[MUSIC] This is Mike Rosenberg's Strategy and Sustainability. We're in session two. We're actually going to do the last of these strategic issues, which companies need to look at. This is globalization. Globalization over the last 20, 25 years, has really changed the nature of business competition around the planet. The world is more connected than ever. We have different groupings with countries in different parts of the world. NAFTA in North America, the European Union, of course, the East African Economic Union and the West African Union. There's one in South Africa. All over the world there are these different groups of countries trying to come together to make their legislation similar, to make business, make it easier to do business across the countries. All of this has created the changing situation with respect to companies and their relation with the natural environment. This has to deal with issues of air and water pollution where the rules are different in different places. The level of inspection is different. It has to do with carbon emissions, different countries have given to the COP. The worldwide organization, which came together in Paris to agree on how to deal with climate change. So every country has given its national targets to comply with that. And there are different paths to doing that. So as you look around the world, there are very, very different rules in place. China is about to launch the biggest carbon trading scheme on the planet. So all of this changes the way you have to do business in different places. Waste management, both normal waste and toxic waste, it's different in different places. Product safety is different. The way companies engage with communities is different in different places. There is different legislation involved and different norms or different patterns of the way people talk to communities is also different. So it's really different. Workers safety, the rules are different in different places. Enforcement is very different. So for example in India and we'll be talking more about specific countries in session five and India's one of them. In India there's a very, very developed set of laws on the books. But enforcement is complicated, and in some places there is quite a lot of corruption. So not only do we have to look at the laws and the legal situation, but actually how many people are on the ground checking. And then what are their behaviors when their checking is also important. And even the way that companies can engage in the political process is different in different places. So when you put all that together, you have a very, very complicated mosaic of legal situation, and political situation, and cultural norms. As you do businesses around the world creating a lot of differences. One way to look at these differences, and this is a framework which is a little bit controversial, and it's not completely proven scientifically is what is called the Environmental Kuznets Curve. Kuznets was an economist, and he was looking at income inequality around the world. And he found that it had a u shape. Looking at this issue of the environment people have found that maybe it has an upside down u shape. And the basic idea, and again, I'll talk about the caveats, and why it's not exactly proven. Is poor people contaminate very little. Poor people go to bed at night. They don't have a lot of stuff. They don't drive cars. If they do, they don't drive them very far. So the point is, the environmental footprint of people who are very poor, people who live in agricultural societies is fairly low. As the society gets richer, as it moves into it's industrial phase more pollution happens. There's more production, people have more stuff, people use more energy. People consume more, and you have a much heightened environmental footprint. And that continues until people get wealthy enough to actually start to worry about the environment. So if you look at the air quality in the city of London. It's much better today than it was hundreds of years ago, because hundreds of years ago they only had coal. Now London's burning much cleaner energy, the people of London demand clean air. We talked about this a little bit earlier in session one. When we referred to the wave of legislation what came in the 1960s. As people get wealthier, they start to care and they pass laws, or they ask their government to pass laws, to protect the environment around them, yeah. And then as you get wealthier, the trade offs between cleaner energies or cleaner solutions and more dirty solutions become easier to make. And in theory society can get cleaner as it gets wealthier. So, if you look at an advanced, post industrial society mainly with a service economy. Perhaps it's going to be cleaner than that heavy industry society somewhere in the middle. Now, if you look at this around the world, you might take an African country and have it at the bottom part of the curve. You might look at China in the middle and perhaps Sweden or Norway at the edge. Now, this is the basic idea. Now what the caveat is, what the concern is, and if you look at San Francisco as an example. Yes, San Francisco is cleaner per unit of GDP, but they're really, really wealthy. So even though each dollar of wealth is cleaner, there's a lot more dollars so that the net pollution or the net carbon footprint is perhaps even greater than a society which is different, yeah. This is at the heart of the agreement with China whose carbon emissions are scheduled to peak sometime before 2030, and then drop off as the society gets cleaner. So this is a useful thing to think about, even though it does have some caveats. Just to finish with this session, or this segment, there's really three strategic choices for a company which is doing business all around the world. One is to comply with the highest level of regulations and concerns in all countries. So if you're a Swiss multinational, your Swiss regulation everywhere. This is a reasonable choice. The problem with that choice is you may find yourself uncompetitive if you're competing with people who are very much adapted to local conditions. Either within the legal environment, or even outside the legal environment, and we'll talk about that in the next session. A different choice, and many companies met this choice, is to be absolutely rigorous of complying with regulations in each and every country they do business. Whatever those regulations are. It's reasonable. It's legal, and maybe it makes sense. The last one is to just choose where to compete. Saying, well, I don't think that there's enough of an environment there for me to be successful. I cannot compete with these guys who are at a very, very different level of environmental standards, therefore I simply won't compete in that market. Henkel, for example, withdrew from the Chinese detergent business, because it didn't think it could be Henkel and still be in China. So these are three very different choices on how to deal with what I think is critical strategic issue, which is globalization. [MUSIC]
