class: center, middle, inverse, title-slide # 6. Globalisation: Macroeconomic and Political Effects on the Industry ### Thierry Warin, PhD, HEC Montreal, Harvard University & Cirano --- ## Readings Mandatory readings: - Associacion Colombiana de Plasticos (Acoplasticos) - Couillard, C. and Turkina, E. (2015), « Trade Liberalisation: The Effects of Free Trade Agreements on the Competitiveness of the Dairy Sector », World Economy Journal, Volume 38, Issue 6. --- ## Readings Suggested readings : - Carpenter, Robert E., and Bruce C. Petersen, (2002), Capital market imperfections, high-tech investment, and new equity financing, The Economic Journal, 112, F54-F72. - Braithwaite, J. & P. Drahos (2000). Global Business Regulation. London : Cambridge University Press, Chapter 8 « Financial Regulation », pp. 88-142. - Fleischer, C. & B. Bensoussan (2002) Strategic and competitive analysis. Prentice Hall. Chapter 17 : Macroenvironmental analysis (STEEP), pp. 269-283. - Warin, T., De Marcellis N. et P. Médan (2015) Economie industrielle : une perspective internationale, Montreal : Presses internationales de Polytechnique, Chapitre 12 Organisation mondiale du commerce et méga-accords commerciaux internationaux --- ## Synthesis of recommended readings - Session 1 - Porter, M. (1998) Competitive strategy : Techniques for analyzing industries and competitor, New York : Free Press, Chapter 1 « The structural analysis of industries » - Vincent Palmade, 2005, Industry Level Analysis: The Way to Identify the Binding Constraints to Economic Growth, World Bank Publications - Sanchez, R. & A. Heene (2004) The new Strategic Management : Organisation, Competition, Competence. New York : Wiley, pp.123-132 --- ## Content 1. Macroeconomic and industry analyses 2. Political and geopolitical context and industry development 3. Industry developments and regulatory developments / Effects of trade liberalization on the competitiveness of industry --- ## Introduction - Make the difference : * Between macroeconomic analysis frameworks (CAGE, PESTEL / STEEP), * Analysis frameworks at the industrial level (SDC) and * Strategic analysis frameworks (5 Porter forces, BCG, McKinsey). --- # 1. Macroeconomic and industry analyses --- ## 1. Macroeconomic analysis : CAGE ### Ghemawat's CAGE model <img src="./session6_resources/ghemawat_cage.png" width="800px" style="display: block; margin: auto;" /> --- ## 1. Macroeconomic analysis : STEEP Fleischer, C.; Bensoussan, B., (2002), « Macroenvironmental analysis (STEEP) », chapter 17, p. 269-283, in « Strategic and competitive analysis », Prentice Hall, ISBN: 978-0130888525 Social / Technological / Economic / Environmental / Political --- ## 1. Industrial analysis: Porter's 5 forces <img src="./session6_resources/porter5Forces.png" width="550px" style="display: block; margin: auto;" /> --- ## 1. Industrial analysis: Porter's 5 forces <img src="./session6_resources/ENporterDecathlon.png" width="500px" style="display: block; margin: auto;" /> --- ## 1. Industrial analysis: BCG **Stars**: they constitute areas that create significant financial resources to finance the needs arising from market growth. These products balance or are in surplus in cash. They are the dynamic part of the portfolio of activities. The "stars" are growing and are destined to become "cash cows". **Dilemmas**: these are high-growth products, but for which the company has not yet been able to acquire dominant competitive positions. The term dilemma refers to the strategic choice that the company has to make: either investing to make the DAS a star or disinvesting. **Cash cows**: these are products where growth is reduced, so financing needs are limited. They contribute little to growth but are self-financing. On the other hand, the position of leader makes these activities sources of important release of liquidity. **Dogs**: These are old-fashioned products for which the company has not been able to impose itself in terms of market share. They are characterized by a double absence of need and liquidity. They bring neither growth nor margins to the company. --- ## 1. Industrial analysis: BCG <img src="./session6_resources/ENmatriceBcgDecathlon.png" width="800px" style="display: block; margin: auto;" /> --- ## 1. Industrial analysis: SDC **Market Structure (S)** * Nature of the firm * Technology and production process * Competitivity and monopoly * Oligopolies **Market Dynamics** (D) * Limit price strategy and predatory price strategy * Price discrimination * Differenciation strategy * Innovations, norms, technology lock-in --- ## 1. Industrial analysis: SDC **Context and future issues** (C) * Cooperation, merger and acquisition * Comparative advantages and international trade * Competition policy * International trade agreements --- # 2. Political and geopolitical contexts and industry development --- ## 2. Political and geopolitical contexts ### Silk road <img src="./session6_resources/silk_road.png" width="800px" style="display: block; margin: auto;" /> --- ## 2. Political and geopolitical contexts ### Communication cartography <img src="./session6_resources/cartes_cables_1.jpg" width="800px" style="display: block; margin: auto;" /> --- ## 2. Political and geopolitical contexts - Fall of the Berlin Wall on 9 November 1989 - European Monetary Integration 1999 - Latin America / Africa - China in the WTO in 2001 --- ## 2. Political and geopolitical contexts - Start-ups crisis of 2000 - Russian and Mexican crises - Financial crisis of 2008 - Brexit and the future of Europe - "America first" --- ## 2. Political and geopolitical contexts ### The Economist Intelligence Unit <img src="./session6_resources/eiu1.png" width="500px" style="display: block; margin: auto;" /> <www.eiu.com> --- ## 2. Political and geopolitical contexts The challenges facing Québec and its regions in the face of an emerging world: - The general corporate income tax rate is set at 11.9% in Quebec. By adding the Fédéral, this represents a total of 26.9% (Finances Québec, 2014). - For the last twenty years, investments in public infrastructure (roads, energy, public transport, the environment, schools, hospitals, etc.) that are essential to a good business environment seem insufficient. --- ## 2. Political and geopolitical contexts The challenges facing Québec and its regions in the face of an emerging world: - Governments have begun to address the situation, particularly in Quebec, with an energy strategy and an infrastructure plan. - With respect to the regions of Quebec, in the context of an emerging world representing increased competition for labor and energy, regional monoproduction can increase the dependence of the regional economy on major global changes. --- ## 2. Political and geopolitical contexts Decreasing the comparative advantages of certain regions of Quebec: - Some factors may hinder attractiveness for international companies - The regions of Laval and the Laurentides region recorded growth of -3% and -10% respectively. These two regions are the only ones where labor productivity has decreased since 2002. --- ## 2. Political and geopolitical contexts Decreasing the comparative advantages of certain regions of Quebec: - The contribution of the Montreal region is much less than what a territory of this size should produce. While this region generates just over one-third of the province's GDP, it accounts for only 15% of productivity growth. - Other factors may also have a negative impact on the choice of location in certain regions, such as union density, transportation costs and the difficulty of finding a skilled workforce. --- ## 2. Political and geopolitical contexts <img src="./session6_resources/syndicalisationQuebec.png" width="700px" style="display: block; margin: auto;" /> --- ## 2. Political and geopolitical contexts Transport costs that can affect the competitiveness of businesses in different regions: - The transport costs of the forestry sector vary between 15 and 20% of the total cost of operation. - These companies must be located near the sources of supply, which are mostly remote from urban centers in order to limit the amount of stock needed for processing. - Shipping costs are higher, but the supply costs are lower (Roy & Poitras, 2010). --- ## 2. Political and geopolitical contexts - All large companies settle in Quebec to benefit in some cases from abundant natural resources, low energy costs, specialized human resources, but also for the relatively significant importance of the local and pan-Canadian market. - Transportation in Quebec is mainly done by truck, but also by train for certain companies that have access to it. --- ## 2. Political and geopolitical contexts - The Québec road network is relatively well developed and does not appear to be a brake on trade. - On the other hand, unlike the road network, rail transport is very inaccessible to both the public and the business community. --- ## 2. Political and geopolitical contexts - Roy & Poitras (2010): some companies located in remote areas of urban centers such as the Gaspé and the Magdalen Islands have transportation costs 324% higher than those in urban areas to reach Ontario and US cities. --- ## 2. Political and geopolitical contexts The difficulty of finding highly qualified and bilingual employees in certain regions: - Each region of Quebec has its own challenges. But for all regions outside of major cities, being able to hire highly skilled and bilingual employees is more difficult. - Data on college diplomas show that for some regions, notably the Cote-Nord (09) and Abitibi-Témiscamingue (08), this number is lower. - Immigration is the main challenge in some regions. Immigration is concentrated in the Montreal region and it is difficult for regions to attract skilled workers. Indeed, the language barrier is the main challenge for these newcomers. --- # 3. Industry developments and regulatory developments / Effects of trade liberalization on the competitiveness of industry --- ## 3. Industry developments and regulatory developments <img src="./session6_resources/syndicalisationQuebec.png" width="700px" style="display: block; margin: auto;" /> --- ## 3. Industry developments and regulatory developments ### CETA book <img src="./session6_resources/livreAecg.png" width="700px" style="display: block; margin: auto;" /> <http://cirano.qc.ca/files/publications/2016MO-02.pdf> --- ## 3. Industry developments and regulatory developments <img src="./session6_resources/accordsLibreEchange.png" width="600px" style="display: block; margin: auto;" /> --- ## 3. Industry developments and regulatory developments <img src="./session6_resources/ouvertureEchange.png" width="800px" style="display: block; margin: auto;" /> --- ## 3. Industry developments and regulatory developments <img src="./session6_resources/indiceConcentration.png" width="600px" style="display: block; margin: auto;" /> --- ## 3. Industry developments and regulatory developments <img src="./session6_resources/exportationsCanadiennes.png" width="700px" style="display: block; margin: auto;" /> --- ## 3. Industry developments and regulatory developments <img src="./session6_resources/tablePart3.png" width="700px" style="display: block; margin: auto;" /> --- ## 3. Industry developments and regulatory developments <img src="./session6_resources/exportationsQuebec.png" width="700px" style="display: block; margin: auto;" /> --- ## Conclusion <img src="./session6_resources/nextRevolution.png" width="600px" style="display: block; margin: auto;" /> <https://www.ted.com/talks/olivier_scalabre_the_next_manufacturing_revolution_is_here>