Rise of the rest

By Chrystia Freeland
September 30, 2010

Get ready for the next wave of globalization. The emergence of the emerging markets is old news, of course: after all, Tom Friedman discovered that the world was flat back in 2005. But even as much of the developed world is struggling with weak consumer demand and stubbornly high levels of unemployment, the emerging market countries are writing a new chapter in the story of the global economy.

We are accustomed to thinking of our economic relationship with the countries Fareed Zakaria describes as “the rest” as a two-way exchange between west and east or north and south: western companies setting up call centers in India or manufacturing their goods in China, for instance; and, more recently, savings-rich emerging market economies, especially China, investing in US treasuries, or Russian oligarchs buying London mansions.

That was Globalisation 1.0. In the next stage, some of the biggest deals and some of the most important capital flows will be between emerging markets, with no need to stop-over at Heathrow or JFK. Forget the last decade’s race-to-the-bottom rivalry between Wall Street and the City of London to be the world’s financial capital; the new motto of the moneymen, as one Manhattan banker put it to me this week, is “Mumbai, Dubai, Shanghai or goodbye.”

One place you can watch Globalisation 2.0 gathering pace is on the 49th floor of the ‘C’ tower in the high-tech high-rise complex the locals call Moskva City, on the banks of the Moskva river, half a mile downstream from Russia’s White House, where Prime Minister Vladimir Putin is currently installed. The fancy modern furniture (the “Ziricote veneer,” a sign informs visitors, is “sourced in Chile”) and contemporary art are standard New York hedge fund decor. But Stephen Jennings, the 50 year-old New Zealander who receives visitors here, is betting on a world that by-passes the west altogether.

Jennings is a founder and CEO of the Renaissance Group, a Moscow-based financial company with ambitions to be the premier investment bank for intra-emerging market capital flows. As Jennings put it, he wants Renaissance “to provide the plumbing”.

Last year, Jennings went home to Wellington to deliver the annual Trotter lecture, a stage he used to lay out his vision of the rise of indigenous emerging market players. “Multinationals’ advantages in terms of know-how and capital have been neutralized by their inability or reluctance to grow explosively in complex, foreign environments,” he argued. “In many emerging markets and in an increasing number of industries, the market leaders have local roots. The largest metals group in the world is Indian. The largest aluminum group in the world is Russian … The fastest-growing and largest banks in China, Russia and Nigeria are all domestic.”

Jennings knows that emerging markets are “highly idiosyncratic.” But, he told me, some of the savviest emerging market champions seem to be discovering they have more in common with each other than with their erstwhile tutors in the west: “they have analogous business models and states of development … they are all culturally attuned to these fast-growing markets.”

One of the best examples is eight floors above Jennings’ office: DST, or Digital Sky Technologies, the Moscow-based internet investor which made a global splash with a landmark deal with Facebook. Earlier this year, DST formed a three-way partnership with Naspers, the South African media company, and Tencent, the Chinese internet firm. Together the three hope to dominate the emerging market internet space. Another seminal intra-emerging market deal was the acquisition by Bharti, the Indian telecom giant, of most of the African properties of Kuwait-based Zain.

A high-tech executive who lives in California and has close ties to Bharti told me the Indian firm has a competitive advantage over western rivals in what he believes will be the explosively growing African market: “They know how to provide mobile phones so much more cheaply than we do. In a place like Africa, how can western firms compete?”

It would be wrong, of course, to count the west out. Multinational behemoths like GE, Coca Cola and HSBC have been quick to understand the opportunity emerging markets represent and agile in adapting to local conditions. The reliability and the reputation of these global brands can make them appealing partners for even the most aggressive emerging market entrepreneurs. And when it comes to paradigm-shifting innovation, western companies like Apple and Facebook are still setting the international agenda.

In fact, it may be western politicians rather than western CEOs who will be blindsided by this coming wave of globalization. Lackluster economic growth and persistent unemployment are fueling protectionist sentiment in many developed countries, especially the US. At a time when emerging market countries and companies are getting better and better at doing business with one another, that impulse may not only be self-destructive. Even worse, it could be futile.


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Indeed, the world is becoming a smaller place. You can tell it by a simple fact that most of our friends and colleagues are spread all over the world. And it would not be a surprise to meet someone you know from Houston in Schiphol while you are on the business trip.
This trend, of course, forces the human capital to flow from one edge of the globe to the other – most likely the direction is from West to East. Which naturally leads to emerging of the “rest”. I can tell it from the perspective of a Kazakhstan resident.

Posted by nexus.kz | Report as abusive

Our politicians are quite controlled by those same global businesses. They will not be blind sided unless it’s politically pertinent to appear so.
Protectionist? I thought the governments main job was to protect the American people. It really bothers me that global industry has twisted the word and the deed as a bad thing. I think globalization in the biggest of pictures is a good thing. Just read Greg Easterbrook’s book Sonic Boom. But I’m also tired of hearing this trip of protectionism. We need a bit more of it. For the last decade big business, as they off-shored our jobs, has promised that things will get better, not worse. They lied. Just like their politician flunkies. In the last decade the American rich are far richer, and the poor are poorer. The gap is wider than it’s ever been and still growing. When was the last time we had a jobs report with growth of over 200,000? There is NOTHING that indicates that we will see this level of job growth ever again. We probably will, but it may be a generation or two. Again for all you extreme right/left/liberal/conservative labels, Globalization is good, just don’t let it destroy your neighbor. We didn’t elect people to help China, India and the third world countries prosper. We elected them to ensure we continue to. Obviously without some level of protectionism, the average American we will continue to decline. For Pete’s sake we’ve heard this crap for ten years.

Posted by tmc | Report as abusive

US Congress just yesterday passed a resolution demanding mainland China to stop manipulating Yuan – its national currency.

US/Fed is reportedly on verge of quantitaive easing; ie.
further devaluation of US dollar. Idea is to jump start US exports to emerging markets.

FT is reporting Repsol & Sinopec are investing in Petrobas new oil ventures issues in Brazil.

BRICs will inevitably go their own way if US/EU protectionism constraints their global tarde and development.

I’ve argued, beggers can’t be choosers!

Posted by hariknaidu | Report as abusive

Chrystia Freeland great to read your article. When I tell people I know in Netherlands about how Ghana is developing the reaction is like I am crazy. Most in the West are only inward looking and also still believe that the West is on top as usual. I believe that in a few year most Western professional will make a better chance finding Job in developing countries.

Posted by kedem | Report as abusive

The United States cannot survive nor embrace globalization. How can we compete with countries that dont have strict labor laws, human rights, corruption, higher education standards, cheaper labor, etc. The US worked very well post-globalization. We are doomed. I’m not. The average American doesnt even speak any foreign languages, and all they want to do is to continue building cars here. They ignore the fact that other countries offer cheaper labor, and those people dont require such a high standard of living. I hate to say this, but I feel like the only way to succeed in globalization is to start playing by the same rules as everyone else. Turn a blind eye to corruption, forget about human rights and equality, settle for a lower standard of living for the average American and lastly force our kids to stay in school and to study something valuable. Something like Engineering or becoming a doctor, certainly not Liberal Arts.

Posted by Jamal345 | Report as abusive

Chrystia Freeland demonstrated that she really understands our brave new world by writing “the new motto of the moneymen . . . is “Mumbai, Dubai, Shanghai or goodbye.”

Reuters’ video article of today, “Stock futures rise as Chinese manufacturing grows,” goes hand-in-hand with her article. In the past, when a recession ended, factories would hire American workers and that would start another round of prosperity. From now on, the end of recessions will signal foreign factories to start hiring workers outside of the USA.

Freeland then reverently whispered the FlatEarth philosophy of Tom Friedman, a member of the the NYT Magi of Davos, probably after crossing herself three times. The only thing flat about Friedman are his brain waves. His zealous support of outsourcing, along with his pal, Bill Gates, is a sign that he spends all of his time cavorting with the CEOs of multinational corporations. The rest of us live in a very different world.

Freeland wrote: “We are accustomed to thinking of our economic relationship with the countries Fareed Zakaria describes as ‘the rest’ as a two-way exchange between west and east or north and south: western companies setting up call centers in India or manufacturing their goods in China.”

This is not a two-way exchange, but a one-way street with American jobs, money, and prosperity going to China, India, and other third-world countries. In return we get customer service people who cannot understand English, dangerous drywall, toxic pet food, poisonous milk (melamine is a freebie), and other delicacies.

Freeland then pathetically attempted to scare us by writing that “[protectionism] . . . may not only be self-destructive. Even worse, it could be futile.”

To paraphrase Bill Clinton, that all depends on your definition of futile. According to the BLS, the underemployment rate is 26.2%. What happens when it reaches 30% . . . 40% . . . 50%? Wait, I know this one: the government will once again redefine unemployment.

The next charismatic leader will not be like Christine O’Donnell riding in on her broomstick to save the day. He might be a firebrand with words unemployed Americans can relate to: the Turner Diaries meets Red Dawn meets The Carpetbaggers.


Posted by saucymugwump | Report as abusive

“Globalization” is completely overblown.I took a look at the figures and was surprised to find how really small a part trade plays in the U.S. economy as opposed to say Germany.
Furthermore it is still the case that most developed countries invest in and trade with other developed countries.
Friedman’s book was poorly written, poorly argued , hype.

Posted by MHB | Report as abusive