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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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slide1

What Are the Real Gains from a Successful Doha Round?

Pankaj Ghemawat

WTO Workshop

November 2, 2010

© 2009 Pankaj Ghemawat

the way forward
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

how global are we
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

slide4

FDI/Gross Fixed Capital Formation

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

© 2010 Pankaj Ghemawat

slide5

Levels of Internationalization

Telephone calls

Immigrants

(to Population)

Direct investment

Equity investment

Exports

(to GDP)

40%

60%

20%

80%

100%

© 2010Pankaj Ghemawat

the way forward1
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

slide7

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

slide8

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

slide9

Cultural

Distance

Administrative

Distance

Economic

Distance

Geographic

Distance

The CAGE Distance Framework

© 2010 Pankaj Ghemawat

slide10

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
the way forward2
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

tcs latin america a case study

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

adding value the case of tcs latin america
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

adding value vs standard approaches
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

adding value through merchandise trade some additions
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

unimpressive projected gains
Unimpressive Projected Gains?
  • Agree and abandon
  • Avert gaze and carry on
  • Adjust baseline
  • Add to the categories of effects considered

© 2010 Pankaj Ghemawat

adding economic value by opening up
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

levers of value
Levers of Value

Volume

Competitive Advantage

  • Cost drivers
  • Differentiation drivers

Economic

Value

Margin

Industry

Attractiveness/

Bargaining Power

+

Uncertainty

/ Risk

Dynamics (Learning)

© 2010 Pankaj Ghemawat

a key question
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

adding value vs standard approaches1
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

the way forward3
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

adding value
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

strategic headroom
Strategic Headroom

© 2010 Pankaj Ghemawat

slide27

Source: www.cartoonstock.com

© 2010 Pankaj Ghemawat

slide28

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