Global Strategy and Organization

Companies today confront an increasing array of choices regarding markets, locations for key activities, outsourcing and ownership modes, and organization and processes for managing across borders. This course provides students with the conceptual tools necessary to understand and work effectively in today’s interconnected world by developing strategic perspectives that link this changing environment, the state of the global industry, and the capabilities and position of the firm.

The goal of this subject is to provide the foundations for taking effective action in the multi-layered world of international business. The first section of the course provides frameworks for identifying and taking advantage of the opportunities presented in a dynamic global environment at the level of the country and industry. The second section of the course focuses on firm-level strategic choices regarding where to engage in which activities. The third section focuses on the challenges of integrating the multiple perspectives, functions, and interests that constitute the multinational firm.

 

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The Indian Avatar of Democracy

I must start this post by recanting a bit of history.
In Athena, circa BC 508, Cleisthenes , an aristocrat and grand son of a tryant is credited with creating demokratia – ‘government of the people by the people for the people. Although, some research claim that democracy had been around in an earlier practice in 1500 BC. Democracy as a form of government in Athena would survive for another 150 years until the Roman Invasion subdued it. Revolutions would reawaken democracy in 18th century France and US.


In the modern world, we celebrate the spread of democracy and its core concepts, linking it with concepts of personal freedom, free trade, liberty and freedom of expression.  We are conditioned to believe that representative democracy is the best form of government for all states. While true in most cases, the process of electing representatives in many states have had its inherent flaws. 

In Athena, representatives were elected by lots, as this was considered to be the most democratic process, not by election.  The argument was that election would favour the rich and powerful over ordinary citizens. Another practice was the practice of ‘ostracism’, where citizens could vote to exile politicians for up to 10 years. True representative power!

Consider now case of India, celebrated as the largest democracy with over 814 million voters and having survived as a democracy in a region synonymous with dictatorships, military rule and single party states. A true poster for democracy with over 6 national political parties, 36 state parties, 324 regional parties and 24 new parties awaiting approval for the 2014 election.  The electoral college of 814 million voters choose 543 representatives to represent them in parliament. The people power of 1.2 billion citizens.

A closer look at this election, reveals the flaws with India’s brand of democracy. 

  • Identity politics based on caste, religion and family ties, dominate the selection of candidates and their winning of seats.
  • Bigotry and hate speeches are often used to mobilize vote banks. One potential MP has 19 cases registered against him on account of inciting violence.
  • Politicians use ‘ dummy’ candidates having similar names to confuse/fool voters and thus split voting patterns.
  • 18% of the 1492 candidates have criminal cases registered against them.
  • A candidate of the new anti corruption party, AAP has over 300 criminal cases against him and the police still treat him as an absconder from justice.
  • 41% of the opposition BJP party’s MPs face criminal charges, compared to  24% of the ruling congress party’s MPs 
  • 30% of the current representatives in parliament have criminal records of some sort.
  • The supreme court of India tried a form of ostracism by ordering convicted politicians to be banned from politics. This was opposed by the ruling party and has now been withdrawn.
  • Over 30 candidates have been charged with rape.
  • Corruption dominates Indian elections, and the state has slipped down 15 places to be ranked as the 95th most corrupt country.
  • 3 Cabinet ministers have been sentenced to imprisonment whilst holding offices
  • One MP has won 4 sucessive elections whilst being jailed for life. He still continue to discharge his duties from jail.
  • A single family dynasty (Nehru-Gandhi) has dominated politics for most of India’s 64 years of democracy and we still call it a representative democracy!
  • Parliamentary seats have inherited by political families including the Gandhis and many former kings who have traded thrones for seats in the peoples parliament.
  • Every Indian MP under the age of 30 is hereditary and two-thirds of Indian MPs under the age of 40 are from political families.
  • The ruling dynasty has been charged with manipulating real estate prices and secreting billions of dollars gained from dubious deals involving guns, helicopters and ‘cows’, in overseas tax havens.
  • A Key prime ministerial candidate, Narendra Modi has been accused of engineering violence against minorities, whilst the current PM has had the dubious distinction of presiding over the most corrupt government, whilst remaining personally untainted.

Perhaps, we need to reclassify India as a Dynastic democracy ( a termed made famous by Tavleen Singh) instead of celebrating it as the world’s largest democracy.  Athenians would cringe at the state of democracy in India, if we could bring them back to today. Another apt definition could be of India being called a ‘cunning state’ that ‘capitalises on its perceived weakness in order to render itself unaccountable to its citizens‘. 

On a closing note, i would still prefer to have India’s experiment with democracy than be a subject of any other alternative forms of government. Perhaps, democracy in its Indian avatar was meant have its flaws. Or is this avatar,  truly representative of the people of India?

Putin, the EU and the return of the Black Sea spring

Another one bites the dust! Viktor Yanukovych of the Ukraine  flees to his stronghold in the eastern part of the country or perhaps has left to Russia as I write this. The people’s revolution has momentarily triumphed and we wait for the trumpets to proclaim a new constitution. The political prisoners are out too including a former PM.

Unlike other dictators , Viktor Yanukovych was an elected leader. But one who may paid for bending backwards to appease big brother Russia whist the people it seems now favoured a more southern approach to the EU zone much like Moldova.


And pray, what are the key issues that keep Ukrainian people outdoors in bad weather and see him out of the presidential palace? It seems our good friend of Russia wants to go one step and ‘manage democracy’ like Putin. He has already jailed opposition politicians like Yulia Tymoshenko, muzzled free press and introduced censorship. 


But was Yanukovych that so bad that the EU and the world should take notice? After all, the people have had no love for Tymoshenko too if recent media reports are true. We also need to remember,Yanukovych almost signed a deal with the EU before swinging completely over to the Russians.  Why do we care for another  wannabe tinpot dictator when we accept and do business with the Mugabes, the Kims, the Musevenis and the Burmese Generals?


The answer, lies in Ukraine’s geostrategic value to the EU and the grand Russian dream of Mr. Putin.  

Ukraine is Russia’s access to the black sea through its Black Sea fleet and possibly to Mediterranean if needed. Currently, with NATO’s Turkey controlling the Bosphorus end of this sea route, the fall of Ukraine is vital to the EU. Ukraine also controls  Russia’s gas terminals to Europe. Yanukovych had already supported Russia interests by allowing Russia to  lease its Sevastopol bases till 2042. He has also agreed to increase the size of the Russian fleet. 


On the other hand, Yulia Tymoshenko wants the Russian influence to diminish and for the fleet to leave, Perhaps, that is why, Mr Putin might have suggested that Yanukovych ‘manage’ her. Russia badly needs Ukraine’s ports for both export of goods and oil resources.

The EU through its  European Neighbourhood Policy would like to see the Ukraine in its embrace, partly due allowing it ‘values of democracy, rule of law and respect of human rights‘. It will also benefit trade worth over $230 billion in the region. The EU through its eastern partnership  strategy with Armenia, Azerbaijan, Georgia, Moldova and BelarusIt has stepped in with an economic deal and lifeline that may counteract the $15 billion from Russia that Ukraine was dependent on. 

Historically, it may have a point as some parts of the country were created from Poland and Austria by the USSR. But the size of the economy in Ukraine with its subsidized gas and state control of key industries may not be attractive to the EU as  new market economy.

And what is the business angle?


Sea Trade and politics
The total seaborne trade is the region is minimal about 2.5% of global trade. But Russia and the Ukraine alone handle over 75% of this trade. The Ukraine is clearly the largest country with its ports at 
Odessa, Mariupol, Illichivsk, Mykolaiv, Izmail. Russia on the other hand depends mostly on Novorosiysk for access to the black sea.  

The shift to the EU can provide Ukraine with more access to modernizing its industries as well as preferential tariffs to the EU which is potentially a larger market than Russian and its Eurasian allies.The EU is Ukraine’s second largest trading partner.EU-Ukraine trade in goods reached €36.6 billion in 2011. The full report is here

The game

The EU wants to limit Russian influence in the EU by making a stand in Ukraine and also to reassure its allies in Moldova and Georgia that it can still roar. On the other hand, we see Putin’s a grand dream of Mother Russia exerting influence on all satellite regions and the creation of a EURASIA union. Putin would also like to limit the EU’s ingress into his territory too.

At the end of this game, who ever gets Ukraine as prize will find it uneasy as a conquest in both economic and geostrategic terms.


The Global business of keeping America solvent

Will Rogers, the american satirist once remarked ‘ All I know is just what I read in the papers, and that’s an alibi for my ignorance’ 

It sums up the media frenzy today on the US government going broke!  

Do you really think the world’s largest economy will do that ?  How hard is it for congress to raise the debt ceiling by a few more trillions when US debt ceiling has no limits?  How gut wrenching is this decision for its lawmakers? Remember we went through all of this as congress raised the ceiling 10 times from 2001 with no moral qualms about the level of debt. After does it matter, if you owe 17 or 20 trillions if you are reconciled to never bothering to pay this debt in the foreseeable future?

The soothsayers are out already debating the US sovereign default in almost of of the world’s media. But will America default? 

Historically, barring 1979, when a technical glitch caused the Treasury to default on $120 million of notes, there has been no defaults of US sovereign debt. After all how can you default when you own and manage the global economy’s currency of choice (US$) and your debts are also denominated in your own currency?. The worst case scenario would be printing more US$ bills to repay debts as Alan Greenspan once claimed.

If this is not the frenzy is all about, let us look at a few reasons:

The first reason is political. The BBC’s Linda Yueh has touched on the adverse effects of tightening US outward FDI on the emerging economies of  Indonesia, South Africa, Brazil, Turkey and India. She calls the ‘Fragile five’. Linda argues that ‘these states have the most to lose when the US Govt  restricts capital, since all of them run current account deficits and rely on capital inflow to service their repayments’ You can read the full article by Linda Yueh here

These states have growing economies, are emerging out of their cocoons and most importantly are ‘gateways’ to geopolitical focus regions.  All of these five states are facing elections in 2014.  Restricting capital could strangle these economies even for a few hours and this act coupled with political instability in the states could lead to even worse effects. 

The second reason is fairly straight forward. The shadow financial institutions of the global economy stand to gain the most if there is a period of uncertainty. Gold has already  peaked in many regions and is unstable as we wait. Oil prices are also on the roller coaster as we wait for the Fed and Syria to make up their minds on which is the better evil. Chemical warfare or more debt.
Amid all of this chaos, the financial world makes its money and when the debt ceiling is raised, rests till another day

I could be wrong of course and we could see the largest economy default.