Too_Many_Tools
Stainless
- Joined
- May 5, 2003
How can U.S. stay on top of the world? By Antoine van Agtmael Wed Mar 7
South Korean carmaker Hyundai recently had to deny newspaper reports that it is a leading candidate to take over Chrysler. True or not, it already has a $1.1 billion plant in Alabama and now beats Toyota in performance quality, according to the J.D. Power survey. Less than five years ago it was the joke of a Jay Leno show.
Hyundai is just one of the many profitable firms in emerging markets that produce just about everything consumers consume. Within hours of Apple CEO Steve Jobs' recent unveiling of the stylish new iPhone, shares in Taiwanese electronics giant Hon Hai Precision Industry shot up. Founded in 1974 as a marginal manufacturer of TV-set-tuning knobs, Hon Hai today produces PCs for Hewlett-Packard and Dell, PlayStation game consoles for Sony, motherboards for Intel, cellphone handsets for Nokia and Motorola, and now Apple's new iPhone. Other examples can be found everywhere.
While our attention was focused on the "new economy" a few years ago, "new economies" quietly stole the show. We are in the midst of the greatest shift in the global economy since the Industrial Revolution. This time, the economic epicenter is shifting away from the developed world to emerging markets in Asia, Eastern Europe, the Middle East and Latin America.
Market scare
Sharp moves in the Dow Jones used to scare or exhilarate investors worldwide. Last week's 416-point drop in the U.S. stock market, together with a sudden reversal in markets around the globe, was the first time that a sell-off in China triggered such a major loss in market values - one that was far larger than the entire Chinese market. It was not only an overdue reminder that investors get scared from time to time - usually after periods of over-enthusiasm - but also demonstrated the dramatic and growing impact of what I call the "Emerging Markets Century."
What are we in the USA and the rest of the developed world to make of the fact that so much of what we consume is produced in the former Third World? One thing is that America (but also Europe and Japan) will need to get used to the idea that we are no longer the center of the economic and political universe. Even more important, we should resist the knee-jerk reaction of protectionism that would likely stifle innovation.
Yet, in the USA, we have been slow to accept this new reality. Countries such as Mexico, South Korea and Russia are no longer basket cases in need of rescue. Emerging markets now own three-quarters of the world's foreign exchange reserves, and their purchases influence U.S. mortgage rates. The brain drain is reversing just as budget and current account deficits (the broadest measure of a nation's trade gap) have crossed over into the developed world.
The world is not flat; it is tilting, with the USA rapidly moving from unquestioned dominance to greater dependence. And this is only the beginning. Twenty-five years from now, emerging markets will make up more than half of the global economy (up from 21% today) as the General Electrics and Microsofts of the future will increasingly hail from these new economies.
More than ever, the global economy is not a zero-sum game. More handsets, refrigerators and beer are sold in emerging markets than in mature markets. U.S. exports to emerging markets have increased 338% over the past 20 years, much faster than domestic demand. One billion new consumers and investors will turn many emerging markets into middle-class economies. Smart American corporations are already seeking their growth in emerging markets. GE plans to double its sales in emerging markets from 15% to 30% by 2010. Goldman Sachs built an important franchise in China. Dell and GM increasingly produce in India and China for the local markets.
Maintaining our edge
But that is clearly not enough to keep our competitive edge. Many more corporations should develop a clear emerging-markets strategy, embed their young managers with local families (as Procter & Gamble already does), build crucial local relationships, establish international focus groups to tailor products to local tastes, and form business alliances with this new breed of companies. And our universities should focus more on creative problem solving and integrate study and work experience abroad if we want students to be comfortable with foreign languages and cultures.
When we look at history, a creative response has often succeeded where protectionism has failed. President Kennedy's inspiring call to put a man on the moon when Russia seemed to be "winning" provided the United States decades of technological superiority. Today, leading U.S. universities remain the best, while creative companies such as Google and Apple are more than competitive.
As a nation, we need a "National Competitiveness" campaign that sets ambitious goals such as developing a successor to the internal-combustion engine, but also tackles legacy issues (high cost of health and pension benefits for current, older and retired workers), places more emphasis on creativity in education and gives infrastructure a much-needed face lift. The choice between protectionism and a creative response to the tectonic shift in the global economy (and global power) could well become one of the key issues in the next presidential campaign. Instead of complaining and agonizing about this new competitive threat, our focus should be on turning it into an exciting opportunity.
Antoine van Agtmael is chairman and CEO of Emerging Markets Management, LLC. He recently published The Emerging Markets Century: How A New Breed of World-Class Companies is Overtaking the World.
South Korean carmaker Hyundai recently had to deny newspaper reports that it is a leading candidate to take over Chrysler. True or not, it already has a $1.1 billion plant in Alabama and now beats Toyota in performance quality, according to the J.D. Power survey. Less than five years ago it was the joke of a Jay Leno show.
Hyundai is just one of the many profitable firms in emerging markets that produce just about everything consumers consume. Within hours of Apple CEO Steve Jobs' recent unveiling of the stylish new iPhone, shares in Taiwanese electronics giant Hon Hai Precision Industry shot up. Founded in 1974 as a marginal manufacturer of TV-set-tuning knobs, Hon Hai today produces PCs for Hewlett-Packard and Dell, PlayStation game consoles for Sony, motherboards for Intel, cellphone handsets for Nokia and Motorola, and now Apple's new iPhone. Other examples can be found everywhere.
While our attention was focused on the "new economy" a few years ago, "new economies" quietly stole the show. We are in the midst of the greatest shift in the global economy since the Industrial Revolution. This time, the economic epicenter is shifting away from the developed world to emerging markets in Asia, Eastern Europe, the Middle East and Latin America.
Market scare
Sharp moves in the Dow Jones used to scare or exhilarate investors worldwide. Last week's 416-point drop in the U.S. stock market, together with a sudden reversal in markets around the globe, was the first time that a sell-off in China triggered such a major loss in market values - one that was far larger than the entire Chinese market. It was not only an overdue reminder that investors get scared from time to time - usually after periods of over-enthusiasm - but also demonstrated the dramatic and growing impact of what I call the "Emerging Markets Century."
What are we in the USA and the rest of the developed world to make of the fact that so much of what we consume is produced in the former Third World? One thing is that America (but also Europe and Japan) will need to get used to the idea that we are no longer the center of the economic and political universe. Even more important, we should resist the knee-jerk reaction of protectionism that would likely stifle innovation.
Yet, in the USA, we have been slow to accept this new reality. Countries such as Mexico, South Korea and Russia are no longer basket cases in need of rescue. Emerging markets now own three-quarters of the world's foreign exchange reserves, and their purchases influence U.S. mortgage rates. The brain drain is reversing just as budget and current account deficits (the broadest measure of a nation's trade gap) have crossed over into the developed world.
The world is not flat; it is tilting, with the USA rapidly moving from unquestioned dominance to greater dependence. And this is only the beginning. Twenty-five years from now, emerging markets will make up more than half of the global economy (up from 21% today) as the General Electrics and Microsofts of the future will increasingly hail from these new economies.
More than ever, the global economy is not a zero-sum game. More handsets, refrigerators and beer are sold in emerging markets than in mature markets. U.S. exports to emerging markets have increased 338% over the past 20 years, much faster than domestic demand. One billion new consumers and investors will turn many emerging markets into middle-class economies. Smart American corporations are already seeking their growth in emerging markets. GE plans to double its sales in emerging markets from 15% to 30% by 2010. Goldman Sachs built an important franchise in China. Dell and GM increasingly produce in India and China for the local markets.
Maintaining our edge
But that is clearly not enough to keep our competitive edge. Many more corporations should develop a clear emerging-markets strategy, embed their young managers with local families (as Procter & Gamble already does), build crucial local relationships, establish international focus groups to tailor products to local tastes, and form business alliances with this new breed of companies. And our universities should focus more on creative problem solving and integrate study and work experience abroad if we want students to be comfortable with foreign languages and cultures.
When we look at history, a creative response has often succeeded where protectionism has failed. President Kennedy's inspiring call to put a man on the moon when Russia seemed to be "winning" provided the United States decades of technological superiority. Today, leading U.S. universities remain the best, while creative companies such as Google and Apple are more than competitive.
As a nation, we need a "National Competitiveness" campaign that sets ambitious goals such as developing a successor to the internal-combustion engine, but also tackles legacy issues (high cost of health and pension benefits for current, older and retired workers), places more emphasis on creativity in education and gives infrastructure a much-needed face lift. The choice between protectionism and a creative response to the tectonic shift in the global economy (and global power) could well become one of the key issues in the next presidential campaign. Instead of complaining and agonizing about this new competitive threat, our focus should be on turning it into an exciting opportunity.
Antoine van Agtmael is chairman and CEO of Emerging Markets Management, LLC. He recently published The Emerging Markets Century: How A New Breed of World-Class Companies is Overtaking the World.
