the global enterprise

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


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


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




Days

Time to Register Property (days)

0

50

100

150

200

250




Days

Time to Enforce Contracts (days)

0

100

200

300

400

500

600

700

800

900

1000




Days

Legal Rights Index

0

1

2

3

4

5

6

7

8

9

10




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


0

5000

10000

15000

20000

25000

30000

35000

40000

45000

30 40 50 60 70 80 90 100


GD

P/c

apita

(PP

P)

USA

PRT

NORNOR

CHE

IRL

UK


0

5000

10000

15000

20000

25000

30000

35000

40000

45000

30 40 50 60 70 80 90 100


GD

P/c

apita

(PP

P)

USA

PRT

CZE

NORNOR

CHE

IRL

UK

RUS


0

5000

10000

15000

20000

25000

30000

35000

40000

45000

30 40 50 60 70 80 90 100


GD

P/c

apita

(PP

P)

USA

IND

ISR

HKG

PRT

CZE

NORNOR

CHE

IDN

CHN

IRL

JPN

UK

RUS


0

5000

10000

15000

20000

25000

30000

35000

40000

45000

30 40 50 60 70 80 90 100


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




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

the global enterprise

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