September20th - PDF document

September20th lobalisation is entering a new phase, with emerging­marketting furiously against rhew Bishop asks what that will mean for capitg cap in hd to the sovereign­wealthundstate­ovestmenundsgdomovernmenxample of this seiusiness is Lenovoomput­r­maker. It beclobranhen it p1.7ersonal­computusinesompaniesncludinhinkPaaptoangovusinessenovadght to use the brand for †ears,opped it twearon†dencrand. It husueezlacFortuneorldwideeven16asearusart. We havlans to grow,ayuanqingenovhairman.eaompand to bad­siarkeuoyedgroatarf those inevelotries. These are lifomes of millions of peole to a levele they sart to splash out on every­w homes to cs to comput­eart to thersonsumersearsayenovo's chief executiveizonsarketsonomies,specialla and C LOBALISATIOsed to me, by anargeusinesxpanromeveloped to emerg economies. Nowectionsreasinglyvelopinusinesayboutcompeting with everyvery­e for everythinuthorslobality, a new book on this latesthalobalisastultingn of the times is the growingetFortunengorliggest †rms. Itandt 62, mostlrazilussidia1,exageapidly. On cendsging­markeompaniescount for one­third of the Fortuneisearsredictlobal think­tank run bccentureonsultancyreaging­markeompaniescquirintablish­worlusiness­s and brandagetark­stratinlobalisaongusd for ŒAmericsaasearudweiser,avourite beer, hghtgian­Brazilionglomerateeveral of America's leadintitutionvoiankruptcn audio interview with the author is at ww.economist.com/audiot of sources is at ww.economist.com/specialreporkets are producing examalism at its best. PagPagld multinationals think ttay ahead of the newcomers. Pagad capitalism carPagoming to gips with sovereign­wealthPag11new sort of invtnership.12s long as the protectionists don't spoil it.13 Also in this section cknowledgments n addition to those cited in this rt, the author isarticularateful for the insights, many of them o… tecord, of Hal Sirkin, Nandan Nilekani, Alvaro Rodriguezrragui, Bernard Charles, Joshua Ramo, Michelle Guthrie,jun Divecha, Len Blavatnikekselberg,alvinder Singh, Bill Ford, Michael Green, Lord Johnrowne, John Studzinski, Bill Rhodes, Diana Farrell,idman, Graham Mackey, Thor Bjorgolfsson, Ran, Nabil Habayeb, Diana Glassman, Dand Michael Patsalos Fo 1 e articles about globalisation are at ww.economist.com/globalisation 2ASeptember20th2008 21 apiatesalancusinestiviarlierpulous economies sh as Jan and South Korea and their handfhampioneatenhe old order at the time. eport will argue thlobalireatinugpportu­ities‹aeats‹fveloped­orlultinationals and new championslike. The macroecbulencatorld is noougosrobablicturundamen­allycomplicatDespitouplinavecentlowing more slowlyecauxposure to increasinglyautious American consumeroreoverh oil and food preatinationressuranymerginjoyearstable, low pes along wixtraordi­ide­e…ectapivelopmentathortagesso need to be tackled.After a long period in wlobalisationroductivityusineshallengverywhere, and esiallarketsreasing­y be to resourcroductivity‹usingaterialatientlyays Bob Hormatdmanachsvestmencheapeusetrapssuminbeaorecastsarketroadlracveloped economies geteethaompetitivattlegroundlobusi­essne is those new consumersftroductt far loricesen in more basmallerizan their developed­counerpartging­market †rms with ee of serving these consumery are belacro­uctveloped­worlompet­torenovoxampletervelopinorlarketcheapustomithaabs to become networkvationavlobalotentienovo's Chinese labuttecoveromputerystem within 60 secondrasentitries with an unreliableowupply. Known as ŒExpresepair,s is now being incorporattsomputerverywhere.he same loplva­usinesoodsd services to be deliverundamen­erenaywerosenovo, for exampleveloighlectivormula for selling tonsumerndia and America. se of the new championasroughgorouesponmaavt it waser worth ihile to competenovompeti­ewlett­Packarverywhereludinsionw­marginbusiness due tommitment to emerarkets:loydia,gainst 2,000 at the sadereaharlobalevenarkets8% now to 30% within †ears.lthougultinationevelousappegacostds‹†nancialpensionsalth­carabilitiesganisa­adquarters far awaarketsulturayng)‹theavdvantageat­y be a deep well of manage­xperienceging­marketackenovhownw to overcanagemeny hiring a group of seternation­xecutivesluding Mr Amelio, ananagerienovan hiring in­ernationanagerrouootsayangt to be positioned as a Companyt to be a truly gompanyad­uarterstinganagerotatoundorlvelopmeneamverentresrounorlorkinogetherirtually. The †rm's globarketint is in Bangalore.huge e…ort hde to inte­raterenulturituationsstentions;tentionderstandinderstespeculturerenceseadheetromotectiveeamworrosulturvenovarolinao allow him to learn more aulture and to improve his alreadpectabommanglisuaglobusiness.enovy to be­ole model for a successfulti­ationompanlobality 2 Deavalu Tayer 200nco do 18.7nadace,Brazil200er Grouemex SA 6.7200(12%) inu4.3itaina 200up 3.0ita200E Plasticdi ndusrp,Saud 3 The new giantsTen biggest Global 500 emerging-market Global 500 ReGazprom Russia Petrobras BraziPetronas Malaysia Indian Oil India 1 Sixty-two, and countingEmerging-market companies in th 200001020304050607 Non-BRIC BRIC September20th 21 eason to be optimisapitalismapitalism with aaceerhapenovhampions will become the †reed of truly globompaniesd in neither rich nor develoountriesealreaospportuniorlver.od and bapitalismptimisusti†edenovavbusinesodayongressearllocked the deal aauseearaluabtellecturopertyight fall inandovernment. Since then, China­bashingreaab­ashinavlockhetashingtoner more protectionist.ar is thppeverseapitcavidenct open ecenerally do beer than csed ones, thatarticuly more anenerallavreatecenearavtroyed,t to ouourcins tiny compared with thoechnologicvation.xplainghanufacturroductave opened nelantreensbord also Polane need to be cse to our customerately a new fddinrotectionistiment, turning evensuallthusiaslobapital­strotectionistd the rise ofhampiondvancapitalisxpenorms7 book, ŒGood Capitalism,apitalism and the Eros­ty and Groaumol,dentifyour main models of capitalisorltrepreneurialig­†rmgarchicdominated by a sall group of individ­als) and statost economies arixture of at leaso of these. Tconomiesuthorsig­†rmtrepreneuriapitalisorstombinagarctatapitalismrevalenarkets.s point out thatoughorporatquisitions and the invest­entvereign­wealundstatoftdemocralobapidlxpanding.ivamentabsttatter­usinessays does notearasilsmisauhat is happening is so nehavidence either way.overeign­wealundsisnterested only in getting a good rheir money anerhaps they will turn out to beources of good corporatovernancatienapitaldmirabontrast to therowinhort­termisstitu­vestorveloountries.haps they will not.gainenovouragingxampleargeshare­overnmenquisibusinessavd any troublingonsequencayovernmenestrained by io­inves­ors, two of America's leadinrivate­equ­ty †rms. Besideshampionayi†ed not by Lenovayaz­romougussitatbroatsut9 Chinese †rms in the Fortuneenovo is the Œonly one tharket­drivosopolperatatural­re­ourcdustriescope for politics and ction than inonst the very leastowintatrareden­ialreates a sense thompetitionging­economhampionnvestorh­countryy lose ouo less well­run compet­torubsidiapitalrivilegcessesourcupplies.o there is a rapitalismpreahe same time this latestultidirectionalhalobalisaotential for business to rtan­ardorl 7 AFARICOseholdorla it is. On Jountry'sospulbile­pompany,10.ustomersstharairobtocxchangeaisinveriggesuberingub­Saharasearlversubscribed, and Safharuicklse by 60%.ub­Sahara is ftsowardging­marketand­aganuub­isullish report on the conti­entsing, noting at the timehaub­Sahartockmarketexcludinghricastedrounarkeapi­alisaarl00 billion. evearentronymtockmarketectationecenallsart of this month Braziliharereovemdia'sussi9% and China'sendind or the Hong Kxchange, by 26% orage1Gold­redictt by the enouldccounloburchas­ng­pow); by 2007 their shareeadvestmenxpecturpass30.osonomistt this up­slrokurrenlowdownestricts. In 2005, for the †rstawnindustrialgeg economies accounte than half of globarkets are not mereneratinroducint are wnvestin, and thtartin kets are producing examples of capitalism at its best 4ASeptember20th2008 21 e on and bevelopedorlultinationals. As well aenovo,hampionsted by Ans book ŒThe Emeretlude Haier, a Chite­goodemexexicompanybraerraziliraft­makosystwareiant; and Ranbaxyan drug cany. The lig †rms in ŒGlobal­hangindustry also includes †rms suchabyhararket for babuga and aharatroup,onglomeratpanarsteeltware and tea.atelyatperationountriesigh­prquisitiont are funda­entallansforminompan868. In 2000 it boughondon­basedetley, an iconic tompanyter†ercidding war with razilianorusuropeompanyarcd $2.3 bor two legend­ry car businessesaguar and Land Rover.atquisitionse‡ectinowintrenham­y are bene†romavinargero†tabharast­rowinarketapielopmenarketsg economies‹not justtocxchangesarketoratbt‹has also mde it far easapital needed to expanbroaquallyh­counapitarketsowadaye open ttivelecruit­ging­markeewtocxchangg to listharanghtocxchange.orladinonsultantsawvestmens are courtingmerging­markegoavheir noses. McKinseyonsultancyasdvienovo on how tese and American culturGoldmanachpointttalagnate, to iard.atejectuggestiont it overpaidquisitionhargevveral of the new champions.sists it is payinusti†ed by itsong­tvestmenon and iosophentralisaativreedom to the manage­eams it acquiricallyeavlacequisiaguard are a cse in point. Short­tarkeressuravorco †rms thd done good workestructuringays Alan Roslingata'sBritish) chief strategistatork.eaptimisboutatowinlobeacsitiverences than ms peers ineveloountrieslaimosling.trategyarkgainsorld'sowdeash as Wu…ethawaytsubisapaneseonglomerate, and ayoslinghampionreasinglvativeusi­s models anroducttanceatonsultinounterpartosysiproargganisa­ion for outsourcinusinesrocesses,orlially this wairlw­tecperation,hrivinargela's low labourostreasinglywevervedntgher­valusinessesavs.ruggineeringot so long agoxcitinarketheapaboural †rms suppanufac­s and then services tvel­arkets and multinationalhattractionagarkets and transportosto up. No one expectalmartorlargesetailer, to rusly eˆcient supplhainringsollars­worth of Chinese goodsveloorlaysultinational †rms are looking forkerarketsg to a job ah as for loosts.ncreasinglyxcitingapidroonsumerarketsntrepreneurs to serve them. Already,ealthonsumerountriesavrovodsend to the worlad­ 4 Share prices, November 1st 2001=1002001030405060708 Brazil Russia India China `A' shares Hong Kong* September20th 21 S IT time to retirhragingarketter­iewed for this sal report think sourely South Korea, with sophisticatedsungullymerg. And Ceadasorlourth­largesonomy.arketates1981ecallan who inventeds trying third­Worlquiveloping­counhares…orts to attractantlebu…acking my brainassitive and invigoratinggingarketorluggesttagna­arketuggestro­resst and dynamism.at19ast­growingth­Eassiquiredsiigers‹until they ceasedrisi997­91J, chief ecishscrons for the net four cxpectigeaguerazilussia and Cayorea and Mexicoshouleallghemerginarketlassicse,y still d. We regarritical part of the modern gonomy.arch for de†nitivgourth three cate­ories for what used to be known as thirorld economies: advancging,econdg and fronarketswhicavtockmarkehapsEmerginarketlachereattasomics to marketcomesayurasirouptical­isonsultancyhaurelluussia. One Russiillionaire,ftambastinnsultinguggestsingh­growthconomsteaood‹buthaecesshatight call for a new tagubmergin Acronyms BRIC out all over randarketlasavy new championg.oldmalculatlass‹whicle with annal incomes ranginromowinsing. By 20, the bank predicts,nother 2 billion peoav. At inction of energy start, and aurchagher­valueonsurabe o…, so the growthd for these thineadontin­e for mearanagemene the rise of the emerging­markerahalad in his book, ŒTortune at the Bottom of the Pyramit to serve these neonsum­lasses and aom of the income pyramid‹com­anies will need new businesroductt are pro†table at muchowes than in rich carketsy be more at than their rich­countryivals at mesources‹Œfruggineering,arlohosnenault­Nis­s it. And it masier for aompantartinratcan for anstablisdsetostayrahalaapipreaelephononsumerarketsabxampledianarkeaderharghaowesorld‹arounentute for nationwialls‹yeugelro†tables to an innovativeusiness are outsourcultination­h as Ericsson and afaricom joins a group of emerging­arkebile­pombarkeapitalisarahalatimates at $500 billion. ŒPeoplebilised and provialue, can createmendouealusinessaydustriesang­gribusiness to heater to †nancehat it takes to succeedrahalaays he can noswuestions he posed seeargoauncyramiarket? Is it scalable? Is therro†ts there innovations there a globalpportunityeckons, †rms inmerginarketveloroductshatradyramid‹developingasgh­qualiroductseren­iatinustomers at di…erenvelddinhistles for the rich. Fstanceluorch­lighustomers and a ftter­o….at, is at the forefront of this frugal­ngineerinanuary it unveiledg­await, a new Œpeople'st will be sold for jushisusesulsinayoslingor is iceptintandardafetyvironmentssions. The ctatignechnololobeamvaatw the Nano asafternativentlavellinorcyclevelotries are alreadyssibd car fownause, being small, it is easark, the Nano will probablarketlready, new championh as AirTarrolladorexicanw­cossinglanningvativusinesg to other emerarketst they will transfer more easilveloping economies than fromevelopinveloo serve communighlyopulated and underserveahereeplicabusinesectiveayxecu­iveardicolaompany is investinn a joint venturalled Homex Ingyptianawiriusinesynasairoicolas is oneowinalenttrepre­avavtrepreneur­hip‹a very di…erenesourcillionairesging­marketusiness. A new 6ASeptember20th2008 21 y Tarun Khtre­reneura are Rhapinutures and Yverstatinumbersasdeaght.xampleigerionomyhowing more hoigneverades, oil and mining is a bigealt so are consumer­orientusi­razargetrepreneuritart­uplobbitionlean­enerxamplehandourordani­n who hedExddle­Eastrepreneurshiptarting to te hold throughououngealiadingdeaouto riches thdmittedlyenturapital is laggingtablish­resencarketosverywhervelopinorldtrepreneurtteran it weargo.ecent rise of the emerarketsh to the combinaloby and relativelibymakinantearsheaause at least three of the forcesecent economic boom no lon­plytrong American consap money and catesendorldconomy are highlightinigni†canerencaturourceshad to be grouped together as if thesentiallgenous.choks, this is puttinompetencymakeretestentiallations for the new championodity­ricrazil, for exampleatural­resources and the centraldetermination to be tougrealorld'strongess hurt Brazil­xporterh as the wiclaimedhampionbraeregionaletavrovxpectorlverelianca and Ca on imported oil, wovernmentave long been subsidisingonsumersavastyong­tonsequences.ging­markeolatilid economic policiesavg of the montging­markeadmittedlargorcinghem to concentratuttinostsais­roductivity and ensurintrongash‡owanagergingarketavd to develobili­roving very valuabo to a †rst­worlonomyhereroductivity is crucialayhristiInvestmentsrazil­rivate­equity †rm. ŒLook ashmiittal, who hrilliantlorlasdusxample is Carloritorazilian chief executiviantt $52 billion onuying America's Anheuser­Busch to be­orlargesrewer. Like Mrittalriteputation as an ef­ectivost­cutterhaulti­ationhampions are liky to aeat as easily as Anheuser­Busc 7 t very di…erent thinking if yanghubaian if you sorkayhaelannon­Brookesusromangalore to Shanghantreatlimate and culturroeally need to lie and breathemerginarketannon­Brooktratwlreatedgroarketganisationhichringogeperationsutsiestopeusinesearsttsiayxcitedly, noting tha now rs to Shanghai.ets, and indeed ahat it mes to belobompanyhangadi­asearsisanoompany's chief executive,avusinesranceribing his viion for thegloballtegratterpriultinationompanyadasoughairs19th­centernationth †rms bountryd selling gougverseaollowlassicultinationarentompanreatersiontselforlorked liked th19he is now building aims to rlact model with a singtegratedlobveeopywherorld,baghostghghusinesvironmend it in­egrates those operationzontallloballyaylacone best. Theorcd become irresistible,almisanobitioutratesponseompetigingarketsonal­omputusiness to Lenovelative­usinesd become coditissaulusinestsourc­startsatonsultiniproeatened to do seriouamage to whaalmisxpecte one of his main sourowth.o in 2004 boughaksers, and hargusi­le to competost and qualityvals. Indeed, believeshat all in all it now higni†canompetitors.g willing to matcw­costsentialrooksistthusiasmerginarketainlyabouroerresxecutivanpowerloyment­, also thinks the opportunitiesavings are dwindling. ŒWhen you seeayntietnamou think there iuchbitragerhapiggttraccord­ ld multinationals think ttay ahead of the newcomer September20th 21 , are the highly skilled peoan †nd in emerarketears,eargoets as pools of low­pricw­valw we see them as high­skills,igh­valueayannon­Brookultinationalar for tt is one of the moressingssuespeciallarketmerginarkets are causinxtremelyigatangalore, for empleiggesearreckontslobeact an edge in recruitmentetener local rivals.ayanagntellectual­proennialultinationaletspeciallhina‹wavutting­edgesearcabdiaa. And it itarting to Œloctsanagementludintsrocurement oˆcer and the heging­marketusineshina.t it han to moad­uarterom Armonk, Norkhere­burtonhiftadquarters to Dubasear.abuccesartnership with AirTel in the Inbile­parketh it headxtended to other Inanies and is liky to ttries. In this partnersman­h of AirTel's back­oˆcpera­s and sharompany. ŒWe grw as theow,ayannon­Brookes, noting ths now the largesroviustomerdia.isk­sharinorked well for otherultinationalodafone, for exam­hareholyoharma­euticantghtakdia'sanbaxboratreas­nglvolvtratartnershipatherenturaiichiearcvelopmenxpertirovicess to Jast­growingarkeanbaxyringsow­cosanufacturing and an untanding of the generics market.arketractiventiustomer is the govern­entrastructurharomiverythintworks to roads, energy and watupplyisitchinectlovern­entor this businesselyinablisranowinres­ging­counovern­ents‹even those tht are not strictlyemocratic‹tgh­qualityalue­rastructurestearoductsays aim to help governmentlanrovinountry‹plansvariablequirubstantialpendinompanoncerned.isco and havecentltartablishinroblem­solvinela­ionships with governmentrastructurro­amme as well as bd some or all of it. y my strategyeariscombtsmerging­markettiviinglet. Since then the sharevenuesarketcountinevendentifdustries and go tlueprint for a strategy to im­rovsinechnology to beatlobhmarks; this is aevolu­rementhangeayaulountforiscging­mar­etusines‹whicaunchintscomaginatrategy in 2003 hs bet bign a boom in green technologies‹simemorandderstandinationvelopment and Rommission to wy to safe­uarvironment. It alantorgelationth local govern­ties,avpulationf at leasm and will need everythingupply to an airport.ecentlyexecutivaveogether with Vietnovernmentscusugroblematerviationeaharo­ucts to sell. Aresidentd himself in the same room wiewer than three Vietnaderadersrogrammeroton­orkecallechnology and infrastruc­urerogrvitinovernmenusinesseaderarticulry to Crotonaunchede than a decgotartinansfearning, and we end upriends for lifayodaadinultinationals Œare noonglow­movinreatursed to bey are not gg to be beatenp like the bg American cereapaneseays Tom Houonsultanho now teacusinesankajhemawat, who lasublisell­received book, ŒRlobaltratalymerginarkeultinationalsavompetgesgainst local cham­tablishedultinationalvals on the segment you'reays Mr Hout. Establisnese and Westultinationalatgh­tectormy; the Chinese are strong at the low enattlegrounddle.s is quiterenonven­sdomh is thtablishedultinationals are gettinushed out bompaniesonclutudy by Accenturhina'sublicloundhat the best businesa are notar with the worloremostthougevenreaontin 8ASeptember20th2008 2 bility to createaluewalobalemains to be seen wa's best playeravanage­ractices and supportinusinessperating models tht will allow them teneratro†tabwth in more maturearketer the long ttudyt on to say.osthstandingtablishedultinationals are increasingly trying trugarketad­to­heaayhema­ultinationalavimplyelivroductvel­pinorlxplains. ŒIf they jusstleas,asonsumerarketging. And theavele to compete as cost­e…ectivelhe local †rmh can meunda­entalle­engineerinroductsusinesrecent report by , ŒThe Nexonsumerghlightativusiness models and productultinationalh as Nokia‹iggesbile­producpitrequenredictionill fall behind a local rival‹anroctamblemerging­markearcxcellenanagerssivactt to beanagementhougging­arket †rms are very well managargtablisultinationalaveckonshaxpatriatanagers now de­loyed by multinationalets are generallualityucketirement­post­g types they uressivemart, at the heart of their careers.d they torldlanagemenvessed to be. haultinationalanage­dvantagainingxperiencargusinessxposuradinultinationals are reducingheir use of expats, and those they dxpected to train a local manageruccessore is still a strikingxecutivarketsveloped­counultina­ionalen at h is wholeheart­ommitted to emerarkets,rounanagers. ŒThe singiggeshal­engestultinationals is theging­markexperiencanksayhemawaardrooms are evenlobaliccording to Clarkuseynoldsecruitmentultinationals now havferociouteresttractincanuro­eanarity, let alone directorrommerginarketharmericanardultinationals is less than 5%.he main problem Œis attendanceialle is a crisis and the bohort notice. Ogain,oldmavlevompromipointingaksal to id. The Indianoon is bondtenisitorkvestmentadquarters.uropean †rms are dlightlyettan their American counterpartnternationalisinardentlpointuptedianer who husetirorlvativeractitionerom­of­the­pyramianceadinritisompaniesavoreignerxecutiveuites and boardroomoreoverultinationalaveatroubetaininanagers they davarketsayWell­trained, good, honest peocarcarketultination­s are beer at trmerging­markeompaniesreferh them once they are trained. ounderging­markeressivek the depth of managemenalentf old multinationalsaytudentaughg and Shanghaveypicallorked for developed­countryultinationalroba is thompany‹evelecom, with iustomers‹tatus than a poliovrovince. And Canagersrotectedarketsk the skill tperatphisticatarketverseaupto­author with Haiyanorthcoming book, ŒGeghayecognitionanagemenapabilityavearaziliidding war for Cus, and wy no Chinese carmakerttle to baguoverreatadersssesompaniesasureompaniesaysuptrofestrategy at theniversiaryland.ertainlan †rms are eremely well run. The senior rata,xamplerofessiongerdians are in fwnershipd to †nd room for professiongers when you havveral sons de­andintatusayshemawat.erhapxamproblemwnership is therothersftugonglomerateelianceeen them. The dispute still sd by Reliancommunications,un by Anil Ambile­pompanwartedukeseliancendustries. No wrothers,e in the same opulenartmentuildingavaratvoidhancting 7 September20th 1 estusinessmenudleylearlk of the Kremlin. Nevert the four billionairhoseovritish chief execu­ivussiresented it ausinessputs of the oil joint ventureejectinde them Kremlin stooges. (One of themalistentlyes me, you arongirstewisd, I am rich. Tendent.) To the outsiorld, this wasugticalisvolvusinesussia.olitick is arguably more pervasiveundamenty than at aninceondorl. And not jusussilthougk is morevalenmerginarkets, it is not con†ned tuborlscover006 when it tried to britisayongresarlierhe Chinese Nation…shord tried and fuynocal, an American oil companyn 2006, wrceloruropeceglacispposiovernmentranceuxembourpainreferred to see their champi­e with a Russiompandiancelor'shairmt it. The deal wovernmeneatraDeveloped­counovernmentnexpectroubging­markeovern­entou are an oil or gompanayo you wgingarketdfall­pro†ay's John Ric, at the recenteavy­hanterventionystovernment.usinesaderorleckk is a freatrobarketskarrefourrencetailer,hoprotestsro­Tibeampaigneruptrogreslymporchhrougestern oil and mining companies,avintartrovavioura under pressurompetiussivalt seem willing to cuteals with esavticians. And hoestompeteen as an orosusinesshen there arertainging­markeovern­entttitude to the rule of lawtellecturounishedegulatorcement allow yompanupplontaminat­xamplearkeovert Chinese poer it hganicontained a banned pesticideghovernmenssterundamentals of your businessthoutonsultaecourse, as ofappenshina? Will iuddenlreakp local monoternativelouragormation, there is the traditionalsinovernmentsbandon sound †al and monetaryy at the †rbu­ence‹ie, any d. The leadinulti­ationalsisarkett to their long­termrorospectave to be inegardlesacroeco­omic policy risks. Gone for everist, is the shortsightabishingntarkets as they gt hot, anain at the †rt whi… of troubleesh is best?e is not monsensuad­usinesspeopticaliskerenonomies,hough they augerenceswever,razy far the rict of the four by in­emain­, with the neresidenected to continrovurrenacroecvelrivateubarketsigetrobrasbro on) anreasinglvativntrepreneurionomy.iggessagreementussiskyt is alro†tablepeciallayillionairenvestoransrai, don't likritisrencoreignerrobablvoidndust the Kremlin deemtrate­h are the? Oil ang,ertainlyig­ ad capitalism carisks September20th2008 2 pportunities lie. Technologyerciviationelecomshemicalgriculture are all Œgreaayurasiroup.haropertyreen­erg, is investinommerciroussiauseaystratdusovernmenarrabrantxecutivquiternationalasvestinarketinced­1990s with Sam Zropertyillionaire, is avoidinussiaut our arms ararticularlressed with India,ulturstitutional­btaininermitvelopment. As for China,e is a hugpportunibanisa­taverse, below the govern­adarargeowingingarketrovidviserambridgeesearcssociates to Oxforlytica. ŒThe extractivdustriese Shell, got the messagticaliseargoFortuneecent­ayremmerorporata are amonorsthapauanagement is su…ungineerontext for businesarketrove?t is encouraged by the experiences Engine in Cer of diesel engines hs done vgh­performancarketwn the scale tht fail tomply with locssions.owphisticatigher­quality civil servtartedrosecutinillowinmokeeplacttersing engines mde by Cumminsd other †rms fveloetettvelopintellecturoperty,tartinrotecrighten more seriouslyhouldoreign †rms too.s are beginning to sprinhroughouarketsandintandardusi­adera, for in­tanceressurettovernancorruptionveloped­counuts too are startinhallengapitalisxamphina­Africridgebangded by Hafsabiolaughtigeriresident, to improvet of Chinese busineseciallesourcdustries. ŒFor Africa,volvemenreatsersurrentlt will too offricdividuals who win, not commu­ountries, she sayarticu­, there havalingeen Chinese resources and leaderountriesludinudbiolouraghinao as it wd be done by in Africa.h as Microsofivovernmenequiredvesrastructurostvelop­ent, she saysa comes ta, it is not being required to transfernowledgromote local jobs.houga is certainluildinnfrastructure‹presumably to help it pro­aturesourcobbling up‹it ofringle to do the work.veloped­counultinationalsnt, it irucialy do not lotandarduptionaysel who recentlubliserformance with Hiteg­ty. ŒAre these multinationalorporattizens, to increaredibililobalisationskavingonsistentlthicallter­uccessfloblobulturesveryoneobustly to the same rules, elace the local canies do not.ompantartdoptintandaravorrosivoratulturelobxpansionging­markehampions is a ghing. As thereasinglperatountriesceptable, they will havbitandards.hareatressure within theses to rtandardk home. g well by doodarl1990sdoptandardshroughout the †rm, Œwe accepted it wosttweighirlwinat,ayetrotégésed to hugandroughtwn Siemens's cxecutivearked on this covernmentarted to enforcoreignractices act more vigorouslyan †rms asked it to lobbygainsawstead, Œwe sownaypecialligeriussiompany also proviarlundinransparencternation­ti­corrupeckontion is actuallingusinesvelopinautan­ards are rising‹or, at a minimubeaction to low etandardisinasarkets.aders feel under growinres­rastructuraysreasinglyderstandhation is a barrier trovingtandard they wt to do businesd more with an et there arovernmentshat are not striving for gapitalism.ussia, for examples it can uazpromompany, as annstrumeneopolitictrategies,eatening to turn o… suppeighbourint depend ond as emerging­counovern­entcumulatugoreieservesart to invesbroaoughovereign­wealundsveloapitalism will become in­reasinglverywhere 7 5 umbers indicate greater ability to absorb political sh 200405060708 Brazil September20th 1 verseavest­sionundered Wu Zhi­g on his blog, ŒThe Invisibingormanc3 billion investment by Cvestmentorporationvereign­wealablished by the Chinese governmentharlackstonerivate­quilackstharavelungtion in June 200takovernment's policy ofgoint‹investinbroaougtsanies and new sovereign­wealthundstead of at home waseeded‹wahowing o… to theorl: ŒChinese companiestartquirinusinesses here anorlountriesagon is coming'.vereign­wealundopult home, they are vieen more hostiliorld,avplashingasatelyundavrovidedeverp Wall Street †rms (s well auropevalsargenjectionasasear‹includ­itigroupeceivhabvestmenuthorityharobablavankruptcy or a Bear Stearns­styleorct it wontroversial.usavaughovereign­wealundyehabvestmenompanghhark's iconic Chrysleruildingatubadalhabntended to become one of iggesthareholders (see boage).ubriticisvereign­wealthundubsided a little as the crisiveloorlarketsateful for any can grivate there arlentyowinizowvereign­wealundsn an article in the Financiaimeslastearummers, a former Americreasretaryignalvenasuarter­cenarp decline in the extenecttatwnersusiness as the privateectwnershaereovernment­oetovernmentcumulatintakhaurelrivatougross­borvestmentivialled for a new policŒGov­rnmente very di…erentors. Their investmentsoverned by rules designedeality very clearlroblemrobusccording to the Trea­vereign­wealunds are Œalreadyargh to be systemicalligni†­cKinselobstitutrecent report forecasamareasessetvereign­wealundsears. It predictatsivereissetsood at $4., will rise teas7 trillion by 20onservativerossumptionso as m2.2 trillion if economic grontinuesasasearvereign­wealundtath as Russitedraatabiendhaappens to the pcKinseed at the impveralossibveragxtears, all below whaasg for in recenememberssetvereivestors will rise tom $4.6 trillion at the enf 2007 art 7, neage).hat are they gg to do with the money?unds become instrumentcantilisontrollingovernmenttempting Œto ensuratompany­levesultry­levaximisaonalon and CaupuggesecentStanforeviewpportunistic, as Larry Summersearsill they be politicallggressiveussieadaz­trictlpeakingvereign­ealertainlell­endowedorporattateundimplvestorsor nothing more sinister than a decentlier this year,taibhabectnternationairs, in an open leeasretaryt Œit importanbsolutelhabovernmenever use ivestmenganisationndividuvestmentoreign­policyool. And as Messrauptpitearshavereiunds will use their invest­ents to secechnology, gain accesaturesourcrovompeti­ivsiompanies,no one can point to a rdenceaviour.act, there is no sh thing as an aver­vereign­wealw,hina's; others havecadesuwaivestmentuthori195reatlizeiggest is hichssetoubleizxt­biggestorway's.sentiallassiveortfvestorss are more active,esemblinrivate­equiubernationapitdustri oming to gips with sovereign­wealt September20th2008 21 ubadalaonclurovisefulvereign­ealundapitalism.urrentlyompany and the in­estor are claiming they have is no doubtinbihe Gulf states as they set auildingrand­neubaslready become a croseen Las Vs and pre­strif, with iuxuryotelsternationentree and shoppinslandBuhabeighbour­cum­rivalbitiouslanringinigulturubackludinetouvre and Guggenheimen looking beyonittinuildinuturisticarbon­free city called Masdar.asdar is one of the kgredientubadaleed to be­p ten share­oldervesavilasdarhowcacomagina­lean­enerrogrammevereign­wealt $4 billion eo a joint venturroviommerciltimately, the two arxpectvesttotal of $40 billion in the partnership.trategy is to establisoughouvestinhingt are uul both to the city ano the region. It also helationsabih it htorastructure­servicub.auabia is building six new Œecomic cities, in the hope of providingobt it desperately needs. It is tryingy­intensivternationals to moe there with the promiuel‹whicoon for the environmenubadalepresentat­tagelationsontin­ed to deepen sanagersisitrotonville in 2005 for a week'seadersainingsays it is beeneraaderbuhabi‹anrosddleast‹who are committuildinustainaboundationhaurvivubadaltakarlylerivate­equiayt as a lonvests keen tsi­orld­clashatuse…rebat­ss, feel more secb. new sort of invtnership ities in the sandoldingaporemasek).ost of them are increasinglhiftinocuuity­investingManvesunds and private­equ­e are berencesillingneso use professionanagersompetence as investoreaboughtaklack­tone, and Mubadaltakarlyle,avvestmense of those †rms. Another wais­ualia… is to ap­ationalave gained quali­cationbroaingaporemasedmiredvereign­wealunds for iestmenectivorporateovernance, and ight to be seen aole model by the C. The deepest are aayeteranartner at a brivate­equityrm who horked with movereign­wealundweveranageravhabvestment, set up a ceargo.xtrvest­uthorityrivate­equityeterays is Œalwayeaminperatinghlydiosyncraanagemenatttempsbury's,Britisupermarkehainavalcu­ates.ussia and Cxceptionshaovernmentavy own tursoalgho the same with their sovereign­wealthundtartappen, they mayeed to be governed by di…erenom those applying to fundoncentratetting good invest­eturnvereign­wealundaveriticisaveivecent Wall Streevest­ents. America's treasretaryaulson, is understood to haveassuring them, especiallbouteaction to their investmenttreeter Merrill Lorgtanleysuaunds to shorehem up. ŒTavubjectomplaintongressansparencgendayriv­te­equieteran.educriticismorking on guidelines for sover­ign­wealansparency, due to betingash­ngtontanansparencyanggain,vereiundrotesubjectougsclosurevestorevelotries. It will be no surpriseproposalukewarmeception and then largelgnored.There is a huge amount of hypocrisyvereign­wealundestayharooksonlobaltrategisovereign­wealunds. ŒWhen did theeveloorler not use it to bssetheapsirisi1990s,ghversis. When local politiciansomplcurotectionismayookson.eaveloorl 6 Institute of International Finance FORECAST 2007080910111213 $30 per barrel $50 per barrel $70 per barrel $100 per barrel September20th 21 setuspects, is thver­ign­wealundymbolilearlalance of economic poarkets.t when emertries set upovereign­wealunds, with separaternance and a cvestmenandate,t is ofecognisinatastsking how tmproveoncludindow­ent/portfproacs the best way,ayhucralventrmerginarkeuftersityeavinussiansidestly being highlrofessional.vereign­wealundsxpectundredrofes­vestmenanagersromeveloountries.havereign­wealthundowncreasinorlompa­d up at leastatrshipd there is a possibiliovereign­wealunds' good behaviourrojan­hortraty to mercantilisterferenceracticevereign­wealundaven little cause for alarm. Tiggesownsiapacio †nd a sensible home for all thet is liky to be ‡ooding in overadesalu­apituanderrojects.k by how responsiblhinaast are be­avingayysonho used tair Bill Clintconomicdvisers and noeacgingarkets at Berkeley. The Gulf statg to use their wealth to generatgherivintandardears,uanderin19pith talk aboute to switch to the euro or evenurrency, Œthey arumpinollary are continu­g to mvestmentsoints out. Indeed, bg out the devel­orlystem seems hercallenerouays Ms Tysoncorxtent to wets now recogniell­beingependtabiliternation­ysttatwners, she concedes,buhat? The shotomrivate and state­owned does notell us very mh at this point. ideessrilsonaupropoharan †rms tht are bought by sover­ign­wealundavghtuspended until they arxistinangementrotect American †rmoreiwnersationalecurity is seen to be threatithoutghtsvereivestorsterfertivis they buyuspensemporaryunder any †nutionar if it corcore­vereally is reason to worry aten­vereivestorten­e good, the proposobapitalistbililaalue­reating role in the governancvese need to reconsihat is the besy to organiarge­sclayinglobarketsbserves Ms Tyson.ftecenears it hs become clearharee­markeubwnersanies can gion‡ictterestrincipal­agenroblemsrivaterhapell­motivatovereign­wealunds with lonestmenzonreatectivystorporatodahort­termisves­t's hope so. 7 7 Source: McKinsey*March 2007 to June 2008tments rn tutions0246810 Morgan Stanley an sovereiinvesto Petrinvesto AN only be de†ned as global,aye are notndianrencuxembourg.anagerceloritterenational­ties. The Inoon is ct he is buildinlobalompanyansformindusatanifestlg to deliganiationaliso long at it havs own santen if it wov­rnment­owned and losinortune.s also the †restdustryensionh he does not sstevivompantartelopinusinessmromarkeasondonantcustomers to be ale to broductnywherorlt the same quali­antecruit the best torltablisversiuildinuxembourg to help him do that.e is measuringainsorlompanies‹esourcesadership and purchas­ngoyutc s long as the protectionists don't spoil it September20th2008 2 orthcoming ones can be found online ww.economist.com/specialreports eports 7th11thorporat15th ww.economist.com/rights eaders tagequired. orporat ustomisation options on corate orders of 100ailable. Please contact us to discussequirements.uareWC15714857ights@economist.comor more infmation and to order special reportsmisty­eyternationalist when he de­criscussgemens on any subject‹youd not think there arerenation­reate a truly grealobompany.an he do iadermergperatesy see how wone with theubbish they thoughd their pound of ‡eserhapstegraromptinal to bd energy producerodaghrove to be misplacig­eahaorlovernmentsy do next.bundancearticular, how will these governmentss models of capi­alisessraumoltanapitalismadapitalisminouslyovernmentsiggies‹notablussia and China‹seemtataybeligarcapitalismg­†rm and entrepreneurialapitaliss served America, Britaind other rich ctries so well. orld worry at?e is no evidencvereign­ealundg to wielappro­riatanies they in­t in. One dy they mightt until thenrobably deserve the bene†t of theoublausibario is thatvereign­wealunds,g with other possiblcantilisging­counovernments,implastapitwevernfortunateargelat­idesovernments,democratic ones, seem ttant it is in their interests to moealth­maximisinapitalisther than squaneale it is their citizenstimatelk up the bill. t is reasonabivities of, say, Chinese resource †rms inountriesh are thoughtavontinent'sorsaders‹though it is hd to see hos can be changed other than beform­overnancselvewisemerginorruption,ronyiseatoreiultinationalairly are certain­desirablet in neither cse is protec­ionisswer.rotectionisevelos a serious cauern. As Messraumolchrbserveapitalism is a dynamicorcd can changludingom good fs to busausearticulars long been aorcor good capitalism does not mehat it will continay.rgumentrotectionism are basedearvidence. The experiencecenearst millions ofobtsourcoreiation, as so­called techno­national­stlaim, is ivaom America and the rorlimplaurosofthave set up centrdiaa, as thed the new champi­art to mleverngineerroducountries'ducaystems. As Amar Bumbiusiness School argues in hi, ŒThe Venturconomy, it iplicavations to meeonsumerue is creathaatters is not sovaappenutenturonsumerd. America's consumerhowignenturesome,overnmenemainommittustomer is king.xceptrotec­ionismh will hurt Americw the rise of themerginarkettizenvertyetter to engagarketloby and help them untany it is to everyone's bene†t to pro­e the good modelapitalismttalemainptimistic.There is currently an anxiety in the devel­t is the oppositnthusiasarkets‹butn ten yearway and we will see a lot chip and collaborationayhink we can realllobalisa, albeit one who workenovtronhallenglobality and the culturhal­engs own †rm initialliallorkeruspicionheir new Chinese colleagues. The rroblem is a Œscarcitalis as a zero­sumaysteabun­taliveryonean become beer o…. 7