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1. The world is bumpy
Globalization and new strategies for growth
March 2012

2. Introduction

3. About this report
The world is bumpy: globalization and new strategies for growth is the
third annual report from Ernst & Young exploring trends in globalization
and their impact on multinational companies. The report is based on the
following original research:
► A globalization index, that measures and tracks the performance of
the world’s 60 largest economies across five dimensions:
► Openness to trade
► Capital movements
► Exchange of technology and ideas
► Labor movements
► Cultural integration
► A survey of 1,000 senior executives from around the world
► A series of interviews with CEOs, leading academics and other
globalization experts
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4. Globalization continues to deepen
► After a brief pause in 2009, the overall average globalization score for the world’s
largest economies is estimated to have increased in 2011 and is expected to continue
increasing through 2015.
Average globalization score
4.35
4.3
Globalization indicator score
4.25
Predicted scores
4.2
Actual scores
4.15
4.1
4.05
4
2008 2009 2010 2011 2012 2013 2014 2015
Source: EY Globalization Index 2011
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5. The Globalization Index
► The Globalization Index was created to measure the extent to which the 60 largest
countries (by GDP) are connecting to the rest of the world.
► This table provides a breakdown by country (or, where applicable, territory) for each of
the five key categories most relevant to business for the top 10 countries in the index.
Change in Change in
Rank Country 2011 Score score score Trade Capital Labor Technology Culture
since 2010 since 1995
1 Hong Kong 7.42 -0.24 -1.91 9.8 7.4 4.6 6.0 9.3
2 Ireland 7.24 0.13 -2.50 6.7 7.8 6.0 9.5 5.8
3 Singapore 6.88 -0.14 -1.13 10.0 6.2 4.4 6.5 6.9
4 Belgium 5.81 -0.07 -1.40 6.4 6.8 5.2 6.1 4.0
5 Sweden 5.72 -0.11 -1.83 5.4 6.0 4.4 8.4 4.0
6 Denmark 5.70 0.21 -1.64 5.3 6.2 4.4 8.3 4.0
7 Netherlands 5.58 0.09 -1.15 6.3 5.8 4.9 6.5 4.0
8 Switzerland 5.46 -0.19 -1.70 4.9 5.4 6.3 5.9 4.8
9 Finland 5.39 -0.09 -1.72 5.0 5.6 4.0 8.1 3.8
10 Hungary 5.19 0.06 -1.07 6.4 5.1 4.5 5.7 3.8
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6. The focus of this program
Companies face a challenging and uncertain economic environment and
a highly competitive global marketplace, in which:
► Mature markets face sluggish growth prospects and high levels of
indebtedness.
► Rapid-growth markets, although expanding more quickly than
developed markets, are slowing.
► Competition is increasing as companies chase more elusive growth
prospects and as rapid-growth market companies grow
in sophistication.
► Policy is becoming more complex and uncertain.
► Operations are increasing in complexity and risk.
► Talent is becoming more scarce everywhere.
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7. Key findings

8. Companies face four key challenges
1. Succeeding in rapid-growth markets is harder than it used to be. Costs are
rising, competition is becoming more intense and growth, while still rapid, is slowing.
Betting the future on rapid-growth markets just because they have the right
economic and demographic conditions is not enough.
2. One size does not fit all markets. As companies diversify into new markets, they
face increasing operational complexity. These include additional risks, such as
supply chain disruption, poor visibility into performance and lack of flexibility.
3. Policy has become more important and less predictable. An uncertain and
dynamic policy environment — especially rising protectionism — is causing concern.
Business leaders are also worried about rising in tax risk.
4. Good people are hard to find. Companies find it increasingly difficult to match
suitable candidates with available positions. Senior managers with local knowledge
are particularly scarce. In rapid-growth markets, increased competition for talent
from local players compounds the problem.
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9. 1. Succeeding in rapid-growth markets is
harder than it used to be

10. The challenge
► Companies are increasingly looking to rapid-growth markets as their
best opportunity for growth. Almost three-quarters say that these
markets will make a significant difference to their revenue growth.
Role of rapid growth markets in revenue growth
What role do you expect rapid-growth markets to play in the following aspects of your business over the next three years?
Not a significant role Significant role
Overall contribution to boosting revenue growth 10 72
International expansion plans 14 62
Contribution to boosting market share 15 54
Cost effectiveness (e.g., through outsourcing or access to low cost skills) 23 51
Source of new innovations 31 39
Source of high-quality operational talent 30 35
Source of high-quality managerial talent 38 29
Source: Globalization Survey 2011.
Please rate 1 to 5 where 1 is very significant and 5 is not at all significant. Shown: Percentage 4 or 5 vs. percentage 1 or 2 score. Base: Total (994).
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11. The challenge
► More than half of respondents think that these markets require longer
time horizons, and almost half believe that the cost of entering is
greater than expected.
► Companies face a squeeze on growth prospects in rapid-growth
markets:
► Increased competition from other multinationals and
increasingly sophisticated local players
► Slowing growth – respondents see asset price bubble as the
most likely risk to derail growth
► Potential bubbles
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12. Response: think like a start-up
Shed organizational baggage.
► Developed world multinationals have spent years refining their
business processes, but this can be a burden.
► Processes may be too rigid, business models tired and the
organization may lack flexibility.
► In order to succeed, they must:
► Shed their legacy processes and capabilities
► Rethink their approach from the ground up, and behave more like
a start-up
► Reinvent their business model to suit the local market
This will give them greater flexibility and capacity to respond quickly to
emerging opportunities and risks.
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13. Response: think like a start-up
Devise innovative strategies that will secure a quick pay-off.
► In the past, companies recognized that investments in rapid-growth
markets were long term.
► This worked as long as they could fund the new investments using
profits from their core markets.
► But with developed markets slowing, recycling this capital is no longer
an option.
► Instead, companies must:
► Develop innovative business models and solutions that will enable
them to earn a much quicker return
► Ensure that growth can be achieved in rapid-growth markets via
self-sustaining models, rather than though investment from profits
from developed markets
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14. Response: think like a start-up
Take a broader stakeholder view toward the investment.
► The financial crisis has reawakened the debate about the role of
business in society.
► Pure shareholder value creation is falling out of favor.
► Instead, companies need to take into account the needs of a broader
range of stakeholders, especially in rapid-growth markets.
► To succeed, companies must:
► Work closely with a wide range of stakeholders, including
government, local communities and their partners
► Understand the role of government in the private sector and where
the boundaries lie
► Become involved in the development of the country itself rather
than solely the investment, for example, through infrastructure
► Have a higher purpose that goes beyond pure economic logic to
think more holistically
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15. 2. One size does not fit all markets

16. The challenge
► As companies adopt a more global approach, they inevitably
encounter greater complexity.
► Two-thirds say that they will increase the number of their external
partners over the next three years, and more than half say that their
supply chain will become more complex.
65
Number of external partners with whom your company works 62
69
54
Complexity of the supply chain 54
54
49
Exposure of the supply chain to risk of disruption 49
49
45
Proportion of operational functions that you outsource to external Total
42
providers Developed markets
51
Emerging markets
Q: Over the next three years, what change do you expect to see to the following aspects of your company’s operations? Please select increase, no change or decrease
for each item. Shown: Percentage increase. Base of companies with international supply chains: Total (551), developed markets (359), emerging markets (192).
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17. Response: adapt your approach to new
operational complexities
Integrate networks according to logically grouped markets.
► The need to strike a balance between global and local is a major
challenge for companies seeking to be relevant to local customers
while still deriving benefit from economies of scale.
► To address this challenge, companies must:
► Strike a careful balance between standardization and the need to
remain relevant and close to end-customers
► Develop hubs that can provide shared services or resources at a
regional level, yet still be close enough to the end-customers to
understand their specific needs and challenges
► Consider how groupings of adjoining markets can be created to
follow patterns of trade, which still take place largely within
geographic regions, as well as regional trade agreements
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18. Response: adapt your approach to new
operational complexities
Rethink approaches to outsourcing.
► A changing, uncertain world requires companies to be adaptable and
able to respond quickly to new opportunities and risks.
► Resources are fixed and tough to move, so will cause problems for
companies in need of flexibility.
► Instead, companies must:
► Shift their cost structure to one that is variable rather than fixed
► Use outsourcing to increase organizational flexibility and help
companies deal with a high degree of complexity
► Learn from the experiences of some rapid-growth market firms that
have adopted a simplified operating model from the outset
► But ensure that outsourcing does not lead to a loss of control
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19. Response: adapt your approach to new
operational complexities
Investigate the benefits of near-sourcing.
► In the past few decades, it has become accepted wisdom that
companies should offshore non-core functions, such as manufacturing,
to low-cost destinations such as China.
► But rising labor costs in these markets and volatile commodity markets
are causing some companies to question this.
► Instead they are:
► Assessing the fragility of their supply chains and determining
whether a new approach is appropriate
► Considering shifting their supply chain from a sea-based one to a
land-based one
► In some cases, bringing manufacturing back to developed markets,
like the US, to ensure security of supply and take advantage of high
labor capacity and lower prices for manufacturing assets
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20. 3. Policy has become more important and
unpredictable

21. The challenge
► More than half of our survey respondents say that an increase in
protectionism in the markets in which they operate could have a
negative impact on their growth prospects.
51
Overall growth prospects 52
49
36
Willingness to invest internationally 37
34
34
Plans for international expansion 35
33
33
International competitiveness 32
35
32
Supply chain and procurement costs 29
36
17
Time to market 16
19
16 Total
Ability to access appropriate skills and talent 15 Developed markets
16
Emerging markets
Q: Should there be a rise in protectionism in the overseas markets in which you operate, which of the following areas of your business would be
negatively affected? Base: Total (994), Developed markets (635), Emerging markets (359).
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22. The challenge
► There are concerns that governments could resort to protectionism to
bolster flagging economies. More than half of respondents think that a
deteriorating economic environment will cause a dramatic increase in
tit-for-tat protectionism.
New global financial crisis triggered by European sovereign 62
62
debt defaults 61
A deteriorating economic environment causes a dramatic 58
57
increase in tit-for-tat protectionism 59
58
Further round of quantitative easing in the US 59
57
Further capital controls in emerging markets to prevent 55
52
speculative flows of capital 60
53
Global economy falls into recession 55
49
An intensification of competitive currency devaluations by 49
47
policy-makers 51
36 Total
Significant upward revaluation of the Chinese currency 35 Developed markets
37 Emerging markets
Q: How likely do you think it is that the following scenarios will occur in the next 12 months? Please rate 1 to 5 where 1 is very likely and 5 is
not at all likely. Shown: Percentage of 1 or 2 scores. Base: Total (994), developed markets (635), emerging markets (359).
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23. Response: build a strategy for connecting
with governments
Engage with policy-makers to make the right decisions.
► Faced with a potential uptick in protectionism, many business leaders
may conclude that the issue is out of their hands.
► Only 15% of companies say they are fully prepared for an increase in
protectionism and have factored it into their strategic plans.
► But companies can take concrete steps:
► Engage with governments and trade departments to prevent
counterproductive measures
► Ensure that governments understand the economic benefits of
increased trade
► Consider shifting their supply chain from sea-based to land-based
► Correct misinformation among consumers about the impact
of globalization
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24. Response: build a strategy for connecting
with governments
Combine local knowledge with global co-ordination.
► The global tax environment has never been so fast-moving or
dynamic.
► 78% of the world’s largest companies say they are already
experiencing greater risk or uncertainty around legislation.
► To deal with this, companies can:
► Put in place a mix of local, on-the-ground knowledge – often
gained through outsourcing arrangements – with the ability to
coordinate at a global level
► Ensure that decisions that involve tax are taken in the context of
the company’s broader context and strategic goals
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25. Response: build a strategy for connecting
with governments
Build stronger relationships with tax administrations.
► Companies are encountering a high degree of tax risk, particularly
with cross-border investments.
► To deal with this challenge, companies should:
► Build transparent relationships with authorities so that issues can
be addressed early rather than waiting for an audit or controversy
► Where possible, explore the potential of forming enhanced
relationships and alternative dispute resolution mechanisms with
tax administrations
► Ensure a robust approach to maintaining adequate, easily
accessible documentation that can be provided when challenged
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26. 4. Good people are hard to find

27. The challenge
► Although the economic prospects of developed and emerging markets
are diverging, there is a common thread running across all markets:
companies everywhere find it increasingly difficult to match skilled
professionals with available positions.
Developed markets Equally challenging Fast-growth markets
Recruiting senior managers with local knowledge and
14 31 56
understanding
Retaining employees 16 36 48
Ensuring that salaries and benefit packages keep track with
18 37 45
local competition
Recruiting employees with appropriate experience 21 35 44
Addressing weaknesses in current talent pool 16 47 37
Forecasting talent requirements 13 50 36
Succession planning for top management talent 18 49 33
Measuring performance of employees 14 57 28
Q: Compared to this time 12 months ago, in which markets are you currently experiencing most difficulty in the following dimensions of talent management? Base: Total (994).
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28. Response: embrace bold approaches to
talent management
Put the best talent in the most promising markets.
► Many companies have been slow to send their top talent to rapid-
growth markets, sending people who are ―good enough‖ rather than
those who are best in class.
► Instead, companies should:
► Send the best talent available on the basis that these markets are
changing rapidly and are highly competitive
► Future-proof their talent by putting in place managers who will
have the skills and authority to lead the larger markets of
tomorrow, not just the smaller markets of today
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29. Response: embrace bold approaches to
talent management
Promote managers in line with the pace of the market.
► In rapid-growth markets, where employee churn can be 20%, and
where salaries are rising at a similar rate, companies need to consider
what will make them stand out as an attractive employer.
► This means that companies should:
► Invest heavily in training to prepare managers for future challenges
► Promote internally to show employees that they have significant
opportunities if they stay with the company
► Promote people sooner than you would in a more mature market,
even if this means giving them a level of responsibility that is
greater than their experience
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30. Response: embrace bold approaches to
talent management
Revamp the expatriate model.
► Traditional approaches to expatriate managers are becoming tired
and are rarely successful.
► Just 29% of respondents say that their company is effective at
relocating employees with minimum disruption.
► Instead, companies should:
► Work hard to ensure that expatriate postings are not only attractive
but also benefit from access to top management
► Give managers from rapid-growth markets exposure to more
developed markets through a ―reverse expat‖ experience
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31. Closing remarks

32. What’s next?
► Global businesses face an ever-tightening squeeze of slowing growth,
increasing competition and increased volatility.
► Globalization continues its inexorable march, but the challenges of becoming
truly global are harder and the responses less clear-cut.
► Managing across divergent economic environments demands new
management capabilities and the ability to lead diverse teams across multiple
time zones and geographies
► To succeed in this environment, companies may need to give more decision-
making weight to the markets with the best growth potential, relocate key
executives to fast-growth markets and shift their focus to a model that takes
into account a broader range of stakeholders.
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33. Appendix: Measuring globalization
► The Globalization Index measures the performance of the world’s 60 largest economies
according to 20 separate indicators.
► The indicators fall into five broad categories: openness to trade, capital movements,
exchange of technology and ideas, labor movements, and cultural integration. These
factors have been weighted based on the significance placed upon each factor by 992
surveyed senior company executives doing international business. Subsidiary
indicators are also given sub-weightings within each category.
► The indicators chosen include both quantitative data and qualitative scores from a
range of trusted sources. The performance of countries is measured over time, so that
progress toward greater or lesser globalization since 1995 can be observed, with a
forecast of likely performance until 2015.
► Our Globalization Index measures ―relative‖ rather than ―absolute‖ globalization. This
means that an economy’s trade, investment, technology, labor and cultural integration
with other economies is measured relative to its GDP rather than by the absolute value
of these elements being exchanged. The Index, therefore, reflects the degree to which
the global integration of an economy is observable or experienced from within
that economy.
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34. Appendix: Globalization Index indicators
► The Globalization Index was created by identifying the key indicators of globalization
most relevant to business. The table below shows, for each of the headline categories,
the individual indicators used and their source. The categories were then weighted
according to the views captured in a survey of 992 business leaders.
Category and indicators Source
Movement of goods and services
Total trade (exports + imports) as %GDP National accounts
Trade openness (5=very high) Scored on 1-5 scale by EIU analysts
Tariff and non-tariff barriers (5=very low) Scored on 1-5 scale by EIU analysts
Ease of trading (cross-border) (5=very easy) Scored on 1-5 scale by EIU analysts
Current-account restrictions (5=very low) Scored on 1-5 scale by EIU analysts
Movement of capital and finance
FDI flows (in and out, % of GDP) IMF International Financial Statistics
Portfolio capital flows (in and out, %GDP) Scored on 1-5 scale by EIU analysts
Government policy towards foreign investment (5=very encouraging) Scored on 1-5 scale by EIU analysts
Expropriation risk (5=non-existent) Scored on 1-5 scale by EIU analysts
Investment protection schemes (5=very good) Scored on 1-5 scale by EIU analysts
Domestic favouritism by government (5=No favouritism; level playing) Scored on 1-5 scale by EIU analysts
Movement of labour
Net migration rate (per 1,000 population) United Nations
Current transfers (in and out, as %GDP) IMF International Financial Statistics
Hiring of foreign nationals (5=very easy) Scored on 1-5 scale by EIU analysts
Exchange of technology and ideas
R&D trade (in and out, as %GDP ) IMF Balance of Payment Statistics; EIU estimates
Broadband penetration International Telecommunications Union
Internet users International Telecommunications Union
Cultural integration
Tourism (in and out, per 1000 population) World Tourism Organization
International outgoing fixed telephone traffic (minutes) per capita International Telecommunications Union
Openness of national culture to foreign influence (5=very open) Scored on 1-5 scale by EIU analysts
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35. Thank you

36. Ernst & Young
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