THE NEXT DECADE: MEGATRENDS THAT SHAPE GLOBAL COMMERCIAL RELATIONSHIPS

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THE NEXT DECADE MEGATRENDS THAT SHAPE GLOBAL
COMMERCIAL RELATIONSHIPS

• Tradewinds Forum
• 15 May 2007

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• The 40/40 Rule - - where are the future Top
  Corporates coming from?
  
• The 85/15 Rule - - who works who pays?
• The New Nationalism - - its more than
  geo-politics
  
• The Great Wealth Transfer - - 220 Bn/yr from
  US ALONE!
  
• The Energy/Environmental Challenge - -
  sustainable replacements for hydrocarbons energy
  security See all the above, 1-4!!

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• 6. What Are Some Key Execution Points for the
  global commercial/diplomatic partnership?
  

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The 40/40 Rule

• Every 40 months there is a 40 turnover among
  the members of the Business Week Global 1000. To
  be clear, 40 disappear and 400 new companies
  emerge.
• Why is this important?

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Countries with the Majority of Newly Listed
Companies
Total
18 18 16 10 10 9 8 6 6 5
The remaining came from Belgium (1), Brazil
(1), Canada (1), Israel (1), Italy (1), Malaysia
(2), Poland (2), and Switzerland (1).
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Newly Listed Companies in the Americas
Canada 1 U.S. 16 Mexico
6 Israel 2 Brazil 5

Chile 1 Total 31
Israel
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Newly Listed Companies in Asia Pacific
Japan 18 Korea 10 China/Hong
Kong 6 Taiwan 18 Thailand 3
Malaysia 5 Indonesia
1 Total 61
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Newly Listed Companies in Europe, Middle East
Africa
Ireland 1 U.K. 3 Belgium
1 Germany 2 France 1
Spain 1 Switzerland 1 Italy
3 Greece 2
15 Old Europe
Russia 9 Poland 2 Hungary 1
Austria 1 India 8 So
uth Africa 10
31 New Europe
Total of EMEA 46
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Foreign Listings in Each Exchange

• London 46
• London AIM 22
• Nasdaq 20
• New York 14
• Euronext 8.5
• Frankfurt, Hong Kong and Tokyo 0

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Global Foreign Transactions Number of IPOs

• Key Exchanges, National v International Listings
  (January December 2005)
  
• Source for all data Ernst Young/Thomson
  Financial
  
• Euronext, Frankfurt, Hong Kong, LSE, London AIM,
  Nasdaq, New York and Tokyo
  

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Euronext
12
London AIM
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London
14
New York
15
Nasdaq
16
Frankfurt
17
Hong Kong
18
Tokyo
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The 85/15 Rule

• The developed world (US/Canada, Western Europe,
  Japan, Australia/NZ)
  
• 15 of Population 85 of usable capital and
  technology
  
• Population is aging/depleting
• The emerging world
• 85 of Population 15 of usable capital and
  technology
  
• Population is aging, but trend is 20-40 years
  behind developed world
  

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The Most Important Number

• 2.1

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The Replacement Rate

• 2.1 is the Replacement Rate, or the birth
  rate required to keep the population constant in
  a developed country
  
• Birth Rates for selected countries, circa 2001
• Spain 1.1
• Italy 1.1
• Germany 1.3
• Japan 1.3
• China 1.4
• Korea 1.5
• United States 2.0
• Iran 2.1
• Turkey 2.3
• India 2.8
• Mexico 2.8

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Population Math _at_ 3.0 Birthrate

• Gen 0 Gen 1 Gen 2
• Pop 100mm 150mm 225mm
• M 50mm 75mm 112mm
• F 50mm 75mm 112mm

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Population Math _at_ 1.3 Birthrate

• Gen 0 Gen 1 Gen 2
• Pop 100mm 65mm 42mm
• M 50mm 32.5mm 21mm
• F 50mm 32.5mm 21mm
• (Russia, Spain, Italy, Germany, Japan)

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BRIC and W.Europe Birth Rates
Source UN World Population Prospectus 2004
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Future Surplus or Deficit In Working Age
Populations In 2020

• Losers Winners
• US -17 million India 47 million
• China -10 Philippines 5
• Japan -9 Indonesia 5
• Russia -6 Mexico 5
• Germany -3 Egypt 4
• France -3 Brazil 3
• Spain -3 Malaysia 1
• UK -2 Ireland 0
• Italy -2
• Australia -0.5

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Some FRIGHTENING CIS Data

• By 2050, Russia could lose up to 50 of its
  population
  
• First half 05, Russian population fell by
  500K
  
• Male life expectancy in Russia is 56
  (Bangladesh)
  
• Ten years ago male life expectancy was 63!
• More abortions than births in Russia every
  year
  
• WHO By 2020 more than 1 mn AIDS dead
• Due to incredible Hepititis C, alcoholism,
  etc., 10 mn are infertile
  
• 25 live below poverty line
• Russian is expelling 1000s of unwanteds

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Globalization is NOT Optional

• Movement of capital and technology from the
  developed to the emerging world, and the movement
  of people from the emerging to the developed
  world through exports, offshoring, and migration
• IT IS INESCAPABLE!

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Nationalism

• Russias national energy policy (Estonia,
  Ukraine, Georgia, Europe)
  
• Rejection of EU Constitution
• France sees yogurt as a national interest (see
  also, Arcelor/Mittal Sarkozys conservative
  speeches)
  
• China and Peoples State Assets Committees
  Ownership in so-called public companies (see,
  Occidental Petroleum)

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• Iran and Nuclear ambitions
• Where is the strength of collective action?
• NATO? UN? EU? OECD?
• What are the implications for the commercial
  diplomatic partnership?

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Wealth Transfer

• Energy demand has doubled in last 50 years -
  will continue to increase through 2025
  
• 85 of energy demand use of hydrocarbons
• Oil/barrel 2003 25 2007 50-70
• A 260 increase
• Every 5 increase in barrel a 100 million
  shift in US economy to pay for same amount of
  oil 60 of which leaves the US

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• US ALONE, annual wealth shift of 220 Billion
  per year - - NOT COUNTING ALL OTHER ENERGY
  IMPORTERS
  
• MEGA WEALTH TRANSFER UNDERWAY Losers - - US,
  Western Europe Winners - - CIS, Middle East
  
• A very under-publicized process that can have
  devastating long-term consequences

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The Energy/Environmental Challenge

• Daniel Yergins THE PRIZE the story of the
  last 150 years is all about oil and energy - - if
  anything the struggle is only worse now
  
• Issue of haves have nots will cause
  instability both geo-politically and commercially
  - - YOUD BETTER HAVE A STRATEGY

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The Energy/Environmental Challenge

• The search for sustainable alternatives - - Is
  there a Race? If there is, who will win it?
  What policies in the US could trigger a Wilsonian
  (14 Points) Roosveltian (WPA/WWII) Truman-esque
  (Marshall Plan) or Kennedy-esque (Man on the
  Moon) call to action? Tax Policy?
  Public-Private Partnership?
• Environmentalism will only complicate this
  China/India/Russia/versus US/Euro view
  (self-limiting behaviors)

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Execution Points

• Emerging Markets Looking Ahead
• Globalization is irreversible we are linked by
  our demographic destinies
  
• The political economy of globalization is well
  established a few remaining outcasts and the
  occasional backlash notwithstanding
  
• Ability to use globalization to drive higher
  returns depends on good understanding of, and
  playing in, emerging markets

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Execution Points

• A True Truism
• If you want to be a LEADER in your business in
  five years, youd better have a great strategy to
  be a market leader in the BRICs NOW - - Its
  almost too late!

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Execution Points

• Success in Emerging Markets
• Understand the historical cultural context
• Need to be sure to avoid looking
  post-colonialist or imperialist
  
• Commit resources to develop understanding
• Consistent, long-term presence in-country - - a
  MUST
  
• Develop locally-based human resources - - the
  FUTURE
  
• Critical success factor - - a network of
  partners but the right ones!!
  

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Execution Points

• What Investors Want
• Predictability
• Stability Security
• Even Playing Field
• Rule of Law/Property Rights (IPR, etc.)
• Control Corruption (or at least one stop shop)
• Transparency
• But, we seldom get this and many are betting
  against the curve anyway!!!

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Execution Points

• Trade barriers between North America and Europe
  are suicidal in the long-term
  
• Given demographics and energy sources, NA-Euro
  trade barriers create a negative feedback loop
  in the wider global commercial competition vs
  China, India CIS

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Execution Points

• Importance of the Commercial/Diplomatic
  Partnership to result in long-term change
  
• Living our values (transparency, fight
  corruption, protect IPR, share power knowledge)
  - - what is good for MNCs in emerging markets is
  generally good for local population (e.g.
  Ukraine)
• Giving voice to the silent local commercial
  populace (Professor Yassen real liberal, free
  market in CIS needs CIS commercial leaders to
  voice the vision but VERY difficult during a
  post-imperialist phase) - - Its not just in
  Russia China! (France, Germany, etc.)

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Thank you