The Virtual State Business, Government & Society Spring 2000

The Virtual State: Key “Non-Market” Global Trends n Globalization –“All nations want to join the international economy and participate in its growth” –Cooperation in global economy is required –National economies are not “self-determined” –Increase in world trade –Foreign direct investment increase 20 % of United States corporate production is outside of US growing faster than trade

INTERNATIONAL TRADE IN NEW HAMPSHIRE (data on one state) n In NH 1998 exports of $1.9 billion n 850+ manufacturers in NH export on a regular basis n NH ranks 7 th (of the 50 states) in the share of jobs in manufacturing dependent on exports (21 percent) n From 1993 to 1998 the dollar value of exports in the state increased 75 percent and NH led all New England states in export growth n Firms in industrial machinery, electronics and instrumentation account for 60 percent of all exports n The fastest growing exporting industries include transportation equipment (263%), electronics (206%), and fish & other marine products (214%)

Foreign Direct Investment in NH n Foreign direct investment accounts for over 7 percent of gross state product in New Hampshire n Overall more than 5 percent of the state’s workforce is employed by foreign companies, ranking NH 9 th of the 50 states n Foreign investment in the state is concentrated in high value-added manufacturing n Four of the state’s top fifteen largest manufacturing employers are foreign-owned

The Virtual State: Key Non-Market Trends, continued n “Head” nations --design products n “Body” nations --manufacture products –US and Japan are mixed economies –Hong Kong an example of a virtual state n Integration: of Head and Body national economies globally n Outsourcing: Corporations focus on core competencies and contract out globally for supplies and services –companies with strategic alliances are 50 % more productive

The Virtual State: Key Non-Market Trends n Peace and Economic Security as: –The least tangible and most mobile factors determine economic well being Labor, Capital & Information –Land and natural resources are of increasingly less economic importance and wars over these declining in likelihood

The Virtual State: Key Non-Market Trends n Balance between markets and government is essential –Asian and Russian financial crises demonstrated the need for independent and neutral political mechanisms to police banks and markets –Balance in US economy between industrial success on one hand and effective regulation and transparency on the other

The Virtual State: Key Non-Market Trends n Competitive Advantage of States is created not “natural” n Services are increasing in importance, particularly in virtual states n Both of above highlight importance of skilled labor & education

The Virtual State: Key Non-Market Trends n “At the ultimate stage competition among nations will be competition among educational systems” –the most productive and richest countries will be those with the best education and training n Social and Political Convergence and Integration: “Follows” economic forces

Group Presentations n What does Rosecrance mean by “virtual state”? (group 1) n What are key trends in technology and their implications for businesses? (2) n Identify key trends in international trade and the implications for US business? ( 3) n What are key trends in global production systems affecting businesses? (4)

Group Presentations n What are the primary roles of national (group 5) and international (group 6) government in the new economy? n What obligations do global businesses have to their "home" nations? (group 7) n What role and power do resident-citizens have in the new economy? (group 8)

In-Class Case Discussion n Alliance Aircraft (groups 7 & 8) –How does Alliance Aircraft’s corporate strategy fit in Rosecrance’s characterization of the virtual state? Does it confirm or contradict “virtual state theory”? –Why did Alliance Aircraft choose to locate in New Hampshire?

In-Class Case Discussion n Nashua Corporation (groups 5 & 6) –How does Nashua Corps’ experience fit in Rosecrance’s characterization of the virtual state? Does it confirm or contradict “virtual state theory”? –Who wins and loses with Nashua’s success and failure? –What (and who) will determine Nashua’s future?

In-Class Case Discussion n The Big Three “On-Line Parts Bazaar” (groups 3 & 4) –Would Rosecrance have predicted the Big Three’s part’s alliance? –How does it fit in his characterization of the virtual state? –Why is the FTC concerned? –Is the FTC fighting a “losing battle” against the virtual state?

In-Class Case Discussion n New Hampshire and the Virtual State (groups 1 & 2) –What are the implications for firms and managers in NH of the trends highlighted by Rosecrance? –What are the implications for government officials in NH of the trends highlighted? –What are the implications for workers in NH of the trends highlighted?