The Global Enterprise
Thomas F. Siems, Ph.D.Sr. Economist and Policy Advisor
Federal Reserve Bank of Dallasand
Sr. Lecturer, School of EngineeringSouthern Methodist University
ISACA North Texas MeetingDallas, TexasJune 14, 2007
Important Questions(Learning Objectives)
• What drives economic growth?
• How does globalization impact global enterprises?
• What’s IT’s role?
• What’s needed to succeed in the global economy?
What is Globalization?
What is Globalization?
The increased integration of the world’s economies through
increased flows of goods, capital, labor and ideas.
World Trade on the Rise
20%
25%
30%
35%
40%
45%
50%
55%
60%
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
(Exports + Imports)/Gross World Product
Source: IMF
Capital On the Move
0
5
10
15
20
25
30
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
Percent of Gross World Product
Foreign Direct Investment
Private Capital
Source: World Bank
More Workers Crossing Borders
0
2
4
6
8
10
12
14
1960 1970 1980 1990 2000
Foreign Born as percent of US Population Source: World Bank
GDP per Capita
0
5000
10000
15000
20000
25000
30000
35000
40000
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
United States
EMU
World
Latin America
Middle EastEast Asia/Pacific
Sub-Saharan Africa
Constant 2000 US$Source: World Bank
GDP per Capita
100
150
200
250
300
350
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Index 1960=100
High Income Countries
Middle Income Countries
Low Income Countries
Source: World Bank
Quick Case Study: The United States of America
(last decade)
• Increased Economic Stability/Resiliency
• Strong Productivity Growth
• Low Inflation Environment
U.S. Business CycleExpansions and Contractions
Real U.S. GDP Growth Less Volatile
-10%
-5%
0%
5%
10%
15%
20%
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Real Gross Domestic Product, (SAAR, Bil. Chn. 2000 $)
> 3.5% Real GDP Growth 0% - 3.5% Real GDP Growth Negative Real GDP Growth
Real GDP Growth is More Stable
Average = 4.08 Average = 2.92 Average = 3.47
Mass Production Era(1948 - 1973)
53%30%
17%
Lean Manufacturing Era(1974 - 1995)
43%
42%
15%
Information Engineering Era(1996 - 2005)
46%
46%
8%
Productivity Growth Rising
0
1
2
3
4
'70 '75 '80 '85 '90 '95 '00 '05
Nonfarm Business Sector: Output Per Hour of All Persons (SAAR, % Chg)
Mass Production Era(1948 - 1973)
49%
27%
24%
Lean Manufacturing Era(1974 - 1995)
38%
36%
26%
Information Engineering Era(1996 - 2005)
59%30%
11%
> 2.5% Productivity Growth 0% - 2.5% Productivity Growth Negative Productivity Growth
Productivity Growth Getting Stronger
Average = 2.74 Average = 1.52 Average = 3.11
Inflation Rates Lower
-5
0
5
10
15
20
'68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04
CPI Inflation: 12-month % change
Core Services
Core Commodities
What’s Driving Growth?
• Practices?
• Policies?
• Pennies?
• Providence?
• Proficiencies?
Good Practices???
• new technologies
• better management
• focus on better, faster, cheaper
Importance of technology Solow (1970) and Colecchia & Schryer (2002)
Who Supplied My Cheese?Supply Chain Management in the Global Economy
Thomas F. SiemsFederal Reserve Bank of Dallas
2005 NABE Annual Meeting“Change and Competitiveness: Who Moved My Paradigm?”
Chicago, IllinoisSeptember 26, 2005
Who Supplied My Cheese?Supply Chain Management in the Global Economy
Thomas F. SiemsFederal Reserve Bank of Dallas
2005 NABE Annual Meeting“Change and Competitiveness: Who Moved My Paradigm?”
Chicago, IllinoisSeptember 26, 2005
You Are Here!
Reduced Bullwhip Effect for Durables
0%
5%
10%
15%
20%
'69 '71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05
10 year moving standard deviation of one-quarter annualized growth
Production growth volatility
Sales growth volatility
Inventory Management Improves
1.25
1.50
1.75
2.00
2.25
2.50
2.75
'60 '65 '70 '75 '80 '85 '90 '95 '00 '05
Manufactured Durable Goods: Inventory/Shipments Ratio
Logistics Costs
5
10
15
20
25
30
35
40
'81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04
Percent of Goods Component of GDP
Total Logistics Costs
Transportation Costs
Inventory Carrying Costs
Air, Sea, and Telecommunications Costs
0
50
100
150
200
250
1930 1940 1950 1960 1970 1980 1990 2000
1990 US $
Sea Freight
Air Freight
Telecommunications
Good Policies???
• good institutional structures that protect people/property
• better monetary policies• freer trade• less regulation/rigidity
Importance of policies Roll & Talbot (2001)
Importance of markets Adam Smith (1776)
Importance of free trade David Ricardo (1817)
Strengthening Globalization’s Invisible Hand: What Matters
Most?
Adam S. RatnerWest Monroe Partners
Thomas F. SiemsFederal Reserve Bank of Dallas
NABE’s 48th Annual Meeting
September 10-12, 2006
Boston, MA
Our Model
PeoplePeople
IdeasIdeas
ThingsThings
Economy
Investment Climate
Economic Growth
Rule of Law & Protection of Ideas, People and Things
Average Tariff Rates Declining
0
5
10
15
20
25
30
35
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98
Percent, unweighted
Developing Countries
Industrial Countries
Total World Trade & Regional Trade Agreements
20
25
30
35
40
45
50
'65 '70 '75 '80 '85 '90 '95 '00 '03
0
10
20
30
40
50
60
70
80
(Exports plus Imports)/Gross World Product Number of Regional Trade Agreements
Rigidity of Employment Index
0
10
20
30
40
50
60
70
80
90
United States UnitedKingdom
Japan Mexico China India Mozambique Congo, Dem. Haiti
Industrialized Nations Developing Nations Least Developed Nations
Index, 0 = Low Rigidity
Time to Start a Business (days)
0
50
100
150
200
250
United States UnitedKingdom
Japan Mexico China India Mozambique Congo, Dem. Haiti
Industrialized Nations Developing Nations Least Developed Nations
Days
Time to Register Property (days)
0
50
100
150
200
250
United States UnitedKingdom
Japan Mexico China India Mozambique Congo, Dem. Haiti
Industrialized Nations Developing Nations Least Developed Nations
Days
Time to Enforce Contracts (days)
0
100
200
300
400
500
600
700
800
900
1000
United States UnitedKingdom
Japan Mexico China India Mozambique Congo, Dem. Haiti
Industrialized Nations Developing Nations Least Developed Nations
Days
Legal Rights Index
0
1
2
3
4
5
6
7
8
9
10
United States UnitedKingdom
Japan Mexico China India Mozambique Congo, Dem. Haiti
Industrialized Nations Developing Nations Least Developed Nations
Index, 10 = Highest
Good Pennies???
• importance of well-developed financial markets
• freedom and opportunity
• reward entrepreneurial spirit
Importance of investment Rousseau & Sylla (2001)
The Importance of Investment
0 20 40 60 80 100
ArgentinaVenezuelaIndonesia
JordanColombia
PhilippinesTurkey
BrazilRomaniaBulgaria
RussiaIndia
ThailandCroatia
South AfricaChina Mainland
MexicoMalaysia
Slovak RepublicPoland
ChileEstonia
IsraelHungary
Czech RepublicKorea
SloveniaGreece
Hong KongTaiwan
PortugalItaly
SpainNew Zealand
SingaporeFrance
GermanyIceland
AustraliaBelgium
JapanNetherlands
IrelandCanadaAustriaUnited
FinlandSweden
DenmarkUSA
NorwaySwitzerland
Creditworthiness Rate (0-100)
Creditworthiness Index and GDP/capita (PPP)
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
30 40 50 60 70 80 90 100
Creditworthiness Index (0-100)
GD
P/c
apita
(PP
P)
NOR
Creditworthiness Index and GDP/capita (PPP)
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
30 40 50 60 70 80 90 100
Creditworthiness Index (0-100)
GD
P/c
apita
(PP
P)
USA
PRT
NORNOR
CHE
IRL
UK
Creditworthiness Index and GDP/capita (PPP)
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
30 40 50 60 70 80 90 100
Creditworthiness Index (0-100)
GD
P/c
apita
(PP
P)
USA
PRT
CZE
NORNOR
CHE
IRL
UK
RUS
Creditworthiness Index and GDP/capita (PPP)
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
30 40 50 60 70 80 90 100
Creditworthiness Index (0-100)
GD
P/c
apita
(PP
P)
USA
IND
ISR
HKG
PRT
CZE
NORNOR
CHE
IDN
CHN
IRL
JPN
UK
RUS
Creditworthiness Index and GDP/capita (PPP)
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
30 40 50 60 70 80 90 100
Creditworthiness Index (0-100)
GD
P/c
apita
(PP
P)
USA
ARG
IND
ISR
VEN
HKG
PRT
CHL
CZE
NORNOR
CHE
IDN
CHN
IRL
BRA
JPN
UK
RUS
Creditworthiness Index and GDP/capita (PPP)
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
30 40 50 60 70 80 90 100
Creditworthiness Index (0-100)
GD
P/c
apita
(PP
P)
USA
ARG
IND
ISR
VEN
HKG
PRT
CHL
CZE
NORNOR
CHE
IDN
CHN
IRL
BRA
JPN
UK
RUS
Good Providence???
• not likely: 9/11 attacks, 2001 recession, wars, natural disasters, corporate malfeasance, stock market bubble, IT investment bust, rising energy costs, etc.
• BUT...highlights the importance of knowledge/skills
Good Proficiencies???
• importance of an educated and skilled workforce
• technologies that increase productivity and output
• ideas matter
Importance of ideas Paul Romer (1990)
Importance of education Black & Lynch (2001)
Average Years of Schooling
0
2
4
6
8
10
12
14
United States UnitedKingdom
Japan Mexico China India Mozambique Congo, Dem. Haiti
Industrialized Nations Developing Nations Least Developed Nations
Years
The Importance of Ideas: Education
0 1 2 3 4 5 6 7 8 9
South AfricaVenezuela
RussiaPhilippines
China MainlandRomania
New ZealandCroatiaPoland
SloveniaSlovak Republic
MexicoItaly
EstoniaIndonesiaArgentina
PortugalJordanKorea
BulgariaColombia
HungaryTaiwanFrance
MalaysiaTurkey
ThailandCanada
BrazilGreece
BelgiumUnitedSpain
AustraliaGermany
Czech RepublicSweden
NetherlandsJapanIndia
SingaporeIsrael
DenmarkHong Kong
SwitzerlandChile
FinlandNorway
USAAustriaIrelandIceland
Skilled Workforce Rating
Skilled Workforce Rating and GDP/capita (PPP)
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
2 3 4 5 6 7 8 9
Skilled Workforce Rating (0-10)
GD
P/c
apita
(PP
P)
USA
ZAF
IDN
NZL SLA
ITA
COLVEN
IND
CHL
IRLNOR
ISL
BRACHN
JPN
UK
RUS
Ideas Matter!
To Strengthen Globalization’s Invisible Hand:
• Enforce legal protections under the rule of law
• Create an investment climate that rewards the entrepreneurial spirit
• Continually develop an educated and skilled workforce
• Promote new technologies that increase productivity and output