The Technologies that Changed the Nature of International Business

SFC Open Campus GIGA lecture (15 mins)

Masahiro Kotosaka, D.Phil.Associate Professor, Keio University

Associate Fellow, EHESS Paris

The instructor is specialized in international business and entrepreneurship

About the instructor

Masahiro KotosakaAssociate Professor, Faculty of Policy ManagementAssociate Fellow, EHESS ParisExternal director of Apprits, Inc. & Gojo and CompanyAudit & Advisory Board member of UZABASE & RakSulD.Phil in Management Studies from University of Oxford

• Masahiro Kotosaka is an Associate Professor at Keio University and an Associate Fellow of EHESS. He is an expert in Strategy and Internationalization, and advisor to several global start-up companies.

• Before moving to Keio, he was a faculty at Ritsumeikan, a junior faculty at University of Oxford, and was a consultant at McKinsey & Company (Frankfurt/Tokyo). As a practitioner, he worked for sixteen client organizations across nine industries and nine countries, and spent four years running three profitable IT/Retail businesses before joining McKinsey. He graduated from University of Oxford with D.Phil. (PhD) in Management Studies.

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Uruk’s temple: the oldest example of international business operation

3200 BC to 3400 BC in Mesopotamis

* Approximate locationsSource: The Origins of Globalization, Karl Moore (2009)

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• The remote locations were managed by the Temple of Uruk, and constantly delivered the goods produced by each region

• The locations were firstly for the production but increasingly also for sales

• Rafts and Goats, as well as papyrus were used as the technologies

Nineveh

SomesatCarchemish

Uruk

RegionsHeadquarters

Tell Brak

Iran

Industrial Revolution, Productivity Revolution, Management Revolution, and the age of globalization

6/26/2017 3

The World GDP from AD 1 to AD 2003%; GDP(PPP; USD; 1990)

Angus Maddison, 2007, “Contours of the World Economy 1-2030 AD: Essays in Macro-Economic History”

Submarine cables connected the world more than a hundred years ago

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Submarine Cables, 1891

Source: Telegraph Connections, 1891 Stielers Hand-Atlas, Plate No. 5, Weltkarte in Mercator projection

File-1891 Telegraph Line#30C963

20th century was the beginning of the mass-transportation and distance communication

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Technological Revolution of 19th century

Sources: *1 Taken from http://homepage2.nifty.com/nakagen29/30.html *2 Taken from http://www.d3.dion.ne.jp/~ironclad/bridge/Great_Eastern/greateastern.htm*3 Taken from http://fordofwestmemphis.blogspot.jp/2009/01/1903-1919-ford-trucks.html *4 Taken from http://distantwriting.co.uk/instruments.html

1914, Mallet Triplex train*1 1858, Great Eastern*2

1918 Ford Model TT Truck*3 1858 Hughes’s Type Printing Telegraph*4

Technologies, standardization, and legislations and deregulations accelerated the development of international operation capabilities

Enablers of modern international/global business

Source: literature review

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Telecommunication / global media

Transportation ofgoods & people

International standards

International legislations & deregulations

1

2

3

4

Why its important?

•On-time coordination of the value chain•Unification of customer taste

•Low-cost, on-time, and fast transportation enabled more integrated business operations

•Makes sure uniformed standards from the goods produced by foreign people in foreign places

•Reduce contracting problems•Reduce tariff burden•Simplify customs clearance

The application layer is made possible by the physical networks

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The Map of the submarine cables as of April 2017

1

Source: http://www.submarinecablemap.com as of April 27, 2014; http://www.seamewe3.com

The longest cable is SeaMeWe-3, and the length is app. 39,000 Km

Satellites connect the world

6/26/2017 8

Satellites October, 2016

1

Source: http://richiecarmichael.github.io/sat/index.html

The Earth is surrounded by 3344 satellites and more than 10 thousand debullies

The sea and the sky are covered by the human-made networks

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Modern Transportation networks

G. O’Danleyman et. al,. 2011, http://arxiv.org/abs/1103.5451

AIR

4069 airports are connected by 25453 routes

SEA

951 int. ports are connected by 25819 routes

2

Regular, on-time, fast, low-cost, and safe transportation networks drastically reduced the cost of international trade

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Europe 24 – 24 hours of above the European countries

Source: NATS http://www.nats.aero http://vimeo.com/88093956

2

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Global shipping – Data visualization of a 2 weeks of 2015

Source: Youtube by 422 South

2

Technologies, standardization, and legislations and deregulations accelerated the development of international operation capabilities

Enablers of modern international/global business

Source: literature review

6/26/2017 12

Telecommunication / global media

Transportation ofgoods & people

International standards

International legislations & deregulations

1

2

3

4

Why its important?

•On-time coordination of the value chain•Unification of customer taste

•Low-cost, on-time, and fast transportation enabled more integrated business operations

•Makes sure uniformed standards from the goods produced by foreign people in foreign places

•Reduce contracting problems•Reduce tariff burden•Simplify customs clearance

Turning points

•Submarine cables(>1900s)•Satellites (>1950s)•The Internet (>1990s)

•Container ships (>1970s)•Jet airliners (>1960s)

• IEEE (1963)• ISO (1947)• IEC (1906)

•e.g., WTO/GATT (1948)• IMF (1945)•Bilateral trade agreements

The world’s “connectedness” is rapidly increasing

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The growth of world trade

Source: IMF World Economic Outlook Database; World Trade Organization Stat

The total merchandise trade (USD billions, current price)

Comparison of world exports and world GDPIndexed 1970 = 100, current price

Some Modern MNEs may have stronger power than the states

The top 100 economic entity

14

• The size of some of the largest MNEs is bigger than majority of the states

• Over half of the world’s top 100 economic entity is not the states

• These MNEs exist in multiple countries concurrently, and are not subject to the order of single state

6/26/2017

Source: World Bank & Fortune Global 500

What is the implication of “made in XXX” in modern globalized market?

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Assembled in China?

Source: Asian Development Bank Institute, 2010; image from http://bizgovsociii.files.wordpress.com/2012/04/iphone_label.jpg

This product says “Designed by Apple in California. Assembled in China”

What does it mean?

If we breakdown into the components, we see totally different landscape

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Assembled in China?

Source: Asian Development Bank Institute, 2010; image from http://bizgovsociii.files.wordpress.com/2012/04/iphone_label.jpg

Japan, 34

Germany, 17

Korea, 13

USA, 6

China, 4

Others, 26

The share of components for iPhone by country%; 100%=total manufacturing costs

The present business relies on Globally Distributed Value Chains, which was uncommon until 30-40 years ago

A road from silicon to your PC, and beyond

Source: corporate websites; Intel Museum

Hemlock semi-conductor

(Korea)

Shinetsu kagaku(Japan)

Intel (US)

Trading companies

(Russia)

Intel (Malaysia)

Foxconn(Greater China)

Comet(UK)

In 1970”, over 80% of products sold by Japanese companies were entirely made in Japan. In 2010, an estimate suggests the share dropped to below 30%

iPhone is made by a variety of companies across the world

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Major suppliers for iPhone (Front)

Source: Nikkei Electronics 2012/5/15

The Complexity and the potential has been demonstrated by Boeing 787

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Major Sources for Components of the Boeing 787

Source: http://www.postandcourier.com/article/20091028/PC1602/310289910

Dole produces 4.1 billion USD worth of fruit and vegetable per year, in comparison to 20 billion USD of vegetable and 7 billion USD of fruit production in Japan

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Case: Dole

: www.Dole.com, agricultural statistics

• Established in 1851• Revenue 4.2 billion USD

FY2012)• The world’s largest fruit and

vegetable producer• Operate in 90 countries• Employ 59,000 workers• Produce over 50

fruit/vegetable

Fruit Vegetable

Frozen products Preserved products

Marine Harvest produces 30 billion USD worth of seafood, in contrast to 45 billion USD of Japanese fish farming industry

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Case: Marine Harvest

: www.marineharvest.com marine statistics

• Established in 1965• Revenue 30 billion USD(2013)• The world’s largest fish farming

producer• Production sites in Norway,

Chili, Scotland, Canada, Ireland, Iceland, etc.,

• Operate in 22 countries and sales in 50 countries

• 6200 employees

Processed food Sashimi products

w/ Heads White fishs

The Globalized operation is not only for the manufacturing companies

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Service Industry Sectors that Are Rapidly Internationalizing

Source: International Trade Administration

Architectural, construction, and engineering

Banking, finance, and insurance

Education, training, and publising

Entertainment

Information services

Transportation

•Construction, power utilities, design, engineering, services, for airports, hospitals, dams•Banks, insurance, risk

evaluation, management

•Movies, recorded music, internet services

•Management training, technical training, language training

•E-commerce, data processing, computer services

•Aviation, ocean shipping, railroads, rucking, airports

Travel and tourism •Transportation, lodging, food and beverage, aircraft travel, railways

Service sectors Major sub-sectors Examples

Professional business services

•Accounting, advertising, legal, management consulting

Modern business environment is in the age of Global Value Chain

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The age of globally distributed value chain

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DISCUSSIONQ&A