He Means Business

Melissa Beattie-Moss
May 18, 2005

"Sir, what kind of car do you drive?"

"A Honda"

"And you, Miss, may I ask what car you have?"

"An old Volvo"

"I see...How about you, Madam?"

"I drive a Jeep."

Fariborz Ghadar

Fariborz Ghadar

Fariborz Ghadar stood before us, beaming a broad, satisfied grin. "Very good. You proved my point," he said. "You all answered by—what?—the brand name. You didn't even think about it. That's the power of successful corporate positioning."

In a room full of casually dressed geographers, Ghadar's dapper suit and tie marked him as the corporate business expert he is. Director of Penn State's Center for Global Business and Schreyer Professor of Global Management, his lecture at the Geography Department's March 25th Coffee Hour was the last in a three-part series on globalization and drew upon material from his most recent book (co-authored with Erik Peterson): Global Tectonics: What Every Business Needs to Know.

Tremors and shockwaves

While branding campaigns and corporate position are still important concerns, today's CEO has more complex, longer-range issues to worry about. "Much like the earth's tectonic plates, global trends are shifting the ground beneath our feet," says Ghadar. "These shifts in society, technology and the environment are going to be formidable challenges to business leaders in the next 30 years." As Ghadar sees it, the companies left standing when the dust settles will be the ones with the best strategies for adapting to the new terrain. "In the swiftly changing global economy," he says, "only nations, corporations and workers that remain flexible will survive—and those most willing to adapt will thrive."

Business depends on trend-watching—and though it may seem glib to call infectious diseases, international conflict, and resource degradation "trends," these issues present some of the biggest business challenges for the 21st century.

Ghadar believes that there are some global "fault lines" that should be on the radar of every multinational corporation. Chief among these are four related issues: population growth, aging, immigration and urbanization.

People power

Despite increased automation, most manufacturing still requires human beings, sometimes lots of them. Many industries, looking for large numbers of employees at the lowest wages, have shifted their operations to developing countries, primarily throughout Asia.

While birth rates plummet in the Western world, parts of Asia and Africa are experiencing rapid population growth. "Currently, more than half the world's population lives in Asia," explains Ghadar, "and residents of China and India alone account for nearly two of every five people on the planet." Before the century's mid-point, Sub-Saharan Africa "will emerge as the world's fastest growing region."

From a business perspective, the population boom in "Least Developed Countries" (LDC) is not necessarily advantageous. For instance, despite demographic "youth bulges" in countries such as Nigeria and Zimbabwe, their political instability and "high disease burdens" have dissuaded international corporations from tapping into these labor pools.

"These countries are emblematic," Ghadar remarks, "of the overall trend that the most rapid population growth is occurring in those regions and countries least capable of supporting such growth." (The rise of mega-cities with over ten million people—such as Lagos in Nigeria—is part of a planet-wide trend toward urbanization, as the rural poor seek work and social resources in cities stressed beyond capacity. By 2050, 60% of the world will live in an urban setting.) (Link to related article: "Cities: Challenges for Humanity.")

For the near future, Asia—considered a "developing region"—will remain the most populated area of the world" and will continue to be the continent of choice for manufacturing industries.

Developed countries, such as the U.S., Japan, and Russia, face long-term economic and political consequences of stagnant or declining populations and increasing longevity. "The upshot," argues Ghadar, "is that over the next 25 years, the developed countries as a group will drop in relative size, from an aggregate 20% of the world population to around 15%," a decline he characterizes as "significant" with "serious implications" for these rapidly "graying" societies.

Global age gap

Sixty may be the new forty, as they say in Hollywood, but consider the fact that by 2050, one of every five people in the world will be at least 60 years old, compared to one in every ten today. In Japan, whose economy we no longer regard as a fearsome competitor, "the working-age population will decline by more than 37 percent."

Sixty may be the new forty, as they say in Hollywood, but consider the fact that by 2050, one of every five people in the world will be at least 60 years old, compared to one in every ten today. In Japan, whose economy we no longer regard as a fearsome competitor, "the working-age population will decline by more than 37 percent."

In the United States, the aging labor pool is tempered by the constant influx of immigrant workers. However, in Japan—a country where "foreigner" is a curse word—the inter-generational friction could be severe. "How will governments confront the difficult choice," asks Ghadar, "between sustaining welfare and pension systems that have been in place for decades and offering younger workers the same kind of lifestyles and social privileges that their parents have?"

One pressing question for developed countries with high longevity and low birth rates is "Who will care for the elderly?" Japanese women now account for half of their nation's work force and are less likely to fill the traditional role of caretaker for aged parents. Because of this shift, Japan is, by necessity, following the path of other developed nations whose elder-care is a niche filled by private businesses and government social services. (They're doing it in their own culturally-specific way, however, building elder-care facilities in the Philippines and Thailand, and piloting personal-care robotic products for seniors, such as the robot bathtub.

To grasp the way depopulation in the most developed nations might re-shuffle the global business deck, consider that "countries like Russia and Japan, if their current depopulations persist, could witness a decline on the order of one-third of their current populations by the year 2050."

Dangers and opportunities

As Ghadar sees it, "each of the geopolitical tectonic forces carries with it simultaneous dangers and opportunities." The capacity of high-level management to "develop and implement a strategic vision in the face of ever more onerous shorter-term pressures" will determine a company's success or failure.

In a world where "trade and travel now link so many societies," the price for ignoring global conditions is high. For instance, though the SARS virus originated in China, it spread rapidly to 30 countries. In addition to the toll in human lives, it grounded airlines and damaged business to the tune of "$30 billion, with an estimated $12.3 billion in losses in Asia alone."

Infectious disease is clearly a reality that no international business can afford to ignore. In the new global economy, the company with the most accurate "intelligence" and most quickly implemented strategies will emerge a winner, perhaps even finding business opportunities in the "niche" created by 21st century disease management.

International conflict is another example of danger and opportunity for multinational corporations. While most people think of wars and terrorist attacks in terms of human losses, their "massive direct economic costs" are keenly felt in the business community.

From a financial perspective, political instability in the least developed countries of the world "dampens foreign investment and tourism," while cross-border "refugee flows" lead to "increasing levels of disease in refugee camps." The worse conditions become in low-income, low-growth nations, the more they become "incubators for terrorist activities," creating a bleak cycle of poverty and violence. In terms of the business advantages of war, the economic opportunities—for companies poised to fill the specialized contracts of warfare—are well-known.

Short-termism vs. Long-termism

The "isms" of the 20th century—capitalism and communism—are less critical to 21st century business than the concepts of "short-termism" and "long-termism," believes Ghadar. In an era when "strategic insight and long-range planning" are the most significant predictors of success on the global business stage, Ghadar finds it "all the more inexplicable that some organizations seem to be focused on the short term." "Fewer and fewer leaders engage in long-range planning, especially with a view to assessing the forces unfolding across the planet," he says.

Though he is referring specifically to business—rather than national—leaders, the rise of corporate global power may make some blurring of these lines inevitable. Consider that "Of the 100 largest economies in the world, 51 are global corporations and 49 are countries." Comparing corporate incomes with the gross domestic product (GDP) of nations, we realize that General Motors is richer than Denmark; Wal-Mart is wealthier than Saudi Arabia; IBM ranks higher than Singapore and Ireland; Sony outclasses Pakistan, and so on. (Link to related article: "Top 200: The Rise of Corporate Global Power")

In Ghadar's view, "long-termism" would involve businesses encouraging democratization in the LDCs around the world and avoiding "broad-brush" conclusions about the business opportunities in regions outside the developed world. For instance, if "water promises to be to the 21st century what oil was to the 20th century," a nation's wealth will be tied to its access and management of that precious natural resource. (As Ghadar reminds us, "Beijing has one of the largest stocks of freshwater in the world; it is among the world's most significant water 'powers'.")

Sounding like a theorist of a different type and time—Charles Darwin—Ghadar notes that these "global tectonics" will continue to "evolve, shift, and change" as this new century unfolds. But one thing feels certain to him: Only the most adaptive businesses will survive.

Fariborz Ghadar, D.B.A., is professor of finance and director of the Center for Global Business Study. He can be reached at fghadar@psu.edu.

Last Updated May 18, 2005