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So regions are a very important feature of international interactions,

which has led some people to suggest that, you know, instead of talking about

globalization, let's just focus on regionalization, and on the fact that so

much of economic activity in particular occurs within regions.

That, I think would be going too far

beyond the data that I've just presented, for a couple of reasons.

First of all, just lumping things into three or

four or five broad regions leads to

a loss of granularity relative to taking a country-level distance perspective.

As an example, recall that Germany's trade intensity with

Spain is only one-fourth it's expert intensity to the Netherlands.

That's the kind of granularity that we'd miss out if we just painted all of

Europe with the same color.

Second, the notion of simply talking about a handful of regions,

also leads to a loss of the distance metric.

Again, echoing the point I just made.

Spain is much farther from the Neth, from Germany than is the Netherlands, but

if we just give up on distance and simply focus on whether two countries are in or

not in the same region we also lose that basis of predictive power.

Third if one thought that regionalization was the dynamic that

was guaranteed to persist in the future, well obviously, that would suggest an en,

end state in which regions would be increasingly separate from each other.

That might enhance the appeal of thinking about regionalization as

opposed to globalization.

But that's not what is happening in all cases.

So think back to the slide I put up on the evolution of merchandise trade.

Since 1960, we actually saw a drop off since,

in the last nine or 10 years in the percentage of

world exports that occur within regions as opposed to across regions.

That obviously since such deregionalization is feasible.

That obviously lessens the appeal of using regionalization in lieu of globalization

as a descriptor, as an overall descriptor of the dynamics that we're living through.

Fourth, taking a purely regional approach, also particularly,

is particularly bad for understanding certain kinds of interactions,

certain kinds of interactions that are driven mostly by differences rather than

similarities between countries.

So, think of the whole category of economic arbitrage which we're

going to get into in more detail in the next session.

Economic arbitrage sort of, you know,

poor countries selling labor intensive products to rich countries for instance.

Is something that in many respects, almost seems more to

encourage interregional trade, rather than within regional trade.

So, in other words, focusing just on regions, and arguing that,

you know, all the key interactions, or the most important interactions largely occur

within regions systematically slights interactions that are motivated by

differences between countries rather than similarities between countries.

A fifth reason is that, while there has been a lot of interest on the part

of companies in figuring out how to overlay a regional structure,

in terms of how they manage themselves.

Again, here the trends, the recent trends, are a little bit mixed.

One has people like Sir Martin Sorrell, the chairman of WPP,

arguing that many region bases strategies are simply unworkable, and

that it may in fact be more advantageous to focus on fifteen or

twenty key markets for many multinationals.

Because you can actually pay detailed attention to that few a number of markets

which is something that you might miss out on if you're taking a very broad approach.

And, then just trusting say, the African region head to figure out what he, or

she is going to do with the 50 odd countries in Africa.

And then finally, to call everything regionalization mixes up

different effects, different distances of various types in a way that

really frankly isn't helpful to strategy formulation.

And again there's much more data on this in the assigned reading for

this particular session.

But here, I've simply prepared a chart in which I summarize 24 cage dimensions.

And note that in each and

every case there's more similarity within the region than there is across regions.

So, what regions arguably really are picking up on is the notion that

when you look at two countries selected within a region, they are going to

be closer along most aspects of the CAGE framework, not just geographic distance

than two randomly selected countries from different parts of the world.

And so, regionalization in some sense, bundles together all the cage effects.

It's not a purely geographic phenomenon because we also see that cultural and

administrative commonalities and even to some extent, economic commonalities

are much more likely within regions than they are across regions.

So, regionalization is certainly a useful shorthand descriptor of much of what

we've seen happening on the globalization front over the last few decades.

But that said to treat regionalization as a synonym or a substitute for

globalization is to miss out sort of what's really going on underneath here,

which is that the same sort of distance elements that we've been

talking about throughout the globe course are what are responsible for

this regionalization phenomenon.

And so to simply black box them into regionalization,

misses out on important levels of granularity.

Misses out on important causal relationships that can actually be

managerially very important and that are going to be the topic of the last and

final video for this particular session.

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4. Issues with regionalization as globalization

Globalization of Business Enterprise

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