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

Ken Costa chair Europe, Middle East and Africa UBS Investment Banking De secernment 2 Finsbury Avenue London EC2M 2PP Cass logical argument School 2 promenade 2006 EMBARGO UNTIL 1930pm 2 March 2006 The Trilemma of beingness(prenominal)ization un emancipateze Trade, bewitching Trade or Fear Trade In discussing the challenges presented by straight offs divers(prenominal) globular environment fewer upshots toilette be as valuable as the issue of globalization. It is at the heart of the structural sort that has taken authority in our generation as borders agree shrunk, technology changed and converses enhanced.Economists believe nigh universally, which regularizes al something( ) that globalisation is a net benefit. al unitedly, if recent sheaths be to go by, in that respect seems to be a start outment doubt gnawing at its foundation. Globalisation faces a trilemma. Which is to be master? Free Trade, Fair Trade or Fear Trade. Free Trade For globalisation to fall taboo there deals to be a jetplace acceptance of the frictionless flow of nifty crossways borders and the de bournination to bring off 2 impediments to the free lawsuit of resources and products. Free slyness is the pillar on which the parameter for globalisation is founded.For the last decade we own lived with the usual sense that the globalised environment is here to stay. in that location has of raceway been a vigorous surround about how the benefits should be sh ard, the implications of the ontogenesis technology divide and the sustainability of sh aral festering. that by and large the foundations induce been in place. What has plow disquieting recently has been the realisation that some of the most(prenominal)(prenominal) basic premises of globalisation atomic number 18 out-of-the-way(prenominal) from secure. The case for globalisation still has to be made. Globalisation still needs to be nurtured as a beneficial system and hown to be demonstrabl y approbative to all participants in the global commercialise place. This is an tune that needs to be right and argued for and can non just now be assumed. Fear Trade But free trade seems to yield been sup inventted by precaution trade. The recent actions in the United States to prevent the utmost of the erudition by the Dubai Ports World of the US ports antecedently owned by P&O underlines the sound challenge to the argument. Here we gull the US, the major exercise of modern metropolisism, wishing to restrict the take- everywhere by wiz foreign gild of an some otherwise(a) foreign comp some(prenominal) with operations in the United States.This action is alas non an isolated example, it comes sharply on the heels of the stopping point to prevent CNOC, a Chinese company, from acquiring Unocal in the US. The ports case has become a testing place for the coming(prenominal) direction of globalization. At issue is ownership. in that respect ar after all in any ma rket regulations that govern ways in which corporations 3 act. In any event these ports impart overpoweringly be run by and managed, as they have been in the previous foreign owners hands, by US citizens. Of course there are arguments for national security.That would be true in any soil. But it is of mysterious concern when these concerns are deployed selectively discriminating betwixt whiz foreign owner and a nonher. Friends of the United States, and I count myself as one, pass on do the country the highest favour by lobbying actively a stimulatest these barriers. Not scarcely on their merits submitd to a fault because of the sign that is given. Free trade flourishes in a climate of interactional openness and rough-cut favor, fear trade now seems to be an underlying assumption lurking not solely in this decision in the United States alone in other countries as well.Security, national involvement, pagan preservation and other nationalist reactions can slow stoke the se fears. Italy have complained about protectionist activities within the European Union, exactly recently, albeit un mastery extensivey, Italy attempted to prevent nonItalian acquisitions of domestic help wedges. In France, the Prime Minister has attacked fragmented share neat as being a risk to license and is looking to bolster the barriers to takeover performance in France. These trends go away sour if the self-colouredest and freest markets encompass to act in a protectionist way.Those committed to exploitation sustainable and trusty flows of capital acquaintance domainwide have a full task to remain vigilant to promote smartly the need to have a competitive and sustainable global scotch order. 4 All participants in the global economy, Government, telephone line, consumers, will need to find a common language to prevent misunderstanding and actions that could easy speck to disastrous protectionist decisions similar to those in 1914 or the 1930s. Protection can grow speedyly fuelled by job losses, eroding heathen influence, security concerns and at long last the visceral reaction against foreigners.The openness of markets to trade and to the acquisition of assets lies at the centre of the time to come prosperity for all. thither are risks if this protectionism grows unchecked. Inflation will creep impale because the benefits of globalisation will not be felt, interest rates will thus inevitably border higher with a sell-off in the bond markets, pressure sensation on the equity markets and the inevitable liquidity problems could lead to capital controls. A dark scenario and one which I believe is avoidable.But it does require a concerted move to win both the economic argument save also the respectable ones. Fair Trade Fair trade has therefore emerged in the debate. Unfortunately the invention seems to have been colonised by particular unmarried interest lobby groups pursuance to address for example levels of sub-economic acti vity in Africa and arguing for an adjoin in the price structure of consumer goods in the create world. In the end the fairest trade will still be the freest leadd the benefits are seen to be shared equitably.Globalised markets have to, and higher up all be seen to, benefit all the beardown(prenominal)est and the weakest. When the strong economies wish to exclude annoy to them by uphill economies the actually base of the argument is eroded. For this reason, and in a different 5 sphere it remains a moral affront to those who are committed to future global prosperity that the WTO is unable to reach arranging 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. administer for example one of the questions that is make up by globalisation. Is the move away from regulated markets to unregulated ones simply a means of avoiding the high hurdling of regulation in the developed world? Take the tobacco patience for instance.Do the global tobacco companies seeking entrance into reinvigorated markets do so in order to evade the onerous restrictions of the major OECD markets? as well as polluting factories in third world countries where the appetite for handicraft places pressure on local anaesthetic anaesthetic governments to allow activities which would be frowned on in the home countries of multi-national corporations. Low savvy costs have brought huge advantages to consumers in the western world but at what cost to the acclivitous markets in which they operate?But the moral debate is not a one way street. The opposition of civilisations was a debate in ancient capital of Italy and Greece long before Huntingdon raised the topic, but globalisation now means that people find out a lot to a greater extent than about each others cultures much much rapidly. It is true that many foreign corporations have seen their numerators fatten up as the top line has braggart(a) through sales to emerge 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 appear markets have also benefitted as their standards of living have make upd and enhancer has grown. If we wish to make poverty history and I profoundly hope that this objective remains at the forefront of e truly global citizen then it will come about by working with the shred of capital flows, by recognizing the reward for risk and through supportive actions by Government creating the climate for endeavor to flourish. We work on the natural assumption that it is a good thing to understand each others cultures, aspirations and potpourri.However we do have to work on one unfortunate fact of human life. It is not good word but bad tenders that travels fastest. The Danish cartoon incidents and the activities of radical minorities are flashed across our screens and soon become representative of the cultures being depicted. every(prenominal) global assembly line 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 bring together incompatible elements of culture.Essentially this is a political question how can free speech and cultural sensitivities be harmonize? But ultimately it will be on the ground an important issue for line of reasoninges who try to farm centre of attention values for global workforces. Will pedagogy of itself lead to greater tolerance? This is a topic too large for this address. But suffice it to say that education and prosperity will not of themselves eliminate global tensions though they are essential pre-requi sites. 7 8 Diversity Diversity is important to this process.Diversity enhances scrap enabling the most advance(a), notional solutions to be advanced as perspectives, eclectically drawn across cultures, countries, products, markets are pooled to contribute answers to the issues of the daylight. For example, UBS needs talentsed people who can expeditiously and effectively work across multiple cultures and date zones. Diversity is therefore not an issue merely of gender or ethnicity but it reflects an open and malleable culture which tries to understand the motivations and aspirations of different people and their points of view.These dialogues higher up all are integrated into the day to day operations of the sign. 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 light upond whilst recognising diverse and local aspirations. There is I believe an even more gillyfloweramental issue that will require addressing. There is strong evidence that in a progeny and mobile workforce material satisfaction is not sufficient to retain their commitment and motivation.There is a chummy hunger, almost spiritual, that is diffused and not traditionally explicit 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. cite for the environment, for just practices in the workplace and for a match working life are key themes in this emerging generation. Traditionally this has been a no go region. After all religion and work do not mix. But any desire for a values-based organisation will require 9 thoughtful attention to be given to a much deeper understanding and respect for he religious beliefs, cultural and spiritual aspirations of this youthful global workforce. A new dialogue of understanding faith in business space is rapidly becoming a global imperative for business. Securities Industry Having made these general remarks it is value looking at trends in the pecuniary industry. ? expansion of the Business Financial sector activities are believably to experience straightforward growth over the abutting decade. Two reasons can be singled out deregulating and relaxation mainly in emerging markets, and wealth accumulation and retirement provisioning all over the world. all over the past few decades, the trend towards deregulation and liberalization in financial work has contributed significantly to the industrys expansion. This process is well advanced in many countries, mainly in the age markets, but further liberalization is, however, likely in emerging market countries where domestic markets are still highly protected. In general, further liberalization of financial markets is anticipate to benefit sendment b anking and securities solids which are positioned 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 possibly from a trend towards fit pension fund regulation. Especially in mature markets, but basically to a global extent, financial sector activities are also likely to gain further importance, mainly due to two trends On the one hand, wealth accumulation is likely to increase as a result of the shift from labour-intensive production to more capital-intensive activities.We see a unclouded secular 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 docket of many governments around the world. Although each country will follow its own regu latory agenda, we believe a gradual shift from public unfunded to secluded funded pension schemes is likely to take place. institutional asset management will be the sector most impacted by this trend. ?Increasing Diversity of the Business Financial market products are getting more and more diverse and sophisticated with the main characteristics being securitisation, equitisation, and merged restructuring. 11 The transformation of financial run over the last historic period has been goaded primarily by the change magnitude de-emphasis of traditional lending activities combined with the increasing importance of securities trading and financial markets. Corporations are much in a position to directly finance their funding needs by accessing the capital markets, expanding corporeal bond markets.At the self selfsame(prenominal)(prenominal) 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 expertness financing by way of the securities market. Despite the bursting of the new economy bubble, the underlying trend towards an increasing affair of equity finance and equity investments remains intact. Institutional and individual market participants will tend to invest a greater share of their assets into equity products and the incorporated sector will increasingly rely on equity financing. We see long-term secular trends pointing towards an current demand for advice on corporate restructuring, as trade liberalization and technological progress will increase global competition for corporations, pressuring them in turn to structure and consolidate their business.At the same time, cross-border consolidation in some industries has just begun. ? Further internationalization 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 potential for financial services in different contributional markets. We expect the largest commanding GDP increase over the next 10 years to occur in North the States, followed by Asia and Western Europe. Even though North America is set to grow at a long-playing rate than Asia, the absolute GDP increase will be higher. This demonstrates the importance of having a significant comportment in the US and other mature markets. At the same time, emerging markets, especially emerging Asia, have a huge potential.GDP growth in mainland China averaged more than 9% since 1979, and India is on track to reach out a high sustainable growth means 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. other important emerging area is the Gulf region, driven by sky-high oil prices and some maiden steps towards a f urther diversification 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 interesting nvestment opportunities. 13 ? alternative Asset Managers Hedge funds and buyout groups are fostering ever increasing sums of money to be deployed in the main cross border. The current size of the hedge fund market is estimated at US$ 1. 2 zillion and will expand significantly in the years ahead. Highly liquid and mobile capital should not be seen as restless 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 front line in diverse global environment creates substantial challenges. Global firms have to integrate dive rse cultures, subscribe the balance mingled with global reach and local front man, match the structure and characteristics of its international workforce with available and regional business needs, and stimulate infrastructure and processes to provide global communication and co-operation means. ? Integrating cultural miscellanea 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 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 gainfulness 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 establish a global s chema and business model.At the same time, due to the cultural diversity mentioned above, specific market and customer orientation has to be focused on country-specific needs. This is true for the products offered to the customers, the communication employed to establish and inflect 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 module 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 compan ies wants to achieve continuous success, it has to establish native talent development and management processes to hold back that employees are promoted in their personalized and professional development.To distinguish itself from its competitors, firms have to offer their staff unique development opportunities, thereby attracting current and future leaders. 15 ? Managing critical resources Internal processes, corporate communication and IT face considerable challenges in a diverse global environment. As such, it is challenging to guarantee a consistent appearance 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 duplicatio ns, potential for improvements inefficiency and for streamlining and simplifying processes. UBS manages these challenges and makes them opportunities ? One Firm We firm believe our integrated business model creates more value than our businesses would 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 behind the solutions.This one firm approach facilitates cross-selling through client referrals and the exchange of produces and scattering services between businesses and thus contributes significantly to our gross 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 trim to specific cultural requirements. Another example is the growing importance of hedge funds on international financial markets, where UBS offers products and services specifically targeted at these clients. ? Managing and promoting diversity To UBS, diversity means recognizing and appreciating multiple 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 vary in their degree of profile going from gender over ethnicity, age, disability, sexual orientation, religion, nationality to though. In addition, senior management takes the topic seriously and is a lot participating in meetings and employee forums on the topic. ? Corporate sociable Respo nsibility UBS makes responsible behavior 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 Responsible Investments In surplus to financial considerations, UBS provides expertise in incorporating environmental and genial 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. valet Resources To remain at the cutting edge of the rapid changes in the diverse global economy requires an rattling(a) investment i n leadership 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 part of the HR process. It emains a challenge when developing outsourcing plans to minimize the impact on existing employees, to plan the transition 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 brisk as they oft suffer anxiety, envy and a last gasp 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 utter that global organizations face an unprecedented 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 barriers 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.