How are Different Capitalist Systems Coping with the Current Crisis

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How are Different Capitalist Systems Coping with
the Current Crisis?
2
Structure

• Extent of globalization
• Economic crisis 2008
• Investment in intangibles

3
Extent of Globalization international trade
In bn
World export
World import
Source World Development Indicators, 2005.
4
Extent of Globalization shares of countries and
regions in international trade
World share in export
in
Source International Trade Statistics 2004,
2004.
5
Extent of Globalization export-trade
in 2002 bn
Source Forrester (2004).
6
Extent of Globalization foreign direct
investments
Foreign direct investments 1992-2003
in of gross domestic investment
Source World Investment Report 2004, 2004.
7
Extent of Globalization capital flows

• Mobility of capital in historical perspective

Source Obsfeld, Taylor, 2002.
8
Extent of Globalization international
migrations
Average annual net migrations in the 1995-2000
period
in thousands
Source Global Policy Forum, 2005.
9
Structure

• Extent of globalization
• Economic crisis 2008
• Investments in intangibles and RD

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Decline of World Trade
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The Great Trade Collapse, 2008Q2-2009Q2
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GDP decline, OECD and G3, 2007Q1 2009Q2
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Reasons for decline of global demand?

• Prices of commodities (real estate)
• derivatives
• Collapse of Lehman Brothers
• Crisis of investment banks
• Losses on money market in the U.S.
• European banks Too big to fail and too big to
  save.
• fear ? wait to see ?decline of global demand

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Why was (is) the decline in world trade so large
compared with a fall in GDP?

• Effect of composition
• deferred goods (durables)
• Effect of synchronization
• Supply chain bullwhip effect
• Fall of Lehman bank ?uncertainty ? wait to see
• ? sudden finacial deadlock ? fall in deferred
  consumption
• BULWHIP EFFECT
• Because customer demand is rarely perfectly
  stable, businesses must forecast demand to
  properly position inventory and other resources.
  Forecasts are based on statistics, and they are
  rarely perfectly accurate. Because forecast
  errors are a given, companies often carry an
  inventory buffer called "safety stock". Moving up
  the supply chain from end-consumer to raw
  materials supplier, each supply chain participant
  has greater observed variation in demand and thus
  greater need for safety stock. In periods of
  falling demand, orders fall or stop to reduce
  inventory. The effect is that variations are
  amplified as one moves upstream in the supply
  chain (further from the customer).
• Example of supply chain and crisis
• When a U.S. household decides not to buy a
• 40,000 Cayenne sport utility vehicle from
  Germany,
• German exports to the United States go down by
  40,000,
• but Slovakian exports to Germany go down by
  perhaps
• half that amount, since while the final assembly
  is done in
• Leipzig, the coachwork is done in Bratislava. All
  this said,
• it really is the case that we dont fully
  understand the relative
• importance of the effects.

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Factors on the supply side

• Trade credits ? MODEST REDUCTION
• Bankruptcies in the supply chain? MODEST
• Protectionism ? IS INCREASING (NOT DRAMATICALLY
  YET)

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Different forms of capitalism basic
characteristics Pranikar, Redek, Koman, 2009
Developed capitalist models

• Anglo-Saxson liberal model (US vs. UK)
• Nordic model (Norway, Finnland Denmark, Sweden)
• Continental-European model (France vs. Germany )
• Mediterranean model (Italy vs. Spain)
• Japanese-Korean Model

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• Anglo-Saxon liberal model (US vs. UK)
• free market, government intervention is confined
  largely to monetary and fiscal policy, individual
  freedom

• Nordic model (Norway,Finnland, Dennmark, Sweden)
• emphasis on equality, co-operation and democracy
  combined with social aspects

• Mediterranean model (Italy vs. Spain)
• fairly developed social safety nets, southern
  mentality (importance lies in the way things are
  done, rather than the actual effect they produce)

• Japanese-Korean model
• Regulated capitalism with significant role of
  indicative planning and banking oriented
  financial system, conglomerate shape of
  industrial structure (keiretsu, chaebols),
  investments in intangibles (TQM, JIT...)

• Continental-European model (France vs. Germany)
• social market economy with corporativisem
  Deutschland AG indicative planning in France

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Transition models

• Baltic transition model (Latvia, Lithuania,
  Estonia)
• Transition model of countries of Ex-Yugoslavia
• Transition model of countries of Ex-Soviet Union
  (Russia, Kazakhstan, Ukraine)
• Chinese-Indian model

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• Baltic transition model (Latvia, Lithuania,
  Estonia)
• liberal transition (Washinton Consensus), low
  social security, cheap labor, restructuring via
  FDI and quick privatization

• Transition model of countries of Ex-Yugoslavia
• transition with delay, unfinished privatization,
  significant role of state in the economy

• Transition model of countries of Ex-Soviet Union
  (Russia, Kazakhstan, Ukraine)
• strong role of state, concentration of power and
  centralization with tendency to decentralization,
  low levels of social safety net and low income
  redistribution

• Chinese-Indian model
• Cheap and enormous labor force, very high rates
  of savings, underdeveloped consumers
  markets,growth driven by investments and export,
  strong role of party and casts

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Emergence of the global crisis and measures taken

• In US, UK, Kazakhstan, France and Germany first
  signs of cisis appear already in 2007
• In Denmark first signs are seen in the first half
  of 2008
• In other countries crisis emerged in the 3th or
  4th quater of 2008

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Measures taken

• Financial (first in US and UK)
• Fiscal
• --------------------------------------------------
  -----
• Other governments (mostly in the last quarter
  of 2008) have passed packages of measures that
  simultaneously tried to enhance the stability of
  the financial sector and ensure appropriate
  liquidity, while at the same time also Keynesian
  motivated measures forenhanced consumption were
  implemented.

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The scope of fiscal packages( BDP)
Percent
Average 2.8
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What can we expect in the future?

• No one has an answer ? the only correct answer ?
  forecast are uncertain
• Global crisis financial real estate crisis in
  the developed countries with huge debt trade
  crisis in other countries
• If it was only the crisis of trade and trust, we
  would need 2-4 quarters in order of world trade
  to return to earlier levels? middle of 2010

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If wealth effect dominates in G7?

• Examination of the aftermath of severe
  financial crises shows deep and lasting effects
  on asset prices, outputs, and employment (Rinhart
  in Rogoff, 2009)
• rises in unemployment extend out to five years
• declines in housing prices extend out to six
  years
• On the encouraging side, output declines on
  average last only two years.
• Even recessions sparked by financial crises do
  eventually end, albeit almost invariably
  accompanied by massive increases in government
  debt

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Unclear answers

• How important are large imbalances in world
  trade?
• as a cause of the derivative securities crisis in
  the U.S.
• as a cause of the emergence of new crises
  (depreciation of dolar)
• Unemployment in USA and Europe
• Protectionism

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Slovenia and SEEBank credits, Bole 2009

• Vir IFS, IMF nacionalne centralne banke lastni
  izracuni
• Pripomba Krediti domacim sektorjem brez drave v
  odstotkih BDP

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EUCollapse of external demand , Bole 2009

• Vir Eurostat lastni izracuni
• Pripomba Medletne stopnje rasti

31
Slovenia and SEE Foreign financial inflows Bole
2009

• Vir IFS, IMFnacionalne centralne banke lastni
  izracuni
• Pripomba Odstotki neto financnih pritokov
  (2008q1100)

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Slovenia and SEE Credit growth, Bole 2009

• Vir IFS, IMF nacionalne centralne banke lastni
  izracuni
• Pripomba Krediti domacim sektorjem brez drave
  tekoca rast na letni ravni JVE brez Srbije

33
Slovenia and SEE Industry production, Bole 2009

• Vir Economist EBRD WIIW nacionalne centralne
  banke lastni izracuni
• Pripomba Medletne stopnje rasti industrijske
  proizvodnje JVE ne vsebuje Albanije pri
  Albaniji realna rast dodane vrednosti v
  predelovalni dejavnosti (sektor D)

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Slovenia and SEE Unemployment, Bole 2009

• Vir Economist EBRD WIIW nacionalne centralne
  banke lastni izracuni
• Pripomba Sprememba (inkrement) registrirane
  nezaposlenosti na letni ravni

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Slovenia and SEEGDP and inflation in 2009-2010,
Bole 2009

• Vir IMF EBRD WIIW Eastern Europe Consensus
  Forecasts Economist nacionalne centralne banke
  EIPF

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Real BDP, Scheide 2009
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Germany A remarkable increase in exports (
cumulative between 2000 and 2008), Scheide, 2009
38
Germany Export composition investment goods
dominate, Scheide 2009
Agricultural
Others
Energy
Investment goods
Consumption goods
Intermediate goods
39
Unemployment, Scheide, 2009
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Germany Demand components correction in crisis,
Scheide, 2009
2000100
Forecast
Exports
Equipment
Private consumption
Construction
41
Germany The story of the V - curve can be
misleading if expectations do not improve,
production will be reduced, Scheide, 2009
Balance
Business situation
Expectations
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Budget Deficits Scheide, 2009
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Germany Budget Deficit at different levels of
Government Expenditures How to reach balanced
budget until 2016? Scheide, 2009
EUR billions
Government expenditures
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SLOVENIAN EXPORTERS IN ECONOMIC CRISISPranikar,
Cirman, Koman, Valentincic, Voje, 2009
How have financial and economic crises affected
your company (survey)?
Planned Export 2009 on Export 2008 -14
(initial), -6 (March), -9 (Sept.) ?
0,71 Planned Reevenues 2009 / Revenues 2008 ?
0,71 Number of changes in plans 2,21
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SLOVENIAN EXPORTERS IN ECONOMIC CRISISPranikar,
Cirman, Koman, Valentincic, Voje, 2009
How have financial and economic crises affected
your company (survey)?
Planned Export 2009 / Export 2008? 0,90 Planned
Revenues 2009 / Revenues 2009 ? 0,85 Number of
changes in plans 1,89
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Regression Analysis

• March 2009 more affected firms were
  fundamentally different from the less affected
  firms
• more employees, a larger share of revenue in
  foreign markets, more export to ex-SU, more
  finacial debt, companies with higher business
  debt per unit of output expected to carry out
  export activities easier
• September 2009 more affected firms are not
  significantly different from the less affected
  firms
• Only difference companies with higher business
  debt per unit of output less affected
• Conclusion crisis has affected all studied
  sectors
• also smaller more dynamic firms

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Importance of strategic alternatives for the
companies
-3 (very un-important) to 3 (very important)
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How and where?

• How?
• Sales of new products in existing markets,
  changing the structure of existing markets with
  existing products
• Where? (3 very attractive, -3 very
  unatractive)
• new marekts are not attractive ? sunk costs

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Conclusions

• The crisis is a combination of financial crisis
  and the crisis of global demand reduction
• Who are the winners i.e. lossers?
• Chinese-Indian model
• Anglo-Saxon and Nordic model
• Japanese-Korean model and Continental-European
  model
• Mediterranean model
• Ex-Yugoslav model
• Ex- Soviet model
• Baltic transition model

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Conclusion - continued

• The fall in external demand and credit crunch?
  huge falii in GDP in 2009 in SEE (except in
  Albania and Macedonia ?slow recovery, increase in
  unemployment
• Slow recovery in Germany beacuse of the drop in
  exports and in demand for investment
• Monetary policy
• How to reach balanced budget until 2010
• The crisis in Slovenia in general less affected
  firms with greater bussines debt (greater
  bargaining power)

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Structure

• Extent of globalization
• Economic crisis 2008
• Investments in intangibles

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Investment in intangibles

• Computerized information)
• Software and databases
• Innovative property
• Science RD
• Non-science RD (license, design..)
• Economic competencies
• Brand equity
• Firm specific human capital
• Organizational structure

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Linear and interactive innovation models and the
role of design (d)
Interactive innovation model with design (d)
RESEARCH (R)
Existing stock of knowledge (Universities,
institutes, firms, )
(D)
Sales KNOWING MARKETS MARKETING
CAPABILITIES (Market Brands)
INVENTION
Production
Potential markets
Exploratory development 6.3
Extended development 6.4
(d)
Designers and product leaders
Source Forbes, Wield, 2000, Amsden, Tschang,
2003.
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Increase Choice
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Theoretical backgroundCompetencies capabilities
CAPABILITIES

• Patterns of activities
• Utilize firms resources (physical, intellectual,
  cultural capital)
• Product and industry specific

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Tecnological, marketing and complementary
capabilities
Capabilities The use of scientific and
technological knowledge for R D products /
processes Competencies Practical theoretical
"know-how, methods, procedures, experience
TECHNOLOGICAL capabilities ? competencies
MARKETING capabilities ? competencies
Capabilities Knowledge and skills to create value
for customers and effectively respond to
marketing challenges Competencies Market
research, management of sales channels, customer
relationship management, forecasting and
responding to competitors' strategies
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Competencies in Slovene firms

• Good transfer of technological and marketing
  knowledge among business units
• The intensity, quality and extent of research and
  development knowledge transfer in co-operation
  with strategic partners
• Cost efficiency of product development
• Clearly defined activities of business units in
  the corporate strategy of our firm

TECHNOLOGICAL COMPETENCIES
MARKETING COMPETENCIES

• The development processes
• Advancement of RD
• Number of quality technological capabilities
• Sucessful prediction of technological trends
• Product development
• Time to develop an entirely new product
• Time to develop modernized product
• Production quality of a product
• Cost-effectiveness of development

• Obtaining information about changes of customer
  preferences and needs
• Acquisition of real time information about
  competitors
• Establishing and managing long-term customer
  relations
• Establishing and managing long-term relations
  with suppliers

COMPLEMENTRARY COMPETENCIES
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4 types of firms
Followers with more developed marketing
competencies
Followers with sound developed competencies
Immitators with pure competencies
Leaders
Technological competencies
Marketing competencies
Complementary competencies

• immitators
• Quality of products
• Business least successful companies

• Innovative firms
• Most successful firms
• Low uncertainty in the market

• Quality of products
• Do not forecast trends well
• Severe competition in the industry

• Failling behind primarily in terms of
  technological competence

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Technological and marketing capabilities in
Gorenje Inc. (Pranikar et al., 2008)

• Methodology
• Identification of core capabilities ? 5-step
  model
• 16 in-depth interviews, semi-structured
  questionnaires, qualitative analysis
• Technological capabilities
• Questionnaire, purposive sample of 22 experts
• 10-point scale for evaluation of
• capability relevance, probability of
  technological success and competitive position
• Marketing capabilities
• Questionnaire, purposive sample of 24 experts
• 10-point scale for evaluation of
• capability relevance, probability of attaining
  customer loyalty and competitive position

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Core technological capabilities in Gorenje Inc.
Source Own research, October 2004, n 22.
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Core technological capabilities in Gorenje Inc.
Source Own research, October 2004, n 22.
63
Core marketing capabilities in Gorenje Inc.
Source Own research, May 2006, n 24.
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Core marketing capabilities in Gorenje Inc.
Source Own research, May 2006, n 24.
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Identification of key core capabilities
Core MARKETING capabilities

• Core TECHNOLOGICAL
• capabilities

Design
Selling
Painting
Channel management
Assembly
Marketing communication
Sheet metal processing
Product development
Dimensioning
Electronics
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Complementary capabilities