The Trilemma of Globalisation: Free Trade, Fair Trade or Fear Trade

Ken Costa Chairman Europe, Middle East and Africa UBS Investment Banking surgical incision 2 Finsbury Avenue London EC2M 2PP Cass Business School 2 marching 2006 EMBARGO UNTIL 1930pm 2 March 2006 The Trilemma of planetaryisation melt Trade, comely Trade or c atomic number 18 Trade In discussing the ch tot tout ensembleyenges presented by at presents divers(a) gentle race(a) surroundings few topics finish be as totally important(predicate) as the issue of orbicularisation. It is at the heart of the geomorphologic change that has taken place in our generation as borders make shrunk, technology changed and confabulations enhanced.Economists study close universally, which says or sothing( ) that orbicularisation is a nett benefit. But, if youthful instances argon to go by, at that place seems to be a ontogeny doubt gnawing at its foundation. Globalisation faces a trilemma. Which is to be master? Free Trade, unobjectionable Trade or Fear Trade. Free Trade For orbiculateisation to succeed there postulate to be a common toleration of the frictionless hang up of upper-case letter across borders and the determination to eliminate 2 impediments to the bountiful movement of resources and products. Free trade is the pillar on which the cable for globalisation is founded.For the last decade we save lived with the prevailing sense that the globalised surround is here to stay. thither has of course been a vigorous debate just ab reveal how the benefits should be sh ared, the implications of the growing technology divide and the sustainability of regional recrudescement. But by and large the foundations harbor been in place. What has become disquieting recently has been the actualization that some of the most basic premises of globalisation are far from secure. The case for globalisation still has to be do. Globalisation still exactfully to be nurtured as a beneficial system and h cause to be incontr overtibly favourable to all part icipants in the global market place. This is an argument that packs to be good and argued for and can not merely be assumed. Fear Trade But free trade seems to accommodate been supplanted by revere trade. The recent actions in the United States to prevent the completion of the acquisition by the Dubai Ports World of the US ports anteriorly owned by P&O underlines the serious contest to the argument. Here we have the US, the study exemplar of ripe capitalism, wishing to restrict the take-over by unmatchable foreign comp any of another(prenominal) foreign company with operations in the United States.This action is unluckily not an isolated example, it comes sharply on the heels of the decision to prevent CNOC, a Chinese company, from acquiring Unocal in the US. The ports case has become a exam place for the future direction of globalization. At issue is ownership. There are after all in any market regulations that govern ship canal in which corporations 3 act. In any event these ports pass on irresistibly be run by and managed, as they have been in the previous foreign owners hands, by US citizens. Of course there are arguments for field of study tribute.That would be true in any state of matter. But it is of deep busy when these concerns are deployed selectively discriminating amidst one foreign owner and another. Friends of the United States, and I count myself as one, ordain do the country the highest favour by lobbying actively against these barriers. Not only on their merits merely in like manner because of the sign that is given. Free trade flourishes in a humour of reciprocal openness and mutual advantage, fear trade now seems to be an underlying assumption lurking not only in this decision in the United States but in other countries as swell up.Security, national use up, pagan preservation and other nationalist reactions can easily stoke these fears. Italy have complained about protectionist activities within the European Union , but recently, albeit unsuccessfully, Italy attempted to prevent nonItalian acquisitions of domesticated help banks. In France, the Prime Minister has attacked fragmented share capital as being a risk to independence and is looking to bolster the barriers to coup detat activity in France. These rationalises testament grow if the strongest and freest markets gallop to act in a protectionist course.Those committed to developing sustainable and responsible flows of capital oecumenical have a full task to remain vigilant to get a gigantic vigorously the need to have a competitive and sustainable global frugal order. 4 All participants in the global economy, presidential term, crinkle, consumers, will need to find a common language to prevent misunderstanding and actions that could easily lead to disastrous protectionist decisions similar to those in 1914 or the 1930s. Protection can grow rapidly fuelled by job losses, eroding cultural influence, security concerns and ulti mately the visceral reaction against foreigners.The openness of markets to trade and to the acquisition of assets lies at the centre of the future prosperity for all. There are risks if this protectionism grows unchecked. Inflation will creep back because the benefits of globalisation will not be felt, interest vagabonds will therefore inevitably hedge higher with a sell-off in the bond markets, push on the virtue markets and the inevitable fluidity problems could lead to capital controls. A dark scenario and one which I believe is avoidable.But it does require a concerted effort to win both the economic argument but also the good ones. Fair Trade Fair trade has therefore emerged in the debate. Unfortunately the concept seems to have been colonised by particular single interest lobby groups seeking to turn for example levels of sub-economic activity in Africa and arguing for an subjoin in the equipment casualty structure of consumer goods in the developed world. In the end t he fairest trade will still be the freest provided the benefits are seen to be shared equitably.Globalised markets have to, and to a higher place all be seen to, benefit all the strongest and the weakest. When the strong economies wish to uprise access to them by uphill economies the very base of the argument is eroded. For this reason, and in a disparate 5 sphere it remains a good affront to those who are committed to future global prosperity that the WTO is unable to reach agreement to allow access, without the burden of duties, by the developing world to the markets of the economically prosperous world.The diverse global environment raises questions of standards and sustainability of economic activity. These are moral issues. They should be tackled as such. But that does not mean that they are not economic ones too. soak up for example one of the questions that is posed by globalisation. Is the move away from regulated markets to unregulated ones simply a substance of avoi ding the high hurdles of regulation in the developed world? Take the tobacco intentness for instance.Do the global tobacco companies seeking entrance into refreshful markets do so in order to evade the onerous restrictions of the major OECD markets? Similarly polluting eventories in third world countries where the rely for employment places pressure on local governments to allow activities which would be frowned on in the firm countries of multi-national corporations. Low labour costs have brought coarse advantages to consumers in the westerly world but at what cost to the emerging markets in which they endure?But the moral debate is not a one way street. The clash of civilisations was a debate in ancient Rome and Greece long before Huntingdon raised the topic, but globalisation now means that the great unwashed find out a lot to a greater extent about each others cultures much more(prenominal) rapidly. It is true that many foreign corporations have seen their numerators expand as the top line has grown through with(predicate) sales to emerging markets. Similarly, the 6 denominators of the P & L have benefitted as costs have shrunk through outsourcing and manufacturing at lower costs.But on the other hand many emerging markets have also benefitted as their standards of living have increased and transparentness has grown. If we wish to make poverty history and I profoundly desire that this objective remains at the forefront of every global citizen therefore it will come about by works with the grain of capital flows, by recognizing the reward for risk and through supportive actions by Government creating the climate for enterprise to flourish. We work on the natural assumption that it is a good thing to understand each others cultures, aspirations and diversity.However we do have to work on one unfortunate fact of charitable life. It is not good news but bad news that travels fastest. The Danish cartoon incidents and the activities of radical m inorities are flashed across our screens and soon become delegate of the cultures being depicted. Every global championship will need to develop the necessary training programmes not only to enable the free flow of information to work effectively but to determine how globalising information could set down together incompatible elements of culture.Essentially this is a political question how can free speech and cultural sensitivities be reconciled? But ultimately it will be on the ground an important issue for affaires who try to wee-wee core values for global workforces. Will education of itself lead to great tolerance? This is a topic too large for this address. But resolve it to say that education and prosperity will not of themselves eliminate global tensions though they are essential pre-requisites. 7 8 renewing Diversity is important to this process.Diversity enhances competitiveness enabling the most innovative, yeasty solutions to be advanced as perspectives, eclect ically drawn across cultures, countries, products, markets are pooled to provide answers to the issues of the twenty-four hour periodlight. For example, UBS needs gifted people who can efficiently and effectively work across duple cultures and time zones. Diversity is therefore not an issue merely of sexual activity or ethnicity but it reflects an open and flexible culture which tries to understand the motivations and aspirations of different people and their points of view.These dialogues above all are unified into the day to day operations of the firm. To respond to the pressures and to come up with innovative solutions requires close co-operation and the working together of a very disparate group of people with a very common set of values and a common desire to understand and appreciate the ways in which common goals can be achieved whilst recognising diverse and local aspirations. There is I believe an even more fundamental issue that will require addressing. There is stro ng show up that in a young and mobile workforce material comfort is not sufficient to retain their commitment and motivation.There is a deep hunger, almost spiritual, that is diffused and not traditionally expressed but which needs addressing. There is a desire among young people across the globe that there is more to life than the pursuit of material prosperity. Concern for the environment, for just practices in the workplace and for a balanced working life are see themes in this emerging generation. Traditionally this has been a no go battlefield. afterward all religion and work do not mix. But any desire for a values-based organisation will require 9 detailed attention to be given to a much deeper understanding and rate for he religious beliefs, cultural and spiritual aspirations of this new global workforce. A new dialogue of understanding faith in business set is rapidly becoming a global imperative for business. Securities Industry Having made these general remarks it is worth looking at trends in the fiscal industry. ? blowup of the Business Financial sphere activities are likely to experience warm growth over the next decade. Two reasons can be singled out Deregulation and slackening principally in emerging markets, and wealth gathering and retirement provisioning all over the world. Over the past few decades, the trend towards deregulation and liberalization in pecuniary services has contributed earthshakingly to the industrys expansion. This process is well advanced in many countries, mainly in the mature markets, but barely liberalization is, however, likely in emerging market countries where domestic markets are still highly protected. In general, further liberalization of pecuniary markets is expected to benefit dowerment banking and securities firms which are built in beded to 10 ake advantage of any further opening of individual domestic capital markets. Global asset managers could benefit from the facilitation of cross-border mutual fund business, and perchance from a trend towards harmonized pension fund regulation. Especially in mature markets, but basically to a global extent, financial sector activities are also likely to gain further grandeur, mainly collectable to two trends On the one hand, wealth accruement is likely to increase as a result of the shift from labour-intensive production to more capital-intensive activities.We see a clear unconsecrated trend towards wealth accumulation that is likely to continue over the next decade. On the other hand, the fact that in the coming decades, most developed countries will be confronted with significant demographic shifts leads to a trend that pension reform is on the schedule of many governments around the world. Although each country will follow its own regulatory agenda, we believe a gradual shift from exoteric unfunded to private funded pension schemes is likely to take place. Institutional asset focussing will be the sector most impacted b y this trend. ?increase Diversity of the Business Financial market products are getting increasingly diverse and sophisticated with the main characteristics being securitisation, equitisation, and bodied restructuring. 11 The shift of financial services over the last years has been driven in the main by the increasing de-emphasis of traditional lending activities mix ind with the increasing importance of securities trading and financial markets. Corporations are frequently in a position to directly finance their funding needs by accessing the capital markets, expanding corporate bond markets.At the same time, an increase in bank assets has fueled growth in the securitisation of these assets. We expect these trends to continue, as increasing transparency will further facility financing by way of the securities market. Despite the bursting of the new economy bubble, the underlying trend towards an increasing role of equity finance and equity investitures remains intact. Institu tional and individual market participants will tend to invest a greater share of their assets into equity products and the corporate sector will increasingly rely on equity financing. We see long secular trends pointing towards an ongoing take up for advice on corporate restructuring, as trade liberalization and technological progress will increase global competition for corporations, pressuring them in turn to restructure and consolidate their business.At the same time, cross-border consolidation in some industries has just begun. ? Further internationalisticization of business and new markets It is crucial for financial sector firms to have at the same time both a strong 12 footprint in mature markets and expand actively into emerging markets. Economic growth is a key indicator of the authorization for financial services in different regional markets. We expect the largest direct GDP increase over the next 10 years to overtake in northwesterly America, followed by Asia and Western Europe. Even though North America is set to grow at a slower rate than Asia, the absolute GDP increase will be higher. This demonstrates the importance of having a significant presence in the US and other mature markets. At the same time, emerging markets, especially emerging Asia, have a huge potential.GDP growth in China averaged more than 9% since 1979, and India is on chamfer to achieve a high sustainable growth path in the foreseeable future. Other markets in the region are benefiting from the increased demand in the region and globally, increasing the attractiveness for global financial firms. another(prenominal) important emerging area is the Gulf region, driven by sky-high oil prices and some first steps towards a further variegation of the countries economic structure. Based on remarkable macroeconomic stablisation efforts in recent years, Latin America finally seems to have overcome its historical volatility, providing evoke nvestment opportunities. 13 ? Altern ative Asset Managers Hedge funds and buyout groups are face lift ever increasing sums of money to be deployed principally cross border. The ongoing size of the hedge fund market is estimated at US$ 1. 2 trillion and will expand significantly in the years ahead. super liquid and mobile capital should not be seen as uneasy capital. Opportunities for long term foreign direct investments in the emerging markets continue to grow as infrastructure projects absorb capital and new investment opportunities allow for petro dollars and other pools of investment funds to help grow these economies. ChallengesAn international presence in diverse global environment creates substantial challenges. Global firms have to integrate diverse cultures, strike the balance between global reach and local presence, match the structure and characteristics of its international workforce with functional and regional business needs, and sustain infrastructure and processes to provide global communication and co-operation means. ? Integrating cultural diversity A global firms clients and employees are generally, at least to a significant extent, not global in their nature and characteristics, but are based and anchored in their respective(prenominal) home countries.This determines a broad variability of cultural and religious habits, business styles and customs, and consumptions models and needs a global firm is confronted with on a day by day 14 basis. In order to achieve long-term profitability and growth, this variability has to be managed and integrated into the firm. ? Striking the balance between global reach and local presence In order to be perceived as a global player, global firms have to ground a global strategy and business model.At the same time, due to the cultural diversity mentioned above, specific market and customer orientation has to be centre along country-specific needs. This is true for the products offered to the customers, the communication employed to establis h and strengthen golf links with clients and stakeholders, and for every other interaction between the firm and the outside (local) world. ? finding and strengthening a diversified workforce Especially in the area of service providers, well-skilled staff is crucial for the long-term success of the company. International mobility and intercultural skills have to be ade core value of every corporate culture. Therefore, human capital management and attracting best people is crucial, especially as the international competition for skilled workforce becomes harder and more intense. Especially in the financial sector, specialist knowledge is required and decides on success in a specific region or business area. Hence, if companies wants to achieve continuous success, it has to establish knowledgeable talent victimisation and management processes to ensure that employees are promoted in their personal and professional development.To distinguish itself from its competitors, firms have to offer their staff alone(predicate) development opportunities, thereby attracting current and future leaders. 15 ? Managing critical resources congenital processes, corporate communication and IT face considerable challenges in a diverse global environment. As such, it is challenging to guarantee a consistent bearing in terms of brand, strategy and communication. In addition, doing business all over the world is especially challenging for the IT infrastructure and for know-how sharing on a global level. Yet, this offers economies of scale and synergies at the same time, e. g. y streamlining the brand and the public appearance, by having one integrated IT and know-how sharing platform and by reviewing internal processes re duplications, potential for improvements inefficiency and for streamlining and simplifying processes. UBS manages these challenges and makes them opportunities ? One Firm We firmly believe our integrated business model creates more value than our businesses woul d as stand-alone units. Our clients all over the globe should effortlessly be able to access all the services our firm can provide, where and when they are required, and regardless of what combinations of teams lie butt the solutions.This one firm approach facilitates cross-selling through client referrals and the exchange of produces and diffusion services between businesses and thus contributes significantly to our revenue flows. The integrated business model and our one firm approach enable us to combine global reach with local sensitivity. 16 ? Innovative products As one of the leading global financial services groups, UBS actively shapes the future development of financial markets.As such, challenges emerging from todays diverse global environment are converted into opportunities by meeting emerging cultural and business needs with innovative products tailored to specific cultural requirements. Another example is the growing importance of hedge funds on international financia l markets, where UBS offers products and services specifically targeted at these clients. ? Managing and promoting diversity To UBS, diversity means recognizing and appreciating duplex backgrounds, cultures, and perspectives within its organisation.UBS builds on these differences to produce cross-cultural teams that generate new ideas and creative solutions for our increasingly diverse clients. Diversity consists of a broad range of aspects that transfigure in their degree of visibility going from gender over ethnicity, age, disability, sexual orientation, religion, nationality to though. In addition, senior management takes the topic seriously and is often active in meetings and employee forums on the topic. ? Corporate Social Responsibility UBS makes responsible demeanor an important part of its culture, identity and business practice. As a 7 leading global financial services firm, UBS wants to provide our clients with value-added products and services, promote a corporate culture that adheres to the highest ethical standards, and generate superior but sustainable returns for our shareholders. In order to retain the trust society gives to UBS, UBS conducts its business responsibly and at the same time engages in the communities that it is part of. Socially prudent Investments In additional to financial considerations, UBS provides expertise in incorporating environmental and well-disposed aspects into our research and environmental activities.Advice on social investments not only have to take into account financial considerations but also environment, social and ethical criteria. Human Resources To remain at the cutting edge of the rapid changes in the diverse global economy requires an enormous investment in leaders training talent management and attention to cultivating an environment within which entrepreneurial spirit can flourish. The handling of outsourcing, one of the most dynamic developments in the global economy, has become an important pa rt of the HR process. It emains a challenge when developing outsourcing plans to minimize the impact on existing employees, to plan the change with meticulous 18 execution and to ensure that the benefits are understood and communicated well before the plans inevitably leak out. Managing declining morale and performance of remaining employees is snappy as they often suffer anxiety, envy and a last heft up of invigorated competitiveness. Any outsourcing activity is a time of upheaval and it is important therefore to underline not only what is changing but also what is not.Conclusion Let me conclude by saying that global organizations face an unparalleled opportunity to grow their worldwide businesses. With this comes increased prosperity and therefore the need to ensure the attractions of globalisation are well understood by all participants that the benefits of increased profitability are seen to be in the interests of all stakeholders not only the shareholders and that the barri ers to the flows of capital are removed as often as they are erected. Fear trade has no place in a fair and free globalised world.