In the aftermath of the global financial crisis, a new world
order is emerging. It is a world of rapidly shifting markets
characterized by changing patterns of trade, investment and
opportunity. The developing world is increasingly becoming an
important driver of the world's economy; South-South and
intra-regional trade are growing rapidly; supply chains are
changing; and opportunity exists in an environment where business
flows in every direction.
In April 2010, Robert Zoellick, President of the World Bank
Group, addressed the Woodrow Wilson Center for International
Scholars. 'If 1989 saw the end of the "Second World" with
communism's demise,' he said, 'then 2009 saw the end of what was
known as the "Third World".
'We are now in a new, fast-evolving multi-polar world economy -
in which some developing countries are emerging as economic powers;
others are moving towards becoming additional poles of growth; and
some are struggling to attain their potential within this new
system - where North and South, East and West are now points on a
compass, not economic destinies,' Mr Zoellick said.
The world has become one of greater connectedness. Nations and
businesses previously perceived to be competitors are now becoming
collaborators or connectors, and developing countries see
opportunity in their immediate neighbours, not just traditional
markets far away.
It is a view shared by experts
around the globe, including Jim Hemerling, co-author of
Globality: Competing with Everyone, from Everywhere, for
Everything. Mr Hemerling, a San Francisco-based Senior Partner
and Managing Director at the Boston Consulting Group (BCG), and his
colleagues have been heralding the currents shifts in global trade
for a number of years.
From globalization to
'"Globality" is really our term for a multi-polar world or a
multilateral globe. It is not a new and different term for
globalization but for what comes after it,' says Mr Hemerling.
The era of globalization was characterized by the expansion of
large corporations in North America, Europe and Japan that sought
to sell their products into developing markets, and also to lower
costs through outsourcing certain aspects of their operations.
Companies in rapidly developing economies played mostly supporting
roles as vendors and suppliers. The era of globality is
characterized by the rise of companies that are based in rapidly
developing economies and do business in new, and often very
Globality is not about the expansion of business activity from
West to East, but is a new and different global reality in which
companies will be 'competing with everyone from everywhere for
everything', as the subtitle of the book suggests. It is a
different kind of environment in which business flows in every
'And by everything, we mean just that - all the world's
resources and markets,' says Mr Hemerling. 'Everybody will be
trying to grab the same thing that everybody else wants: raw
materials, capital, knowledge, capabilities and, most importantly,
people: leaders, managers, workers, partners, collaborators,
suppliers and, of course, customers.'
National borders still matter
Pankaj Ghemawat, Professor of Global Strategy at the University
of Navarra (Spain) IESE Business School and author of
Redefining Global Strategy: Crossing Borders in a World Where
Differences Still Matter, warns that there is a need for
effective cross-border strategies.
He argues that while world trade is opening and becoming more
accessible, addressing the crucial balance between global and local
will often define success in an increasingly globalized world
economy. 'National borders still matter a lot for business
strategists. While identifying similarities from one place to the
next is essential, effective cross-border strategies will take
careful stock of differences as well,' he says.
New sources of demand
According to Mr Zoellick, the shifts are already taking place.
Asia's share of the global economy in purchasing power parity terms
has risen steadily from 7% in 1980 to 21% in 2008. Asia's stock
markets now account for 32% of global market capitalization, ahead
of the United States at 30% and Europe at 25%. Last year, China
overtook Germany to become the world's biggest exporter.
'Import numbers tell a revealing story: the developing world is
becoming a driver of the global economy. Much of the recovery in
world trade has been due to strong demand for imports among
developing countries,' said Mr Zoellick.
Developing country imports are already 2% higher than their
pre-crisis peak in April 2008. In contrast, the imports of
high-income countries are still 19% below that earlier high. Even
though developing world imports are about half of the imports of
high-income countries, they are growing at a much faster rate. As a
result, they accounted for more than half of the increase in world
import demand since 2000.1
Rise of middle classes in developing countries
'The world economy is
rebalancing,' said Mr Zoellick. 'We are witnessing a move towards
multiple poles of growth as middle classes grow in developing
countries, billions of people join the world economy and new
patterns of integration combine regional intensification with
The developing world's share of global gross domestic product
(GDP) in purchasing power parity terms increased from 33.7% in 1980
to 43.4% in 2010. Developing countries are likely to show robust
growth rates over the next five years and beyond. Sub-Saharan
Africa could grow by an average of more than 6% to 2015 while South
Asia, where half the world's poor live, could grow by as much as 7%
a year over the same period.
South-East Asia has become a middle-income region of almost 600
million people with growing ties to India and China, deepening ties
with Japan, Republic of Korea and Australia, and continuing links
through global sourcing to North America and Europe.
In the Latin American and Caribbean region, 60 million people
were lifted from poverty between 2002 and 2008 and a growing middle
class boosted import volumes at an annual rate of
Increases in South-South trade
According to the United Nations Conference on Trade and
Development (UNCTAD), South-South merchandise trade accounted for
more than 10% of world trade imports in 1995 and, by 2008, this
share had almost doubled to nearly 20% valued at US$ 3.1
UNCTAD figures indicate that more than 70% of South-South trade
is attributed to intra-Asian trade, about 6% to intra-trade between
Latin American and Caribbean countries, and 2% to intra-African
trade. The top traders in South-South trade, especially
intra-regional trade, are Brazil, China, India, Republic of Korea,
Singapore and Saudi Arabia, with China accounting for the largest
share (more than 40%). This demonstrates that there is a huge
potential to expand South-South trade, especially in Africa, Latin
America and the Caribbean, as well as inter- and intra-regional
trade, to a group of developing countries much wider than the
economies of the BRIC (Brazil, Russian Federation, India, China)
countries. (See page 22.)
Shifts in foreign investment and finance
According to the 2010 Foreign Direct Investment Confidence
Index published by global consultancy firm A.T. Kearney,
several emerging markets are attractive to foreign investors.
The index tracks the impact of probable political, economic and
regulatory changes on the investment intentions and preferences of
top companies around the world. China, India and Brazil are in the
top five, while emerging markets with large consumer bases, such as
Indonesia and Viet Nam, also rank highly.
'These developments illustrate a trend in this year's index: a
flight to safety among international investors that benefits large
emerging economies and established, developed ones. In the midst of
the greatest period of economic dislocation since the Great
Depression, these economies are judged to have the scale, depth,
and in the case of emerging markets, growth potential to weather
the storm,' said Paul Laudicina, A.T. Kearney global Managing
Officer and Chairman recently.3
The global financial crisis has also changed the world's
perspective on financial security. With the tumbling of traditional
finance structures in developed countries, the financial systems in
developing countries have been 'recalibrated' as sound options,
inducing greater confidence to invest.
'The global financial crisis
accentuated the shift that was already present before the crisis
arose,' says Peter Munro, Partner and Head of the Financial
Institutions Group, A.T. Kearney Australia. 'So there has been a
general strengthening of developing economies now that the
investment capacity of Northern America and Western Europe has been
hit quite severely. I think that it just accelerated the move
towards emerging economies.
'The requirements for infrastructure and investment will be a
significant economic driver in emerging markets,' Mr Munro adds.
Investment from China and India into Africa is taking a new shape
with more long-term partnering options explored rather than solely
resources-based deals. Local capacity building and sustainability
are in most cases now a given rather than an add-on. (See page
The challenge for governments in developing and emerging
economies is to ensure that the business and regulatory environment
is in place to support long-term domestic growth and not just
The impact of technology on supply chains
Global supply chains are also reconfiguring as companies rethink
their current systems and supply chains against a backdrop of
technology changes and mounting social and environmental concerns.
'Supply chains are not just the straightforward economic equation
they once were,' says Mr Munro. 'Economic and social factors are
now being taken into consideration.'
Technology has enabled what Mr Hemerling and his peers refer to
as 'unprecedented global access'. 'When the Japanese had to compete
and globalize, it was very difficult for them to get any
information about foreign markets or to get access to those
markets. But today you have phenomenally open access, partly
enabled through telecommunications and the Internet. There are also
more global markets - for ideas, the exchange of intellectual
property, global access to capital markets and to talent - and then
all of this is enabled by technology as well as much more trade
friendly policy,' he says.
Those changes are creating new opportunities for companies -
large and small - across the globe. Global telecommunications
giants have foreseen opportunities in the developing world for many
years and have invested heavily in establishing a sustainable
presence in perceived emerging markets. Importantly, this presents
an opportunity for local suppliers as well as the rapid expansion
of business previously constrained by geography. The most obvious
example, according to Mr Hemerling, is the rise of mobile
telephones in China, India, across Asia and now in Africa.
'This is leapfrogging where there is no fixed line
infrastructure. It is creating opportunities for mobile commerce
and the dissemination of information about markets. These companies
are able to cut out the middlemen when they go to sell their
products and give them access to markets,' he says.
The Internet and use of social media have also made it a lot
easier for small companies to tackle the challenge of visibility
and establish a reputation. 'It has become a lot easier for smaller
companies to hit the radar of large corporations, and many of the
clients we work with are increasingly looking overseas towards
smaller suppliers where they may not have done so in the past. That
trend creates a whole series of opportunities for SMEs [small and
medium-sized enterprises] particularly in the technology and
outsourcing sectors,' says Mr Munro.
'SMEs seem to be able to compete quite effectively in the
technology sector because they can afford to be more focused and
can get into market trends a bit earlier than larger companies.
They can concentrate on narrower segments and I think that is an
advantage,' he says.
The unique origin that these companies operate in means there is
a large, low-cost labour pool and often access to other low-cost
resources. 'That is at the core of the advantage,' says Mr
Hemerling. 'The other reality is that the companies that are in the
developing markets have the home-court advantage. They are in the
markets that are growing quickly. The analogy being that if you can
put your boat in the river and row with the current, you will go a
lot further, a lot faster.'
The new wave of 'global challengers'
'Today's shifts open new opportunities,' said Mr Zoellick. Jim
Hemerling and his peers agree. 'There are certainly challenges, but
in many ways the challenges create the opportunities. There has
been a lot of emphasis placed on the rise of the developing
countries as economies, but our book chose to focus much more on
those that have achieved success through taking advantage of the
inherent features of their countries of origin and also some of the
characteristics of the new global economy. We call them the "global
challengers",' he says.
According to Mr Hemerling and his colleagues, the rules of
global business have changed. For most companies, success in the
era of globalization will require a global transformation. The
global challengers are a set of successful companies identified by
BCG that have their origins in rapidly developing economies. They
have risen due to three unique factors:
The challengers are making their presence known worldwide - in
each other's markets, in markets that are less developed than their
own and increasingly in the developed markets. According to BCG,
there are 3,000 challenger companies (including Tata Group India,
Cemex Mexico and Goodbaby China) that have demonstrated significant
success and prominence in recent years. Mr Hemerling also points
out that many of the larger challenger companies started out as
small, entrepreneurial businesses.
Although this is not the first time that a set of competitors
from emerging economies have risen up to challenge the developed
markets, Mr Hemerling and his colleagues believe that this wave is
much bigger, far more significant and will have a greater effect on
the world than those that came before.
The emphasis needs to be on long-term empowerment of
communities, individual businesses and clusters of businesses in
developing countries, with a focus on creating new opportunities
for local industries and the consolidation of local and regional
1R.Zoellick, The End of the
Third World: Modernizing Mulitlateralism for a Multipolar World
(presentation to the Woodrow Wilson Center for International
Scholars, 14 April 2010).2Ibid.3P. Laudicina, 'Don't
Give up on Globalization', Bloomberg Businessweek, 26 April
What Companies must do in 'Globality'
To survive, compete and succeed in the age of globality, every
company - whether large or small, in developed or developing
markets - will have to compete according to a set of challenges and
difficulties referred to as the 'seven struggles':
Source: Sirkin, Harold L, James W. Hemerling and
Arindam K. Bhattacharya, Globality: Competing with Everyone from
Everywhere for Everything, Boston, BCG, 2008.
Article written by Kris McIntyre & David Faulks