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© 2009 Pankaj Ghemawat

What Are the Real Gains from a Successful Doha Round?. Pankaj Ghemawat WTO Workshop November 2, 2010 . © 2009 Pankaj Ghemawat. The Way Forward. Understanding how global we really are Understanding all the barriers that constrain trade Thinking broadly about the gains from trade.

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© 2009 Pankaj Ghemawat

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  1. What Are the Real Gains from a Successful Doha Round? Pankaj Ghemawat WTO Workshop November 2, 2010 © 2009 Pankaj Ghemawat

  2. The Way Forward • Understanding how global we really are • Understanding all the barriers that constrain trade • Thinking broadly about the gains from trade © 2010 Pankaj Ghemawat

  3. How Global Are We? A. In real estate, the mantra is 'location, location, location.' For global brand managers, it might be 'localise, localise, localise.‘ —A consultant B. There is a balance on the spectrum between “local” and “global” that represents the “sweet spot”…[and makes for] “the race to the middle. —A manager C. The world got flat…[creating] a global, Web-enabled playing field that allows for…collaboration on research and work in real time, without regard to geography, distance or, in the near future, even language. —A journalist © 2010 Pankaj Ghemawat

  4. FDI/Gross Fixed Capital Formation 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% © 2010 Pankaj Ghemawat

  5. Levels of Internationalization Telephone calls Immigrants (to Population) Direct investment Equity investment Exports (to GDP) 40% 60% 20% 80% 100% © 2010Pankaj Ghemawat

  6. The Way Forward • Understanding how global we really are • Understanding all the barriers that constrain trade • Thinking broadly about the gains from trade © 2010 Pankaj Ghemawat

  7. What Are the Barriers to Trade? The Mystery of the Missing Trade • In 1988, Canadian provinces traded 20 times as much merchandise with each other as with U.S. states • By the mid-1990s, this multiple had come down to 12 • After a decade of NAFTA, this multiple still exceeds 5—and this is just for merchandise! • Note free trade agreement, common border, mostly common language/ colonizer, generally friendly relations etc. making U.S.-Canadian trade largest bilateral trade relationship in the world © 2010 Pankaj Ghemawat

  8. Common Language Common Regional Trading Bloc Colony/Colonizer Relationship Common Currency Common Land Border +188% +125% +114% Change in Trade (%) +47% +42% Influences on Bilateral Trade (%) © 2010 Pankaj Ghemawat

  9. Cultural Distance Administrative Distance Economic Distance Geographic Distance The CAGE Distance Framework © 2010 Pankaj Ghemawat

  10. Expanded Conception of Policy LeversThe Case of Catalonia • Improve regional transportation/communications infrastructure • Create an efficient energy network • Coordinate infrastructural investment CULTURAL ADMINISTRATIVE GEOGRAPHIC ECONOMIC • Improve interregional market linkages -employee mobility -capital markets -information about interregional flows • Exploit scale/scope -business networks/ events -joint embassies -process for upgrading cross-border clusters • Collect and disseminate information about interregional flows • Harmonize: -foreign investment promotion to avoid races to the bottom -public procurement processes -health, safety, environmental standards • Simplify cross-border regulations and paperwork • Bilateral/multilateral summits -share best practices in government operations -review regional institutions • Exploit language bridges • Encourage interregional networks/exchanges -students • Promotional efforts

  11. The Way Forward • Understanding how global we really are • Understanding all the barriers that constrain trade • Thinking broadly about the gains from trade © 2010 Pankaj Ghemawat

  12. Querétaro DF Local Solution Center Global Delivery Centers TCS Latin America: A Case Study Monterrey Guadalajara Bogotá Medellín Quito Lima Brasilia • 7000+ Associates • 150+ Active Clients. • 16 of Fortune 100 • 4 of 11 Latin firms in the Global 500™ San Pablo Santiago Montevideo Buenos Aires © 2010 Pankaj Ghemawat

  13. ADDING Value: TheCase of TCS Latin America VALUE COMPONENT TCS Latin America • Pursuit of large global deals Adding Volume • Increase in absolute cost levels • Dynamics of Indian costs/availability Decreasing Costs • Language advantages • Time zone/local presence advantages • Claim to be truly global Differentiating (Increasing Willingness to Pay) Improving Industry Attractiveness • Judo economics vis-à-vis IBM, Accenture Normalizing Risk • Reduction in India risk • Buzz • Multiculturalism • Propagating delivery capabilities Generating and Deploying Knowledge/Other Resources © 2010 Pankaj Ghemawat

  14. ADDING Value vs. Standard Approaches Sources of Value A DDING VOLUME ECONOMIES OF SCALE, UTILIZATION … D ECREASING COSTS D IFFERENTIATING I NTENSIFYING COMPETITION N ORMALIZING RISK G ENERATING KNOWLEDGE © 2010 Pankaj Ghemawat

  15. ADDING Value through Merchandise Trade: Some Additions VALUE COMPONENT Additions Adding Volume • Scale economies • Investments in cost reduction • Other cost drivers (e.g., utilization) Decreasing Costs • Economics of missing products • The moving quality window Differentiating (Increasing Willingness to Pay) • Productivity studies (decomposition, turnover…) • Rent-seeking/DUP activities • Entrenchment effects Intensifying Competition Normalizing Risk • Case studies (e.g., food) • Technological progress/capabilities literature • Imitation as well as innovation • Complementarities with investment Generating and Deploying Knowledge/Other Resources © 2010 Pankaj Ghemawat

  16. Unimpressive Projected Gains? • Agree and abandon • Avert gaze and carry on • Adjust baseline • Add to the categories of effects considered © 2010 Pankaj Ghemawat

  17. © 2010 Pankaj Ghemawat

  18. Adding Economic Value by Opening up C O M P L E M E N T A R I T I E S ADDING ECONOMIC VALUE THROUGH MERCHANDISE TRADE ADDING ECONOMIC VALUE THROUGH SERVICES TRADE ADDING ECONOMIC VALUE THROUGH OTHER CROSS-BORDER FLOWS (CAPITAL, PEOPLE, KNOWLEDGE) ADDING VALUE CULTURALLY ADDING VALUE POLITICALLY © 2010 Pankaj Ghemawat

  19. Levers of Value Volume Competitive Advantage • Cost drivers • Differentiation drivers Economic Value Margin Industry Attractiveness/ Bargaining Power + Uncertainty / Risk Dynamics (Learning) © 2010 Pankaj Ghemawat

  20. A Key Question How far to cast our nets in identifying the gains from a successful Doha round (or, more broadly opening up)? “If I’m not able to pin down the numbers precisely, I report just the qualitative effects” © 2010 Pankaj Ghemawat

  21. ADDING Value vs. Standard Approaches Sources of Value A DDING VOLUME ECONOMIES OF SCALE, UTILIZATION … D ECREASING COSTS D IFFERENTIATING I NTENSIFYING COMPETITION N ORMALIZING RISK G ENERATING KNOWLEDGE (AND OTHER RESOURCES) © 2010 Pankaj Ghemawat

  22. The Way Forward • Understanding how global we really are • Understanding all the barriers that constrain trade • Thinking broadly about the gains from trade © 2010 Pankaj Ghemawat

  23. ADDING Value LEVERS Adding Volume Decreasing Costs Differentiating (Increasing Willingness to Pay) Improving Industry Attractiveness Normalizing Risk Generating and Using Knowledge/Other Resources © 2010 Pankaj Ghemawat

  24. Strategic Headroom © 2010 Pankaj Ghemawat

  25. Source: www.cartoonstock.com © 2010 Pankaj Ghemawat

  26. Size of Net Capital Flows Since 1870 (current account as % of GDP) 6% 5% 4% 3% 2% 1% 0% 1860 1880 1900 1920 1940 1960 1980 2000 2020 © 2010 Pankaj Ghemawat

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