World 3.0

by Pankaj Ghemawat

  5. Chamber of Commerce, Industry, and Services of Andorra, “Economic Report, 2008,” and Associacio de Bancs Andorrans, “Andorra and Its Financial System 2009.”

  6. Andorra tourist arrivals and population data from Chamber of Commerce, Industry, and Services of Andorra, “Economic Report, 2008” and Associacio de Bancs Andorrans, “Andorra and Its Financial System 2009”; global international tourist arrivals from World Travel and Tourism Council, http://www.wttc.org/eng/Tourism_Research/Economic_Data_Search_Tool/index.php (accessed November 27, 2010). Note: This calculation includes both day-trippers and overnight tourists in Andorra's international tourist arrivals.

  7. See Raphael Minder, “Andorra, a Tiny Tax Haven, Tries Openness,” New York Times August 27, 2010, http://www.nytimes.com/2010/08/28/business/global/28andorra.html?_r=2.

  8. Trade intensity calculations are calibrated by GDP.

  9. Calculated from data from the Statistics Department of the Government of Andorra, http://www.estadistica.ad/serveiestudis/web/index.asp.Tourism intensity calculations are calibrated by population.

  10. United Nations Population Division, “International Migration 2009,” http://www.un.org/esa/population/publications/2009Migration_Chart/2009IttMig_chart.htm.

  11. United Nations, Department of Economic and Social Affairs, Population Division, World Population Prospects: The 2008 Revision (2009), CD-ROM edition.

  12. Nina Budina and Sweer van Wijnbergen, “Managing Oil Revenue Volatility in Nigeria: The Role of Fiscal Policy,” in Delfin S. Go and John Page, eds., Africa at a Turning Point? Growth, Aid, and External Shocks (Washington, DC: World Bank, 2008): 427–460; and U.S. Department of State profile of Nigeria, http://www.state.gov/r/pa/ei/bgn/2836.htm, accessed on November 16, 2010.

  13. Refer to Paul Collier, Frederick van der Ploeg, and Anthony J. Venables, “Managing Resource Revenues in Developing Economies,” Oxford Centre for the Analysis of Resource Rich Economies, January 2009, as well as others at http://www.oxcarre.ox.ac.uk/index.php/Research-Papers/research-papers1.html.

  14. Henry Umoru, “Nigeria's Future Depends on Manufacturing, Non-oil sector— Jonathan,” Vanguard Online Edition, November 1, 2010, http://www.vanguardngr.com/ 2010/11/nigeria%e2%80%99s-future-depends-on-manufacturing-non-oil-sector-jonathan/.

  15. French is an official language in all of the countries that are adjacent to Nigeria; among them only Cameroon also recognizes English as an official language.

  16. Nigerian Export Promotion Council, Annual Statistics, http://www.nepc.gov.ng/download.htm, accessed November 26, 2010.

  17. For a review of the history of Nigerian international migration, see Adejumoke A. Afolayan, Godwin O. Ikwuyatum, and Olumuyiwa Abejide, “Dynamics of International Migration in Nigeria (A Review of Literature),” paper prepared as part of the African Perspectives on Human Mobility Programme, 2008.

  18. Estimates suggest that 50 to 60 percent of trade between Nigeria and Niger and 75 to 80 percent of Nigerian imports from Benin occur outside of official channels, as noted in World Bank, “Nigeria: Competitiveness and Growth,” Report No. 36483, May 30, 2007, 125.

  19. Oyeniyi, Omotayo, “Effect of Marketing Strategy on Export Performance: Evidence from Nigerian Export Companies,” Annals of University of Bucharest, Economic and Administrative Series No. 3 (2009): 249–261

  20. World Bank, “Nigeria: Competitiveness and Growth,” 81–83.

  21. World Economic Forum, “Global Competitiveness Report 2010,” http://gcr. weforum.org/gcr2010/.

  22. World Bank, “Nigeria: Competitiveness and Growth,” 81–83.

  23. See Alberto Alesina et al., “Fractionalization,” Journal of Economic Growth 8, no. 2 (2003): 155–194.

  24. World Bank, “Nigeria: Competitiveness and Growth,” 23.

  25. Abraham Lincoln, Annual Message to Congress (Dec. 1, 1862), in Abraham Lincoln's Speeches and Letters 1832–1865, ed. Paul M. Angle (London: Dent, 1957): 216, 225.

  26. Thomas M. Hout and Pankaj Ghemawat, “China vs. the World: Whose Technology Is It?” Harvard Business Review, December 2010, 94–103.

  27. The Economist, November 13, 2010.

  28. Parag Khanna, The Second World: Empires and Influence in the New Global Order (New York: Random House, 2008): 257–320.

  29. This analysis is based on historical trade reported by U.S. and China with third countries according to data from the United Nations Commodity Trade Database. Projections of differential real GDP growth rates through 2030 are according to the Economist Intelligence Unit (EIU) as of December 2010. Where data were unavailable in primary sources or for target years, data for closest available years were used based on available sources.

  30. See http://www.financialexpress.com/news/china-replaces-us-as-indias-largest-trade-partner/494785/.

  31. See Robert Axelrod, The Evolution of Cooperation (New York: Basic Books, 1984).

  32. Doing so assumes that at least some of the divergence between a country's predicted pattern of international engagement based on cross-country estimates and its actual pattern—which presumably reflects path dependence and, more broadly, a variety of idiosyncratic influences—can and should be remedied.

  33. See also Pankaj Ghemawat, Redefining Global Strategy (Boston, MA: Harvard Business School Press, 2007), chapters 4–7 for a much more detailed description of the AAA strategies.

  34. As elsewhere in this book, this conclusion is focused on cultural, administrative, and geographic differences. Many of the economic elements of the CAGE framework are better thought of as outcomes that should, ideally, reflect the results of cross-border openness and competition instead of as targets for direct manipulation.

  35. In game-theoretic terms, imposing the auxiliary criterion of fairness can empty the core of cooperative games.

  36. See the full text of the Schuman Declaration of May 9, 1950 at http://www.schuman.info/.

  Chapter Fourteen

  1. These figures are based on a rough content analysis of the annual reports of the world's 100 largest companies conducted under my supervision. The companies covered in the analysis were selected based on revenues during the period 2004 to 2008 as reported in the 2004 to 2008 editions of the Fortune Global 500 rankings.

  2. Pankaj Ghemawat, Redefining Global Strategy (Boston, MA: Harvard Business School Press, 2007).

  3. David Jin, et. al., “Winning in Emerging-Market Cities: A Guide to the World's Largest Growth Opportunity,” Boston Consulting Group, September, 2010.

  4. McKinsey Global Institute, “Preparing for China's Urban Billion,” March 2009.

  5. David Jin, et. al., “Winning in Emerging-Market Cities.”

  6. Susan Perkins, Randall Morck, and Bernard Yeung, “Innocents Abroad: The Hazards of International Joint Ventures with Pyramidal Group Firms,” NBER working papers 13914, 2008.

  7. Egon Zehnder International, Global Board Index 2008.

  8. Herman Vantrappen and Petter Kilefors, “Grooming CEO Talent at the Truly Global Firm of the Future,” Arthur D. Little Prism, February 2009, 90–105.

  9. Online survey of Harvard Business Review readers conducted at my request in 2007.

  10. Computations are based on Bureau of Economic Analysis data kindly carried out at my request by Raymond J. Mataloni, fall 2007.

  11. To learn more about how to use the ADDING value scorecard for company-level analysis, refer to chapter 3 of Redefining Global Strategy.

  12. For further discussion of the interactions between established and emerging multinational companies, see Pankaj Ghemawat and Thomas Hout, “Tomorrow's Global Giants? Not the Usual Suspects,” Harvard Business Review 86 (November 2008): 80–88.

  13. For further discussion of the post-crisis imperatives for companies' global strategies, see Pankaj Ghemawat, “Finding Your Strategy in the New Landscape,” Harvard Business Review 88 (March 2010): 54–60.

  14. Robert C. Lieb and Kristin J. Lieb, “Executive Summary and Regional Comparisons 2009 3PL CEO Surveys,” http://www.gopenske.com/newsroom/20
09_9_21_executive_summary.html.

  15. Gary Herrigel, “Interim Substantive Report on Global Components Project,” memo to Gail Pesyna, University of Chicago Department of Political Science, October 16, 2007. For more information, see http://www.globalcomponents.org/.

  16. Arindam Bhattacharya, et. al., “Organizing for Global Advantage in China, India, and Other Rapidly Developing Economies,” The Boston Consulting Group, March 2006.

  17. The Pew Research Center, “Public Praises Science; Scientists Fault Public, Media,” July 9, 2009, http://people-press.org/report/528/.

  18. Global Trade Alert, “Managed Exports and the Recovery of World Trade: The 7th GTA Report,” September 16, 2010, http://www.globaltradealert.org/managed-exports-7th-gta-report.

  Chapter Fifteen

  1. David Gura, “Tony Blair on War, Globalization and ‘My Political Life,’” The Two- Way, NPR's News Blog, September 2, 2010, reporting on Steve Inskeep's interview with Tony Blair about his new book, My Journey, http://www.npr.org/blogs/thetwo-way/ 2010/09/01/129580726/tony-blair-a-journey-my-political-life-interview-morning-edition-memoir.

  2. Hierocles (Stobaeus, Eclogae Physicae et Ethicae, 4.671, 7.673, p. 11), reproduced in Long and Sedley, The Hellenistic Philosophers, 2 vols. (Cambridge, UK: Cambridge University Press, 1987), fragment 57G.

  3. David Hume, A Treatise of Human Nature (Lawrence, KS: Digireads.com Publishing, 2010), 329.

  4. Thus, Lars Håkanson and Björn Ambos note that, “In the extant literature, ‘psychic distance’ is usually conceived of as a perceptual, subjective phenomenon, but it is typically operationalized as an objective, collective construct—an inconsistency that has been perpetuated over time.” Håkanson and Ambos, “The Antecedents of Psychic Distance,” Journal of International Management 16 (2010):197.

  5. For the original paper focused on psychic distance in business research, which defines psychic distance in a way that excludes geographic factors and arbitrarily privileges informational flows over other kinds of cross-border flows, see J. Johanson, and F. Wiedersheim-Paul, “The Internationalization of the Firm—Four Swedish Cases,” Journal of Management Studies 12, no. 1 (1975): 305–322 and J. Johanson and J.-E. Vahlne, “The Internationalization Process of the Firm—A Model of Knowledge Development and Increasing Foreign Market Commitments,” Journal of International Business Studies 8, no. 1 (1977): 23–32.

  6. See http://en.wikipedia.org/wiki/Psychical_distance, and, for an analogous definition from business academia, Lars Håkanson and Björn Ambos, “The Antecedents of Psychic Distance,” Journal of International Management 16 (2010): 195–210, which defines psychic distance in its survey instrument as the “sum of factors (cultural or language differences, geographical distance, etc.) that affects the flow and interpretation of information to and from a foreign country.”

  7. This definition is consistent with dictionary.com's: “The degree of emotional detachment maintained toward a person, a group of people or an event” see (http://dictionary.reference.com/browse/psychic+distance), but adds back the subjective/perceptual element emphasized in earlier definitions.

  8. For what it is worth—note the caveats already described about expanded conceptions of psychic distance—such trust measures are strongly and negatively correlated with the “psychic” (or actually, total information-related) distances reported by Håkanson and Ambos, op cit., based on their survey of managers in 25 countries. For the 10 countries that overlapped across the the two samples, the median correlation between reported trust in people from particular countries and psychic distance from them was –0.7.

  9. On the first three flows, see Luigi Guiso, Paola Sapienza, and Luigi Zingales, “Cultural Biases in Economic Exchange?” Quarterly Journal of Economics 124, no. 3 (August 2009), 1095-1131. On venture capital investment, see Laura Bottazzi, Marco Da Rin, and Thomas Hellmann, “The Importance of Trust for Investment: Evidence from Venture Capital,” discussion paper 2010-49, Tilburg University, Center for Economic Research, 2010 (first draft, February 2006).

  10. Thomas Eisensee and David Stromberg, “New Droughts, New Floods and U.S Disaster Relief,” Quarterly Journal of Economics 122, no. 2 (2007): 693–728.

  11. David Potter and Douglas Van Belle, “News Coverage and Japanese Foreign Disaster Aid: A Comparative Example of Bureaucratic Responsiveness to the News Media,” International Relations of the Asia-Pacific 9, no. 2 (2009): 295–315.

  12. These calculations are based on the approach outlined in Branko Milanovic, “Ethical and Economic Feasibility of Global Transfers,” MPRA paper 2587, University Library of Munich, 2007. Expenditures incurred to relieve domestic poverty are calculated by multiplying total social expenditure for OECD countries by the percentage allotted to means-tested transfers. The idea is to calculate purely redistributive transfers in a domestic context whose logic parallels that of Official Development Assistance (ODA) in an international context. Dividing these values by, respectively, the number of poor people in rich countries (assumed to be around 1% of national populations) and emerging countries (based on World Bank data) gives us the quantities required to compute per capita aid to the domestic poor (in rich countries) as a multiple of per capita aid to the poor in poor countries.

  13. I assume a 90% us-to-them discount in terms of news coverage for the near abroad and a 99% discount for the far abroad, which is probably too conservative in light of the figures cited earlier in the text.

  14. In particular, even if one assumes a hundredfold increase in distance across the horizontal axis in figure 15-2, the drop in the aid line corresponds to a distance sensitivity in excess of –2: greater than the impact of physical distance in Newton's law of gravitation, and greater than any other social sensitivity of which I am aware.

  15. This analysis is based on data for domestic and international calling minutes for a sample of 63 countries between 1995 and 1999. Domestic calling minutes are drawn from International Telecommunications Union (ITU) World Telecommunication/ICT Indicators 2009 database. International calling minutes are from International Telecommunications Union, “Direction of Traffic, 1999: Trading Telecom Minutes,” 1999. Population data is from World Development Indicators and data on the distance between main cities is from CEPII.

  16. Marta C. Gonzalez, Cesar A. Hidalgo, and Albert-Laszlo Barabasi, “Understanding Individual Human Mobility Patterns,” Nature 453 (June 5, 2008): 779–782.

  17. Miller McPherson, Lynn Smith-Lovin, and James M. Cook, “Birds of a Feather: Homophily in Social Networks,” Annual Review of Sociology 27 (2001): 415–444.

  18. Martha C. Nussbaum, For Love of Country? (Boston: Beacon Press, 2002), 133. My thinking about the concept of cosmopolitanism in a business context has been stimulated by the remarks of my copanelist, Jose de la Torre, at the opening plenary of the 2010 annual meeting of the Academy of International Business in Rio de Janeiro.

  19. Peter Singer, “Famine, Affluence, and Morality,” Philosophy and Public Affairs, 1972: 229–243.

  20. K. Anthony Appiah, Ethics of Identity (Princeton, NJ: Princeton University Press, 2005), 227.

  21. Appiah was not the first writer to use the term “rooted cosmopolitanism.” He was preceded in this respect by Mitchell Cohen and Bruce Ackerman.

  22. Appiah, Ethics of Identity, 232.

  23. The objective, more specifically, is to minimize the total area between the distance decay curve and the norm—which has two components, as illustrated in figure 15-2. Also note the continuity, monontonicity, and unidimensionality assumptions built into the figure, all of which might be relaxed but which do help get the point across.

  24. Chicago Council on Foreign Relations and German Marshall Fund of the United States, “Worldviews: American Public Opinion and Foreign Policy,” conducted June 2002, released October 2002.

  25. Eric Pianin and Mario Brossard, “Americans Oppose Cutting Entitlements to Fix Budget,” Washington Post, March 29, 1997, http://www.washingtonpost.com/wp-srv/ politics/special/budget/stories/032997.htm.r />
  26. Council on Foreign Relations, “U.S. Opinion on Development and Humanitarian Aid,” November 19, 2009, http://www.cfr.org/publication/20138/us_opinion_on_development_and_humanitarian_aid.html#p1.

  27. Ben Somberg, “The World's Most Generous Misers: Tsunami Reporting Misrepresented U.S. Giving,” Fair, September/October 2005, http://www.fair.org/index.php?page=2676.

  28. This survey was validated by my IESE colleagues, Yih-teen Lee and Pablo Cardona, on the basis of administering it as well as their much more elaborate survey instrument on cross-cultural intelligence and competence to the same group of more than 200 MBA students.

  29. Walter Lippman, Public Opinion (New York: Harcourt, Brace and Company, 1922), 29.

  30. For evidence that creativity is stimulated by living abroad but not by traveling abroad, see W. W. Maddux and A. D. Galinsky, “Cultural Borders and Mental Barriers: The Relationship Between Living Abroad and Creativity,” Journal of Personality and Social Psychology 96, no. 5 (2009): 1047–1061.

  31. Tassilo Pellegrini, “Nova Spivack: Web 3.0 Will Combine the Semantic Web with Social Media,” Semantic Web Company, http://www.semantic-web.at/1.36.resource.175.nova-spivack-x22-web-3-0-will-combine-the-semantic-web-with-social-media-enabling-a-new-ge.htm.

  32. Dalai Lama, “The Medicine of Altruism,” http://www.dalailama.com/messages/world-peace/the-medicine-of-altruism

  33. Adam Smith, The Theory of Moral Sentiments, Glasgow Edition (Indianapolis, IN: Liberty Classics, 1982), 25.

  34. Robert Wright, Non-Zero: The Logic of Human Destiny (New York: Pantheon, 2000).

  35. Steven Pinker, “Is Evolution Goal-Oriented?” Slate, February 1, 2000, http://www.slate.com/id/2000143/entry/1004510. The excerpt is from Pinker's review of the book by Robert Wright cited in the previous paragraph.