The modern financial leader’s role includes making a strategic contribution to the business. Every financial leader should therefore understand globalisation. The facts, and the fiction. For starters, one should notice that the map of the world has changed. The new map does not have Europe at the centre. The reality is that the four largest economies in the world are the United States, China, India and Japan based on gross domestic product (after applying the Purchasing Power Parity conversion factor – PPP). According to the World Bank, these four countries contribute roughly half of the world’s PPP GDP of 66 trillion. The first time I noticed that the map of world had changed was while working for an Italian company in the United Kingdom with my Australian colleague, reporting to an Asian boss. In recent years, working in the globally integrated automotive supply chain has provided further insights into the globalisation phenomenon.
There are about 6,6 billion people in the world, of which 3 billion are considered to be part of the labour force. They live in approximately 265 nations, dependant areas and other entities. The world’s population is employed in Agriculture (40,7%), Industry (20.5%) and the Services sector (38.8%). However, the 40,7% of the labour force working in agriculture generates only 4% of the world’s GDP. Industry (30%) and Services (66%) contribute the majority of the value created as measured by GDP.
Any article on globalisation cannot ignore mentioning China. The China effect can be summarised by the well known story of Hong Dongyang, the owner of the first sock company in the Zhejiang Province, China. Previously a school teacher, she started her business by making socks in the 1970s on a home sewing machine. Her idea was replicated and duplicated by other entrepreneurs in the region. The Zhwjiang Province now has over eight thousand companies, producing 8 billion socks a year. This equates to one every three pairs of socks in the world. China in summary: 1,3 billion hard working highly motivated entrepreneurs!
Back to the Future
Globalisation is not a new concept. The potential effects of globalisation, positive and negative, were recognised 150 years ago by the political philosophers Marx and Engels. They did not use the word “globalisation”, but their themes and concepts sound remarkably similar to our world in 2007. Their writings could very easily be mistaken for a globalisation commentary from last week’s financial press. Below are a few apparently new concepts, followed by an extract from their writings in 1848!
What we refer to as rapid change and uncertainty, they expressed as “constant revolutionising of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation…”
Integrated global supply chains were accurately described as “The need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe. It must nestle everywhere, settle everywhere, establish connections everywhere”.
The spread of a common culture across all nations was also predicted: “And as in material, so also in intellectual production. The intellectual creations of individual nations become common property. National one-sidedness and narrow-mindedness become more and more impossible, and from the numerous national and local literatures there arises a world literature” – we call it Americanism.
The phenomenon of IT bubbles & stock market crashes was already occurring in 1848 and was described as follows: “It is enough to mention the commercial crises that by their periodical return put the existence of the entire bourgeois society on its trial, each time more threatening. In these crises, a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity – the epidemic of over-production”
From the above commentary one could conclude that globalisation is not a new phenomenon. However, one should recognise that the fall of the Berlin Wall and the rise of the Internet have pushed globalisation into overdrive, and these factors represent the most recent chapter in a 150 year old epic story we call “Globalisation”. The recent spate of product recalls on Chinese goods and the US subprime crisis could mark the beginning of a new chapter in the globalisation story. Back to the Future? Only time will tell.
Marx, K. and Engels, Selected works, Volume One, Progress Publishers, Moscow, USSR, 1969, pp98-137.
World Development Indicators database, World Bank, 1 July 2007
Fishman, T, China Inc, Pocket Books, 2006
Brendon Wood CA(SA), is a financial director operating in the global automotive industry.