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Globalization Is Presenting New Challenges for Nations, Companies and Their Workers

Published on Saturday, September 01, 2001

As we enter the 21st century, globalization is affecting nearly every aspect of our lives. Ushered in with this new era are dynamic global trends that are impacting every nation, every level of industry, and virtually every business. Consequently, many economic assumptions no longer seem to apply, yet new realities still need to be defined. Basing decisions on old assumptions may lead to undesirable outcomes.

Entering the 19th Century... Again

Entering the 21st century is in many ways similar to entering the 19th century. The shift from an agrarian society to an industrial economy compelled workers to leave farms in search of factory jobs. Industrialization created anxiety and fear, and demanded that workers learn new skills.

Today, with the advent of globalization and the information economy, new skills again are demanded — but they are much more sophisticated. The internet, which in some sense is eliminating distance, has become what the railroads and electricity were for earlier ages. And these changes are having a profound effect on nations, companies and their employees.

The New Competitive Advantage

In the past, an abundance of natural resources secured a nation’s competitive advantage. Today, intelligence and technology are the new resources. As such, for companies to prosper in the 21st century, they need to harness these new resources and manage their global supply chain better than their competitors.

Education and Unemployment

Since the late 1970s, the wages of less skilled American workers have decreased relative to those of more skilled workers. Similar patterns are occurring in the United Kingdom. In contrast, countries with relatively rigid wages, such as France, Germany, and Italy, have experienced higher unemployment rates.

In the United States, unemployment bears some correlation to the level of education and skills. For example, in May 2000, the annual U.S. unemployment rate for the civilian labor force averaged 4.1%. However, of the civilian labor force age 25 years and older, the rate of unemployment was 6.1% for workers without a high school diploma. It declined to 3.7% for high school graduates, 2.9% for those with some college education, and 1.8% for college graduates.

The occupational groups projected to decline or be among the slowest growing are more likely to be dominated by workers who do not obtain education beyond high school. Conversely, occupations having the highest rates of growth are more likely to have workers with higher educational attainment.

Life-Long Learning Is Required

According to the U.S. Department of Labor’s report, Futurework, we are living in a new economy powered by technology, fueled by information, and driven by opportunity.

As the new economy emerges, it is essential that America’s young population develop the skills needed for tomorrow. It is very clear: as globalization creates opportunity, it generates more for those workers who are better educated. Because the uneducated could be left behind, life-long learning policies are essential in today’s economy and more so in tomorrow’s economy.

The Impact on Manufacturing Jobs

According to the International Monetary Fund, “nearly all research finds only a modest effect of international trade on wages and income inequality.” Thus, technology, not trade, is the real displacer of jobs. Productivity gains generated by new technologies in manufacturing have consistently outpaced productivity gains in other sectors of the economy. As a result, the United States can produce more goods with fewer workers, contends the CATO Institute, a Washington, D.C.-based think tank.

Contrary to claims made by anti-trade organizations, the vast majority of U.S. manufacturers who invest abroad are not seeking low-wage production in developing countries. In fact, in 1999, high-wage countries captured almost 90% of U.S. manufacturing foreign direct investment. This reflects greater importance of non-wage factors in overseas investment decisions.

Services Industries Are Flourishing

Every year for almost three decades, the U.S. service sector has enjoyed a trade surplus that has consistently reduced the U.S. trade deficit. In 1999 alone, U.S. exports of services decreased the overall trade deficit by more than $80 billion — that’s a 25% reduction.

Since 1980, U.S. exports of services have grown 130% faster than exports of goods. This reflects a growing importance of services both domestically and internationally. The U.S. service sector is extremely advanced and internationally competitive. With the recent introduction and availability of new, inexpensive technology — led by telecommunications, computers, and the internet — millions of people and companies worldwide now have the ability to purchase services from anywhere.

It is anticipated that the export of business, professional and technical services (accounting, advertising, engineering, franchising, consulting, public relations, testing and training, etc.) will increase rapidly. As a result, nations, companies and their employees who support trade in services are developing an edge in this era of rapid change.

The New Role of Government

Globalization has put a premium on good government and increased the costs of poor government. Consequently, governments must redefine their role in light of heightened competition among countries and companies. This is forcing governments to adopt policies that support international trade, privatization, economic stability, deregulation of capital markets, investment attraction, a fair and enforceable legal system, etc. And since economic activity is now mobile, governments must provide the technological infrastructure that supports a cluster of related industries.

Business Survival 2001

Of the 500 companies originally comprising the S&P 500 in 1957, few currently remain on the list. Why? According to Arie de Geus, author of The Living Company, “The average life expectancy of a multinational corporation — Fortune 500 or its equivalent — is between 40 and 50 years.” Long-lived companies, he contends, are sensitive to their environment, cohesive with a strong sense of identity, tolerant, and conservative in their financing.

With the fast-paced changes brought on by globalization, greater pressure is put on companies to adapt or perish. Lester Thurow, author and MIT professor, states that “businesses must be willing to destroy the old while it is still successful if they wish to build the new that will become successful.” He points out that four of the five makers of vacuum tubes never successfully made transistors after transistors replaced vacuum tubes, and even the fifth is today not a player.

High Risks With High Rewards

Successfully navigating in unfamiliar territory without a map is not easy. But there is a big upside. Globalization is presenting tremendous opportunities never seen before. Those who welcome its changes and carefully adapt will be well positioned to seize the opportunities that arise, while minimizing the risks that follow.

The Free Trade Area of the Americas Promises Much Opportunity, But Obstacles Ahead Must Be Overcome

Published on Saturday, September 01, 2001

In 1994, former President Clinton hosted the Summit of the Americas in Miami. At that time, 34 Western Hemisphere countries committed to establish the Free Trade Area of the Americas agreement (FTAA) by 2005. Since then, summits held in Toronto, Buenos Aires, and Quebec have established nine working parties and laid the framework for negotiations to begin.

What is the FTAA?

The FTAA is a comprehensive trade agreement designed to eliminate trade barriers among 34 countries in the Western Hemisphere with a combined population of 800 million. The nine negotiating groups cover market access; agriculture; services; investment; government procurement; intellectual property; subsidies, antidumping, and countervailing duties; competition policy; and dispute settlement.

Currently, trade barriers are relatively high in South America. In fact, according to the National Association of Manufacturers, duties there average 14% or more, and it’s not uncommon for U.S. manufacturers to face duties of 20-30%. Additionally, the region imposes substantial non-tariff barriers that involve costly customs clearance procedures, excessive standards, regulations, and testing procedures. In contrast, the average U.S. import duty is 1.6%.

The Importance of Hemispheric Trade

In 2000, U.S. merchandise exports to Western Hemisphere countries totalled $350 billion, representing 45% of total U.S. exports to the world. Based on the U.S. Trade Representative’s multiplier, this supports more than 3.8 million American jobs. U.S. exports south of the border reached $171 billion, just slightly less than U.S. exports to all of Europe.

FTAA Expectations

According to the National Association of Manufacturers, with an FTAA in place, annual U.S. exports to Central and South America would triple.

Since 1994, the year the North American Free Trade Agreement (NAFTA) was implemented, U.S. exports to Mexico rose by 120%, while exports to South America rose by only 34%. Why did exports to Mexico rise so fast? The reduction in Mexican duties resulting from NAFTA certainly played a major part.

The NAFTA Legacy

According to NAFTA At Five Years, published by the Council of the Americas and The U.S. Council of the Mexico-U.S. Business Committee, “NAFTA has led to more high-quality, better-paying jobs for U.S. workers.” Additionally, the report says, “NAFTA has fostered growth in cross-border investment that has improved the competitiveness of American companies and, consequently, their ability to keep high-skill, high-wage jobs in the United States.”

But job gains are only one indicator of the benefits generated by NAFTA. Another significant measure of NAFTA’s performance is its positive impact on economies of scale, technological change, new investments, and productivity growth in the liberated sectors.

The Costs of Not Completing the FTAA

In July 2001, the European Union (EU) and Mercosur, the South American trade bloc comprised of Argentina, Brazil, Uruguay, and Paraguay, began their fifth round of negotiations to establish a free trade agreement. Upon completion of the EU-Mercosur agreement, and in the absence of an FTAA, EU exporters and investors will have preferential access to Mercosur markets, putting U.S. companies at a competitive disadvantage.

Brazilian Opposition & Slowing Economy

Trade analysts indicate that Brazil has resisted an FTAA for some time. It has positioned Mercosur as a competitor with the United States and has challenged the U.S. for regional leadership. Brazil is concerned that direct competition with the U.S. could be difficult.

If Brazil resists an FTAA, analysts believe that Chile, Argentina, and other Latin American countries are likely to individually negotiate free trade deals with the United States, putting Brazil at a competitive disadvantage. Consequently, Brazil would lose Latin American market share as well as foreign investment, which could be diverted to Chile and Argentina. And the strength of Mercosur as a bloc would be greatly diminished.

Currently, the Argentine and Brazilian economies are experiencing severe difficulties. In fact, in the second half of 2001, Brazil could face a sharp economic slowdown due, in part, to Argentina’s slowing market and energy problems. This could further affect Brazil’s outlook and interest in an FTAA.

Preparation is Key

Although obstacles exist, it is very likely that an FTAA, with Brazil’s cooperation, will be completed by 2005. As a result, it’s important that companies do their homework, establish a new Latin American trade and investment strategy, and anticipate greater competition.

Tariffs and Non-Tariff Barriers and How They Impact Your Business

Published on Sunday, July 01, 2001

U.S. tariffs levied on imports of foreign products originally were established to provide revenue for the federal government, predating income or property taxes. Today, however, tariffs are viewed and used differently.

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The Impact of Globalization and New Technologies on Manufacturing

Published on Sunday, July 01, 2001

Globalization and new technologies are having a profound impact on the U.S. manufacturing industry. This is affecting business worldwide and may demand new strategies for your firm.

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