Whither Global Inequality? Reviving an Old DebatePublished: June 30, 2004 in Knowledge@Wharton
Recently in New York City, a panel of academics and business executives offered insights on this age-old debate at the Global Business Forum organized by the Lauder Institute Alumni Association. The panelists included Lynn Hollen Lees, a professor of history at the University of Pennsylvania; Richard Sabot, CEO of Eziba.com; Linda Rottenberg, CEO of Endeavor; Papa Ndiaye, director of The African Fund; and Richard Herring, director of the Lauder Institute of Management and International Studies.
“History is relevant and useful if we want to understand the causes of inequality,” noted the first speaker. She explained that the main tool economic historians use to understand inequality is the Kuznets curve, named after Simon Kuznets, the Nobel Prize-winning economist. The curve — which is shaped like an upside-down U — measures the relationship between income inequality and economic growth. Kuznets argued that agrarian societies are marked by low income inequality; as a country begins to industrialize, income inequality increases during the early years, but later it declines as the benefits of development spread across society. Research shows that this has indeed been the pattern of development in countries such as the U.S., Germany and Britain. (To promote frank discussion, Knowledge@Wharton covered the event, but agreed to not quote participants by name.)
“What does this mean for public policy?” asked the speaker. She explained that classical economists supposed that a society's savings rates drove development. To invest, the argument went, capitalists needed a disproportionate amount of money — in other words, inequality was a cause of growth. In fact, the historical record doesn’t support this. Instead of savings rates, technological change appears to be a greater driver of development. “It turns out that economic growth affects inequality, but inequality is only marginally related to growth,” she said.
The decline in inequality in developed countries hasn’t been automatic — it appears to be the result of investment in human capital by businesses and government. This suggests that governments should invest more in areas such as education, public health and housing.
Other panelists took a different perspective. For many developing countries, they argued, the immediate challenge is simply to foster economic growth as a way of creating jobs for the poor. And the vehicle for growth should be entrepreneurs rather than the government. “We’re seeing a change,” said one panelist. “Previously governments of developing countries thought of cutting up the pie to solve inequality. But they’re realizing it’s better to expand the pie and create new opportunities.”
One speaker’s approach to the challenge was to organize a group that identifies entrepreneurs in Latin America, gives them access to talent and advice, and then publicizes their stories as a way of encouraging local investors to support them. “There’s plenty of capital in many developing markets, but it’s not getting invested,” she said. “But when we’ve showed the big companies what entrepreneurs are doing, they have been stunned by the depth of talent in their countries. Once they see it, they are more willing to take a risk.”
The government of Senegal is one that is hoping that such ideas will yield results. One speaker, who has served as an economic advisor to Senegal’s president, described some of the changes occurring in his country. In 2000, a coalition of opposition parties defeated the previous, autocratic government in an election. This new government is attempting to reform the economy, privatizing state industries and severing the links between government and private business.
“Our government had a vision to simplify its role in the economy,” he said. “We are trying to create the proper incentives for a market economy and get out of the way.” He commented the regional economic integration will be especially important for countries like his. “When you’re a smaller country, you desperately need lower barriers to cross-border trade.”
Another panelist, who has studied the drivers of economic growth of Asian economies in the 1990s, agreed that small businesses need the right conditions to flourish. “Growth in Asia occurred with a reduction in inequality,” he said. “One lesson we’ve drawn from that experience is that the best way to promote growth is to create an environment in which you can empower entrepreneurs. The pool of talent in a developing economy is as great as anywhere else, but it needs macroeconomic stability, capital, mentoring and talent. Provide it, and remarkable things can happen.”
Building and Managing a Brand Globally
In another session at the Global Business Forum, a panel of marketing experts asked whether it is better to maintain one global brand, or many different local brands? It’s the question that has launched a thousand seminars. In favor of the single brand are tremendous economies of scale. The factors against it include the difficulty of creating a personal connection with a consumer. The answer offered by the panelists was a resounding, “it depends.”
In general, business-to-business products seem more susceptible to global branding, according to the panelists. However, here too regional brand equity often trumps consistency, particularly if the product serves a very traditionally minded market segment. In personal consumer products, on the other hand, the answer is even less clear. Some lines do quite well globally, panelists said, while others require a more local touch. For consumer brands, much of the question of how far a brand can scale depends largely on how much the brand touches a particular culture’s values, one panelist said.
Led by David Reibstein, a Wharton professor of marketing, the panel included A.G. Lafley, the president and CEO of Procter & Gamble; Jean Pierre Rosso, Chairman - CNH Global NV, the heavy equipment manufacturer; Phil Grabfield, chief marketing officer for Mercer Human Resource Consulting, and Randall Swope, director of marketing for production solutions products and graphic arts market at Xerox do Brasil.
For panelists working in complex global settings, the question of consistent branding around the world seemed a desirable but not essential goal. One panelist may have spoken for most of the panel in saying that at his company, creating a global brand was not a high priority. “For us, whether a brand is global or local, it is a means and not the end,” he said.
Another panelist said that of course a global brand would be ideal. Over the long term, it would be great, for example, to migrate one of his particularly European brands under the umbrella of a broader company brand, “but the reality of it is that you can’t write off the equity in your market. You can’t do it,” he said.
Yet while global brand consistency creates may create more value for the company by some measures, it also generates greater risks. For one thing, global branding can make local market segmentation more difficult. One panelist said that in order to keep selling a product that had failed in other markets but was doing well in one country’s submarket, he first decided to give it a different name - he didn’t want prospects to go on the Internet and find that the product had been discontinued in most of the world.
It also means that all public relations challenges are potentially global. Today, panelists advised, a problem anywhere can very quickly turn into problems everywhere. Unless executives are careful, the speed of communications today can quickly transform even a minor local story about damage allegedly caused by your product into global doubts about your brand.
When such a challenge arises, panelists said that it is important to react immediately. “You’ve just got to get out there and stop that stuff, because people will start to wonder about the brand,” one panelist explained. One speaker explained that if one of his company’s products breaks down in China, for example, they immediately let everyone know about it in the rest of the world.
The participants agreed that quality control is a key source of risk for the global company, particularly if the product in question is produced locally or regionally. Breakdowns in local feedback can lead to disastrous results for the brand, panelists said – and again, not only within the market where the problem arises but worldwide. “It’s probably the single biggest issue that a company like mine faces,” said one panelist.
In this context, silence is seldom golden. One executive said that when someone tells him that they have a little problem, but they can fix it, he knows he’s in for trouble. “Whenever somebody tells me we’re going to fix something, I know we’ve got a big problem,” he said.
Ultimately, the solution isn’t just a question of control, panelists said, it is communication. Teaching can also play a role. One of the panelists noted he tries to show workers by example the kind of work he likes to see. Whenever he visits an office in another country, he says he makes it a point to go out and talk to consumers. Not, he says, because his research will contribute anything of value, “but because I want the 100 [employees] that are there to see what I am doing and to do it,” he said.