The Economist ran an article last week reviving the decades-old debate between models of shareholder wealth maximization and stakeholder wealth maximization (see A New Idolatry).

The basic idea behind the shareholder wealth maximization model is that a firm’s sole purpose is to maximize shareholder value (i.e., share price). The stakeholder view offers a different (although not necessarily contradictory) perspective.

According to stakeholder theory, the aim of the firm is to maximize value by taking the concerns of all its stakeholders, not simply its shareholders, into consideration. That is, firms ought to incorporate stakeholder – shareholder, supplier, customer, employee, community, and any other constituency with a “stake” in the firm – interests into their decision calculus, thereby generating value not just for shareholders, but also for society at large. It shifts the maximization problem from one of individual utility maximization (in the interest of shareholders) toward one of joint utility maximization (balancing the disparate concerns of various interested parties). Wikipedia provides a and brief overview of stakeholder theory for anyone interested in reading more (see Stakeholder Theory).

Oh yeah, back to The Economist article:

The economic crisis has revived the old debate about whether firms should focus more on their shareholders, their customers, or their workers.

[The shareholder maximization model] has dominated American business for the past 25 years, and was spreading rapidly around the world until the financial crisis hit, calling its wisdom into question.

…Roger Martin, dean of the University of Toronto’s Rotman School of Management, charts the rise of what he calls the “tragically flawed premise” that firms should focus on maximising shareholder value, and argues that “it is time we abandoned it.” The obsession with shareholder value began in 1976, he says, when Michael Jensen and William Meckling, two economists, published an article, “Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure”, which argued that the owners of companies were getting short shift from professional managers. The most cited academic article about business to this day, it inspired a seemingly irresistible movement to get managers to focus on value for shareholders. Converts to the creed had little time for other “stakeholders” …[and] American and British value-maximisers reserved particular disdain for the “stakeholder capitalism” practised in continental Europe.

I have long been a proponent of a more stakeholder-oriented approach. However, I admit that it might be a bit difficult to advocate for European versions of “stakeholder capitalism” given the recent problems in the PIIGS nations.

That notwithstanding, I think the shareholder-stakeholder divide speaks to one of the fundamental criticisms of the field of financial economics, and its dogged adherence to the shareholder wealth maximization paradigm (see The Future of Financial Economics and Part Deux for criticisms of that approach). Back in March of 2009 I wrote:

…I have had more than a few conversations with prominent economists and sociologists about the social implications of a dogmatic adherence to models of shareholder wealth maximization. Unfortunately, if incentives are structured such that they exclusively reward shareholders (and in some cases, managers) at the expense of other constituents (stakeholders), this could lead to suboptimal social outcomes.

Shareholder maximization vs. Stakeholder maximization has been a topic of considerable debate in the strategy literature over the past 15-20 years. And given the social costs of this financial crisis, I would not be surprised to see the Stakeholder view gain more traction in the years to come.

Although I have been an advocate of a more stakeholder-oriented approach, this is not to say that there are not valid criticisms that can be leveled at stakeholder theory. The shareholder maximization approach is appealing precisely because profitability and share price are quantifiable, and easily measured. However, concepts from stakeholder theory defy quantification in a conventional sense. It’s not always clear which are the right stakeholders to pay attention to, and even if you can identify the appropriate stakeholder set, how do you weight their interests accordingly? In addition, how do you quantify, for example, when firms are effectively meeting the needs of their local communities, and what those needs are to begin with?

Admittedly, the stakeholder view of the firm is still in its infancy, but given its broader social implications, and in the wake of the financial crisis, I think it is well worth the effort to try to advance the field.

In recent years I have worked with Michael Barnett of Oxford on ways to better quantify stakeholder performance, and on how to bridge the stakeholder-shareholder divide. Other scholars in strategy, management, and finance are likewise devoting increasing attention to this topic. I am therefore hopeful that we, as a field of organizational scholars, will come to some new understanding in this respect.

Of course, the Economist article that I quoted does not break any particularly new ground in this respect; nevertheless, I am glad that folks in the mainstream media are finally starting to pick up on the shareholder-stakeholder debate. I am convinced that it remains an important one, and the truth is: It is a debate well worth having.

The most recent issue of The Economist ran a wonderful survey of innovation in emerging markets (see Special Report on Innovation in Emerging Markets). The collection of articles discusses how innovation is helping developing countries catch up with their developed country counterparts, and how emerging market multinationals, through internal innovation and acquisition, are becoming formidable global competitors.

Developing countries are becoming hotbeds of business innovation in much the same way as Japan did from the 1950s onwards. They are coming up with new products and services that are dramatically cheaper than their Western equivalents: $3,000 cars, $300 computers and $30 mobile phones that provide nationwide service for just 2 cents a minute. They are reinventing systems of production and distribution, and they are experimenting with entirely new business models.

Emerging-market champions have not only proved highly competitive in their own backyards, they are also going global themselves.

The United Nations World Investment Report calculates that there are now around 21,500 multinationals based in the emerging world. The best of these…are as good as anybody in the world. The number of companies from Brazil, India, China or Russia on the Financial Times 500 list more than quadrupled in 2006-08, from 15 to 62. Brazilian top 20 multinationals more than doubled their foreign assets in a single year, 2006.

At the same time Western multinationals are investing ever bigger hopes in emerging markets. They regard them as sources of economic growth and high-quality brainpower, both of which they desperately need. Multinationals expect about 70% of the world’s growth over the next few years to come from emerging markets, with 40% coming from just two countries, China and India. They have also noted that China and to a lesser extent India have been pouring resources into education over the past couple of decades. China produces 75,000 people with higher degrees in engineering or computer science and India 60,000 every year.

The world’s biggest multinationals are becoming increasingly happy to do their research and development in emerging markets. Companies in the Fortune 500 list have 98 R&D facilities in China and 63 in India.

I agree that there are some truly exciting opportunities in developing markets, especially China, India, and Brazil. The potential those markets hold certainly make me hopeful for the prospects of long-term economic development.

That said however, frequent readers of this blog know where I stand with respect to the prospects for developing countries (and their firms) to quickly close the capabilities gap with the developed world. Despite the incredible potential these markets hold, my position has been that we ought not get too giddy thinking that developing countries will be able to catch up anytime soon (see China Attracting High-Tech Research or Doing Business in a Developing Country). They face some serious headwinds.

First, the US alone accounts for one third of worldwide R&D expenditure. Developed countries as a group account for around three quarters of worldwide R&D expenditure. Second, much of the R&D that developed country multinationals conduct in developing countries is skewed toward low value-added activities. Third, much of the “innovative” activity engaged in by local firms in developing countries centers on the simplification of existing technologies from developed countries for less sophisticated local consumers. Fourth, developing countries are still relatively economically and politically unstable. They are fraught with structural problems that in no way guarantees that their economic growth will continue unimpeded, and their political and economic institutions remain underdeveloped. Finally, it is true that emerging market multinationals have grown significantly over the past several years with an impressive number of entries on the Financial Times 500 list. However, much of that growth has been achieved through acquisition of developed market firms at the peak of the equity bubble. It will be interesting to see how those acquisitions fare over the next decade.

I hope that doesn’t come across as curmudgeonly because I do absolutely believe that there will be nothing more exciting than witnessing the growth and development (both the good and the bad) of the BRIC markets over the next 50-100 years (if only I could live long enough). I just think that the unbridled optimism with which many mainstream media pundits describe emerging markets needs to be put into context, and tempered with a dose of reality.

Nevertheless, each and every article in The Economist survey is well worth the read. I strongly encourage you to take a look for yourself (see Special Report on Innovation in Emerging Markets).

It’s been a whirlwind few weeks of travel for me – beginning in Holland, then on to Paris, followed by a trip to DC. But I am now back in New York, looking forward to getting back to a more regular, regimented schedule.

In the meantime, I thought I’d share some articles that I’ve enjoyed reading over the past few weeks.

1. Canadian Pension Organization to Buy UK Lottery – Details how a Canadian Teacher’s Pension organization is trying to acquire a British lottery operator. Can someone please explain to me the logic of a pension fund running a lottery company, …in a foreign country no less? This defies just about all corporate strategy logic regarding M&A activity. What do pension funds know about running lottery companies?? And if they’re simply a financial buyer, what business discipline will they be able to impose, especially since the owners get only a small portion of the profit? Also, I can’t help but wonder how Canadian teachers will feel about owning a gambling operation.
2. The Celebrity Effect – Details research on the financial impact of appointing celebrities to a company’s Board of Directors (e.g., Evander Holyfield at Coca Cola; Michael Jordan at Oakley; Billie Jean King at Philip Morris; Gerald Ford at American Express). Although the research suggests that firms benefit from announcing celebrity directors, I remain skeptical. I have brought board members from various large public corporations to speak in my class, and they have expressed disappointment with the celebrity members of their boards, sharing stories about celebrities who typically do not pull their weight. I can understand if a celebrity has a particular expertise that lends itself to the business or if a former politician joins the board of a firm that operates in the government sector and/or for which political connections are especially important. However, by and large, I think that many of these appointments are ceremonial, and likely do not create value.
3. The Panda has Two Faces – A story from the Economist on the perils of doing business in China. They stress the political, economic, and cultural quandary facing foreign entrants (see also So You Want to Do Business in a Developing Country). A choice quote from the Economist article, “[China] regards foreign investment as a mechanism for acquiring foreign know-how rather than just jobs and capital; hence the insistence on joint ventures…political difficulties are piled on top of cultural difficulties. The Chinese emphasis on personal connections (guanxi) makes it hard to distinguish between business-as-usual and corruption. And the weakness of the legal system means that companies operate in a confusing half-light. Transparency International’s most recent Corruption Perceptions Index ranks China 79th out of 180 countries…”
4. Relax, We’re Fine – The future of the US economy according to David Brooks. Although the title of the article might be viewed as insensitive to the plight of the millions of Americans who are currently unemployed, I think that David is rightly optimistic about the long-term prospects of the US economy. And it’s nice to remind ourselves of that sometimes, …especially when things don’t feel so great at the moment. A choice quote, “…the U.S. remains a magnet for immigrants…the U.S. is among the best at assimilating them (while China is exceptionally poor). As a result, half the world’s skilled immigrants come to the U.S. As Kotkin notes, between 1990 and 2005, immigrants started a quarter of the new venture-backed public companies. The United States already measures at the top or close to the top of nearly every global measure of economic competitiveness. A comprehensive 2008 Rand Corporation study found that the U.S. leads the world in scientific and technological development. The U.S. now accounts for a third of the world’s research-and-development spending. Partly as a result, the average American worker is nearly 10 times more productive than the average Chinese worker, a gap that will close but not go away in our lifetimes.” This is exactly why I find it hard to believe some of the predictions that China will soon overtake the US as a technological super-power (see also China Attracting High-Tech Research).
5. The Return of History – A David Brooks two-fer. This Op-Ed is his critique of the field of economics. These are not necessarily new arguments (see Future of Financial Economics, Future of Financial Economics Part Deux, and Krugman on the Future of Economics). Moreover, I am not so sure I agree with David’s prediction with respect to Act V. Nevertheless, it was thought-provoking and provided an entertaining read.

Anyhow, I hope you find these articles well worth your time to read. Enjoy!

Don’t know how many of you caught the recent news, but a new Nano (Tata’s ultra-cheap car) spontaneously burst into flames last week soon after its owner drove it off the lot (see Car Fire Raises Safety Concerns for details and a FIERY photo).

When it was launched less than a year ago, the $2,500 Tata Nano was promoted as a safe, ultra-cheap car for poor Indians, an alternative to the motorbikes that zoom precariously around the country.

New questions about the safety of the pint-sized auto are being raised, however, after one of them burst into flames Sunday as it was being driven home from the showroom.

I have no doubt that Tata is trying its level best to develop a car that’s at once affordable and reliable. However, in light of this incident, I can’t help but be reminded of the folly that was the Yugo. The Yugo debuted in the U.S. in the 1980′s with great fanfare, only to disappoint in just about every imaginable way. In fact, a recent book details its ignominious history and goes so far as to label it the worst car in history (see Yugo: The Rise and Fall of the Worst Car in History).

If Tata plans to sell the Nano in developed markets (it has stated that it will), it best make sure that it overcome the quality issues that currently dog it – not only the perceptions, but now, the reality. In fact, after digging a bit deeper into the Nano, I discovered that this was not the first problem of its kind. There have been four similar occurrences. That may not sound like many, but when you’ve only sold 30,000 units, it is more than a minor issue.

Let’s not also forget that Tata is the owner of Jaguar and Rover (see Buyer’s Remorse). Although I am not privy to financial performance data for Jaguar or Rover, my understanding is that the two brands have been underperforming (see Jaguar/Rover Revisited or Indian Firms’ Foreign Purchases). Of additional concern for Tata is that the fallout from Nano spillover to consumer perceptions of Jaguar and Rover.

Add that to Tata’s growing list of headaches…

If you believe everything you read in the New York Times, you’d think that China is about to wrestle away the technological leadership position from Western firms (see China Drawing High-Tech Research from U.S.). There is no doubt that foreign firms are increasingly conducting research in China. But that stylized fact does not tell us anything about the kind of research activities that Western firms are undertaking in China, or its likely impact on the technological dominance of Western firms.

According the Times article:

For years, many of China’s best and brightest left for the United States, where high-tech industry was more cutting-edge. But Mark R. Pinto is moving in the opposite direction.

Mr. Pinto is the first chief technology officer of a major American tech company to move to China. The company, Applied Materials, is one of Silicon Valley’s most prominent firms. It supplied equipment used to perfect the first computer chips. Today, it is the world’s biggest supplier of the equipment used to make semiconductors, solar panels and flat-panel displays.

In addition to moving Mr. Pinto and his family to Beijing in January, Applied Materials, whose headquarters are in Santa Clara, Calif., has just built its newest and largest research labs here.

OK, solid reporting of the facts. The article then continues:

It is hardly alone. Companies — and their engineers — are being drawn here more and more as China develops a high-tech economy that increasingly competes directly with the United States.

Competes with the United States in what exactly?

Jobs? OK, I get that. These are research jobs that might otherwise be located in the U.S. But the fact remains that they could just as easily be located in other countries if not China – Malaysia, Indonesia, or India for example. So just because the facility is located in China doesn’t mean that it’s a zero-sum job competition with the U.S. This is acknowledged in the article:

Mr. Pinto said that the company was readjusting its work force as manufacturing shifted to Asia, but that the Xi’an facility involved a new approach to researching the design of an entire assembly line and was not replacing laboratories elsewhere.

So if it not a direct competition for U.S. jobs, is the article then suggesting that China is increasingly competing with the U.S. in the technological knowledge race? I think that is part of the implication. However, I am likewise skeptical about this conclusion, …and several key nuggets from the article itself discredit such an inference. Allow me to elaborate:

1. The fact remains, an American firm (Applied Materials, Nasdaq: AMAT) is making the investment. The shareholders of AMAT own the rights to the residuals of the local subsidiary. So the profits belong to the American investor. Not only that, but theoretically (although I realize it does not always work this way in practice), any productive knowledge that is developed at that facility likewise belongs to the American parent. AMAT has the right to use that knowledge however it wants and wherever it wishes. The counter-argument has been that knowledge invariably spills over to local firms, the local economy, and even AMAT’s Chinese employees. However, research is increasingly calling those knowledge transmission mechanisms into question. The host country does not benefit nearly as much as some have suggested, precisely because foreign firms are very careful about the types of knowledge they are willing to bring to the foreign country and are keen to protect their most valuable knowledge (not allowing it to leak).
2. Speaking of the types of activities (even if R&D activities) that foreign firms conduct in host countries like China, Western firms often bring low value-added activities to their foreign research facilities. The most valuable knowledge remains in the domestic research facilities (see Globalization Discontents and Globalization Revisited). Even the author of the New York Times article recognizes this: “Applied Materials continues to develop the electronic guts of its complex machines at laboratories in the United States and Europe. But putting all the machines together and figuring out processes to make them work in unison will be done in Xi’an.” So the assembly (low value-added activity) will be performed and researched in China. The design (high value-added activity) will be done in the West. This is consistent with the theory of comparative advantage.
3. The Chinese government is subsidizing the investment. According to the Times, “Locally, the Xi’an city government sold a 75-year land lease to Applied Materials at a deep discount and is reimbursing the company for roughly a quarter of the lab complex’s operating costs for five years, said Gang Zou, the site’s general manager.” You certainly can cry foul and argue that buying (artificially subsidizing) foreign investment is tantamount to unfair competition; but  again, at the end of the day, who is appropriating the value of the investment, China or AMAT (and by extension, it’s mostly U.S. shareholders)? I vote for the latter, as research is increasingly demonstrating that countries that buy foreign investment often do not receive the hoped-for benefits.

So while this article provided a nice read and some interesting factual nuggets about Western firms making R&D investments in China, I am not so sure I agree with the conclusion that, “Of course, China will lead everything.” No doubt, China is a country with a tremendous amount of potential and an increasingly skilled labor force; however, the fact remains that it is many, many years away from closing the technological capability gap with the West.

For those of you following GM developments, it appears that the sale of Saab to Spyker has now closed (see Spyker Closes Purchase of Saab).

Spyker Cars of the Netherlands closed a deal to buy Saab from General Motors for cash and shares worth $400m, saving the Swedish car brand from closure and ending a sale that has dragged on for more than a year.

Saab said on Tuesday it had exited liquidation proceedings, and that control of the brand had been returned to Jan Ake Jonsson, its chief executive. The carmaker had been in administration since February 2009, when GM said it planned to sell or wind it down as it prepared to file for bankruptcy protection in the U.S.

The deal…will save 3,400 jobs at Saab’s operations in Sweden and more at its 1,100 dealers. Saab and Spyker will now operate as sister companies under the umbrella of Euronext-listed Spyker Cars NV.

In other GM news, the agreed upon deal to sell Hummer to Sichuan Tengzhong Heavy Industrial Machines of China has fallen through (see GM to Close Hummer After Sale Fails).

General Motors said on Wednesday that it would shut down Hummer, the brand of big sport utility vehicles that became synonymous with the term gas guzzler, after a deal to sell it to a Chinese manufacturer fell apart.

The buyer, Sichuan Tengzhong Heavy Industrial Machines, said in a statement that it had withdrawn its bid because it was unable to receive approval from the Chinese government…

Tight financial markets also hurt the deal. When the commerce ministry did not bless the transaction, the well-capitalized Chinese banks became reluctant to lend money…

Interesting. Although Saab is certainly the more promising of the two GM castoffs, if you would have told me as little as six months ago that the Saab deal would close and the Hummer deal would collapse, I would probably have laughed it off as the low probability outcome.

GM was having real difficulty finding a buyer for Saab. The process was fraught with several starts and stops, included various “interested” buyers (e.g., Koenigsegg, Spyker), had the on-again/off-again support of the Swedish government, and survived the collapse of several negotiated agreements.

By contrast, the deal with Sichuan Tengzhong seemed swift and sound. I did not foresee cause for concern, even with the regulatory delay. And given the Chinese appetite for Western assets (see Chinese Acquisitions in the Auto Industry) and the government’s easy money policies (especially in housing, see Is China a Bubble Economy?), the deal looked like a pretty sure bet.

I can’t help but wonder then about the broader implication of “well-capitalized Chinese banks” becoming “reluctant to lend money”…

The New York Times ran a feature article on Sunday about China’s dominance of the alternative/clean energy space (see China Leading the Race to Make Clean Energy). Although the author points to some interesting stylized facts, not one suggests cause for concern.

China vaulted past competitors in Denmark, Germany, Spain and the United States last year to become the world’s largest maker of wind turbines, and is poised to expand even further this year.

MY COMMENT: So what? Does this make them the technological leaders in that space? No! Why? Because most of the technological advances in alternative energy (the knowledge creation portion of the value chain) are a product of the West – Europe and the U.S., …and to a lesser extent Japan and Korea.

China has also leapfrogged the West in the last two years to emerge as the world’s largest manufacturer of solar panels.

MY COMMENT: Again, why is this a bad thing? See above.

President Obama, in his State of the Union speech last week, sounded an alarm that the United States was falling behind other countries, especially China, on energy. “I do not accept a future where the jobs and industries of tomorrow take root beyond our borders — and I know you don’t either,” he told Congress.

These efforts to dominate renewable energy technologies raise the prospect that the West may someday trade its dependence on oil from the Mideast for a reliance on solar panels, wind turbines and other gear manufactured in China.

MY COMMENT: Nonsense. To the extent that China is reliant on the knowledge/technology developed in the West to manufacture equipment, it’s good for both sides. Western alternative energy firms have a market in which to sell their valuable knowledge and Chinese producers have a market to sell the output from the factories that use those productive knowledge inputs. This is how international trade works. In fact, without demand from the Chinese market, development costs for firms in the West would be much, much higher. This allows our alternative energy firms not only to prosper, but to create jobs in the nascent sector.

So although the title of the Times article is appropriate – China certainly is “making” more clean energy in the manufacturing sense, the West is specializing in the higher value-added, higher margin, higher growth activities (see Globalization Discontents and Globalization Revisited). I don’t know about you, but I’ll take the latter.

In the aftermath of Dubai World’s near default, The Economist magazine ran an interesting article that examines the so-called “Hybrid” organization (see The Rise of the Hybrid Company). According to the Economist:

The travails of Dubai Inc have left commentators struggling for the right phrase to describe Dubai World and its various siblings. They have come up with various formulations—state-controlled, state-supported, quasi-state, parastatal—without ever quite capturing what they are talking about. And Dubai is not the only place that is challenging the business vocabulary in this way.

Wherever you look you can see the proliferation of hybrid organisations that blur the line between the public and private sector. These are neither old-fashioned nationalised companies, designed to manage chunks of the economy, nor classic private-sector firms that sink or swim according to their own strength. Instead they are confusing entities that seem to flit between one world and another to suit their own purposes.

MY COMMENT: For examples from the U.S., see Fannie and Freddie, pre-nationalization. France, in the form of their national champions, also engages in the practice. So do many emerging economies: China (and their SOE’s), Russia, Malaysia, Vietnam, Brazil, etc.

What should we make of these hybrid organisations? Their supporters have long argued that they enjoy the best of both worlds: the security of the public sector and the derring-do of the private sector. They can use their global reach to provide their home countries with the pick of the world’s resources. They can borrow money at a favourable rate thanks to “implicit” government guarantees. They can use their political muscle to outperform their less well-connected rivals.

MY COMMENT: I have never been a fan of Publicly-Backed Private Companies (PBPC’s). Although they may be able to borrow at lower rates because they are “implicitly” backed by their home governments, they often grow too large, become too bureaucratic, and eventually crater under their own inefficiency (thereby costing home-country taxpayers dearly in the process). In addition, their objective function is not always clear. Are they meant to profit-maximize for shareholders/bondholders, or are they meant to serve a larger social purpose?

The most interesting part of the Dubai World saga (in contrast with Freddie and Fannie) is that the government of Dubai has seemingly repudiated Dubai World’s debt. So much for that “implicit” guarantee. If this becomes the norm rather than the exception, you can soon say goodbye to the last remaining benefit of Public-Private hybrid companies – the ability to borrow at favorable rates.

I have nothing, in principle, against government-backed companies. Although they are generally inefficient and often do not make sense, there are instances in which they might be appropriate — e.g., in instances of severe market failure. However, if there is severe market failure such that the government must become involved to prevent perverse societal outcomes, my intuition is that private companies operating in a system of more stringent governmental oversight and regulation perform better than a system comprised of public-private hybrids.

In this sense then, I agree with the conclusion of the Economist:

The clearer the line between the state and the private sector, the better it is for those on both sides.

I have enjoyed reading Thomas Friedman’s work over the years, but I have to say that I am not a big believer in the Flat World hypothesis. Although intellectually appealing in many ways, it is not supported by scientific evidence. Decades of international business research has demonstrated that companies that span national boundaries face enormous risks and challenges. Moreover, a casual glance at the popular press on just about any given day provides countless examples of companies whose international expansion efforts have foundered because they failed to account for the additional costs imposed by institutional distance (for background, see my posts So You Want to Do Business in  a Developing Country, Tata and Jaguar, Tesco’s Venture into the U.S.).

In fact, just this week I received an email from Mike Malone of ABC News calling my attention to a recent article addressing the Flat World debate (see Navigating a Flat and Bumpy World). Mike writes:

Despite the title of a best-selling book of a few years back, it turns out that the world isn’t flat. And, despite all of the leveling forces being unleashed by the Internet, global business and social networks, it won’t be getting any flatter in our lifetimes.

But don’t believe the growing legions of naysayers to Tom Friedman’s book either, because nearly all of them begin by accepting his underlying premise … and then set out to debunk it by showing how pockets of entrenched cultural differences won’t succumb to Twitter and the iPhone.

As many recent stories have shown, if your business follows Friedman’s advice you are very likely to get blindsided by markets with rules that are alien — even antithetical — to our own.

Although Mike writes mostly about how technology impacts globalization and tries to find common ground between those who adhere to a Flat World view and those who subscribe to a Spiky World view, I thought his opening salvo (quoted above) was spot on.

Another good example of how the world is not so flat can be found in Qantas’s latest trouble in Vietnam (see Jetstar Creates a Jet Stir in Vietnam, ht Steve). According to Crikey:

The $US50 million ($A53.9 million) Qantas investment in Jetstar Pacific has flown into an ideological chasm in the ranks of the Communist Party and government in Vietnam and it isn’t clear how it can escape.

…ideologues in the [Vietnamese Communist] party are waging a glorious struggle against the oppression of the people and their cultural identity from the subversive forces of global capitalism, or words to that effect.

And if that weren’t enough evidence, last week BA and Iberia formally announced that they will merge (see Uniting in the Sky). What strikes me as interesting is not the deal itself, as I actually think that this deal makes a fair bit of operational sense. The potential for synergies are enormous. However, what struck me as odd is that BA and Iberia will be maintaining separate corporate offices and operations (one in Spain and one in the UK):

…while the pair will combine their businesses they will maintain separate corporate operations. This will allow both to maintain their roles as the national flag-carriers while keeping valuable bilateral international landing rights that go along with that status.

That may be; however, maintaining separate operations will also keep their costs elevated and reduce their competitiveness in a market that is often characterized as global. If companies can’t find a way to benefit from economies of scale in a global, homogeneous goods market like the airline industry (or even the automobile industry), …how flat is the world, really??

The Economist posted a nice chart this week of the number of mentions of the word “Globalization” in their magazine since 1979 (see Going Global).

It seems that the number of mentions grew briskly through the dawning of the new millennium, with a drop off after the dotcom bust. The number of mentions picked up once again from 2005-2007, but has tailed off since the start of the financial crisis.

In order to see if these numbers were consistent with mentions of the term “Globalization” at large, I checked the number of mentions in Google Trends.

Although the Google Trends data go back only to 2004, somewhat interestingly, it seems that Globalization as a search term has been decreasing steadily from 2004-2009.

I wonder if the differences across charts speak to the differences in interests between the readership of a specialized economics magazine and the general populous, …or if The Economist is missing the boat, dedicating more time and attention to topics that readers are increasingly uninterested in?

Personally, I think Globalization is not only an interesting phenomenon in its own right, but given the global nature of the financial crisis, an especially timely topic for debate. It should not be a surprise where I stand on that debate. I have long been a proponent of Globalization (see Globalization and its Discontents, Globalization Revisited, or Interview in the Effective Executive).

Oops, I may have just answered my own question.