in forgings
Cemex Mexico Cement #1 in ready-mix concrete
Haier China Household appliances #1 in white goods
Braskem Brazil Bioplastics #1
BYD China Batteries #1 in Ni-Cd batteries
Acer Taiwan Personal computers #2
Lenovo China Personal computers #4
Samsung Electronics S Korea Consumer electronics #1 in chips & LCDs, #2 in phones
Embraer Brazil Aircraft #1 in regional jets
Cosan Brazil Energy #1 in biofuels
Tata Communications India Telecom operator #1 wholesale voice carrier
Mini-Lecture 1.4
Financial globalization.
Financial interconnectedness.
Global Financial Markets
Foreign portfolio investment.
Currency markets:
Only 10% are commercial transactions.
Discussion Question: What accounts for the
other 90%?
Financial globalization has grown faster
than economic globalization.
Globalization Indicators
Indicators: 1980 1985 1990 1995 2000 2005 2010
A. Economic:
Exports + imports of goods & services, % world GDP

38.4 37.8 38.0 41.8 48.8 53.7 56.0
Developed countries, % GDP

39.5 39.1 38.0 40.9 48.1 52.0 55.9
Emerging & Developing countries, % GDP

32.8 31.2 38.1 46.4 52.5 62.0 56.7

Inward foreign direct investment stock, % world GDP 6.5 8.3 9.4 11.3 23.1 25.2 29.7
Developed countries, % GDP 4.9 6.5 8.9 10.8 22.7 25.3 30.7
Emerging & Developing countries, % GDP 11.8 14.7 13.6 16.4 40.1 50.2 60.3

Emerging & developing economies:
% of global GDP, at purchasing power parities 31.7 32.7 32.7 33.0 34.2 38.5 45.2
% of global outward foreign direct investment stock 13.1 9.6 7.0 9.2 11.0 11.5 17.8
% of global foreign exchange reserves 32.9 37.1 51.9 66.6

B. Financial:
Daily currency exchange turnover, % world GDP
a
0.7 1.3 3.8 5.6 6.8

4.6
k
6.3
Cross-border banking external assets, % world GDP
b
13.7 19.9 28.1 28.5 34.2 54.0 47.9
Cross-border bank loan & deposit stock, % world GDP
b
13.9 19.9 34.3 33.1 37.6 39.1 34.9

C. Internet:
Users, % world population: 0.1 0.8 6.7 16.0 30.2
Developed countries, % population 0.3 3.7 30.5 59.4 73.4
Emerging & Developing countries, % population 0.0 0.0 1.5 7.3 21.5

D. Demographic:
Stock of international migrants, % world population 2.2 2.3 3.0 2.9 2.9 3.0 3.1
Refugee population, % world population 0.3 0.2 0.1 0.2
Workers remittances, % of world GDP

E. Political:
0.41 0.39 0.42 0.36 0.43 0.63 0.75
m

Nation-states with membership in the United Nations
International organizations, number:
154 159 159 185 189 191 192
Intergovernmental 337
i
378 300
j
243 244 253
Non-governmental 4265
i
4676 4621
j
6357 7412 8198

F. Social & Cultural

International tourist arrivals, % world population 3.5 6.7 8.6 9.5 11.4 13.0 13.7
Books on the topic of globalization
e
577 1107 2152 4853 10525 22405 38440


Economic & Financial Governance
Capitalism needs certain institutions:
Protection of property rights.
Rule of law.
Stable payment system and financial system.
Can global capitalism exist in the absence of
global governance?
Options:
Multilateral organizations: IMF, World Bank.
Hegemonic economic power (USA, China, etc.).
G5, G7, G8, G20?
Global body with elected officials.
Financial
Interconnectedness
http://www.imf.org/external/np/pp/eng/2010/100410.pdf
Reproduced with permission. http://www.imf.org/external/pubs/ft/wp/2011/wp1174.pdf
Cross-Border Bank Lending
The Great Recession
Proportion of OECD Countries
with at least two consecutive quarters of GDP decline
Source: Figure 2.2 in Guillen and Ontiveros, Global Turning Points (Cambridge Univ Press, 2012).
Mini-Lecture 1.5
Globalization and the concept of
isomorphism.
Drivers of globalization.
Isomorphism
Is the tendency of actors, organizations or
other types of entities to become more
similar or to adopt common patterns of
behavior over time.
Isomorphism can result from several
dynamics, which we shall call drivers.
Examples of Isomorphism
The modern nation-state.
The ministry of foreign affairs.
Prohibition of child labor.
General schooling.
Tourism promotion offices.
Newspapers.
Blue jeans.
Pop music.
Drivers of Globalization:
Isomorphic Pressures
Driver: Mechanism: Examples:
Normative Shared ideologies, worldviews,
frameworks, or templates
Keynesianism, neo-
liberalism, democracy,
legal traditions, culture
Coercive Power, dependency Hegemonic states,
multilateral organizations,
multinational firms
Mimetic Frequency-based imitation to
cope with uncertainty and/or
secure legitimacy
Bandwagons, fads,
fashions
Emulative Trait-based imitation driven by
the legitimacy of the source
Hegemonic states, states
considered to be
successful or innovative
Competitive Performance Markets
Boundary Conditions
Certain countries are more exposed to
isomorphic pressures:
Dependent states.
States more embedded in trade.
Democratic states.
States with smaller levels of public spending.
Discussion question: Why are countries
with smaller levels of public spending more
exposed?
Mini-Lecture 1.6
The paradoxes of globalization.
Three Paradoxes
Paradox of predictability:
The global system is highly structured and predictable.
It is also prone to unpredictable disruptions, crises, and even
systemic breakdown.
Paradox of coupling:
Tight coupling among system components, especially
financially, economically, environmentally, and
demographically.
There is increasing institutional decoupling between adoption
dynamics and outcomes.
Paradox of differentiated convergence:
Isomorphic pressures towards convergence.
Differentiation and specialization.
Mini-Lecture 1.7
The consequences of globalization.
Winners and losers.
Effects of Globalization
Civilizing.
Destructive.
Feeble.
Discussion Questions
Is there more or less inequality in the world
today compared to, say, 10, 20 or 30 years
ago?
Is globalization responsible for changes in
inequality?
Income Inequality Across Countries
Gini coefficients measured vertically. Mauro F. Guilln. Source: World Development Indicators.
Inequality Within Countries:
Income Gini Coefficients: Developed Countries
Mauro F. Guilln. Data Source: All the Ginis Dataset, World Bank.
Inequality Within Countries:
Income Gini Coefficients: Developing Countries
Mauro F. Guilln. Data Source: All the Ginis Dataset, World Bank.
Winners & Losers (?)
Capital.
Educated workers.
Strong states.
Economy ministry.
Rich countries.
Labor.
Unskilled workers.
Weak states.
Labor & social ministry.
Poor countries.
Mini-Lecture 1.8
Tensions and institutions.
Systemic global disruptions.
Key Tensions
They occur at the border between the four
key subcomponents:
Economic (including financial).
Socio-Demographic.
Political.
Geopolitical.
Key Institutions
Labor market.
Political representation system.
The state.
The international system of states.
Week 1 Suggested Readings
Mauro F. Guilln and Emilio Ontiveros,
Global Turning Points, chapter 1.
ALL READINGS ARE FREE AND
AVAILABLE ONLINE.
Global Literacy Test
Now that we have covered the basics,
please take the Global Literacy Test.
I will ask you to take it again upon
completion of this course.