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Panel: Emerging Markets and the Changing Business Landscape

Event:
19th CEEMAN Annual Conference
Georgia - Tbilisi | 2011
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This is my first time in Georgia but not my first time at a CEEMAN conference. I am a great admirer of this organization and have been at four or five of its conferences. I certainly look forward to future ones as well. I am also a great admirer of the achievements of Danica Purg, whom I met a quarter of a century ago. It is really amazing what she has accomplished for CEEMAN. 


Before I start my presentation, I would like to make some comments on the previous presentations. Those of you who were here last night know that I asked the minister to provide some demographic and social indicators in addition to the economic ones. I did some homework and collected some indicators myself. They complement the economic ones and provide another perspective, throwing light on some challenges. 

I feel very strongly about demographics. It is a critical issue for the global economy. Therefore I will be talking a little about the demographics of the emerging economies and contrast the data with what is going on in Europe. 

In 1950, the population of Georgia was 3.5 million. In 1995, it was 5 million. Now it is 4.5 million, expected to be 3.1 million in 2050, and 2.3 million in 2100. This is clearly a case of a declining population and aging - certainly a challenge for the future. 

I also inquired about the GINI coefficient which measures socioeconomic inequality. Georgia’s GINI is high, meaning high inequality. The country is inbetween Mali and Turkmenistan in the world ranking. 

Unemployment in Georgia is currently 16.1 percent, whereas youth unemployment is almost twice as high, reaching 30 percent. Also, 31 percent of the population lives below the poverty line. 

The reason that I mentioned these social indicators is not that I want to challenge the need for economic reform or question the wisdom of what has been done in this country. I simply want to draw your attention to the existing challenges and ask if the country is ready to address them. The World Economic Forum has identified poverty as the number one risk in the global environment at the moment, the next one being rejection of globalization. 

There is a global awareness that capitalism is in a crisis, particularly over the course of the last few years. The question about the sustainability of reform is not only whether the reform is robust but also whether it is socially acceptable. In all of the emerging markets that I go to, the word “inclusion” comes up and is used in the context of “inclusive growth”. This is also emphasized by Dilma Rousseff, Brazil’s president. The Indian government also understands this and so does the Chinese government. They say that they want to lower growth but make it more inclusive. I think that this issue is something that needs to be fed into a business school’s curriculum. Managers need to know how to achieve equitable sustainable growth and inclusive growth. This is different from corporate social responsibility. 

Of course, this is not something that only emerging economies should worry about. Youth unemployment in Spain is 46 percent. Half of the Spanish youth have no sense of participation in the economy. As a result, they call themselves “los indignados” - the indignant ones. Some newspaper columnists wonder if this decade will be remembered as a decade of indignation. 

The Evian Group is working on what we call Globalization and Inclusive Growth. We look at how states and businesses can work together so that the global economy can be sustained and maintained. There is a risk of isolationism appearing in the United States. There is a feeling that the country is in dire straits as its role of a locomotive of the global economy has decreased considerably. 

We are going through alarming times. We are witnessing greater, deeper, and speedier changes than for centuries. But, as we know, challenges beget opportunities since we need to react to the ongoing changes. I do not think that we will ever see a global environment like the one before the transformations began at the end of the last century. Of course, the 2008 events accelerated them quite dynamically. 

I spend roughly 70 percent of my time outside Europe, mainly in Asia, from Turkey to Hong Kong. I am convinced that this dynamism is going to be critical. Danica made a good comment yesterday: CEEMAN needs to get global rather than be an East European association. All the things that we can learn from these international experiences can have global implications. 

In an article in the Financial Times entitled “Asia’s Giants on the Move”, Martin Wolf described the situation in this way: 

“The economic rise of Asia’s giants is the most important story of our age. It heralds the end, in the not too distant future, of as much as five centuries of domination by the Europeans and their colonial offshoots”. 

Nowadays, we talk of emerging economies but we can also speak of submerging economies. How much they will submerge remains to be seen. I do not want to sound too apocalyptic about the United States, Europe and Japan, but we are certainly going to observe a major shift in global economic power. One of the benefits of being as old as I am is that I have seen a lot in my life. I was a correspondent in Vietnam during the war and I go there nowadays as well. The change that I observe is staggering. It is one of the most entrepreneurial societies in the world. It has a well developed manufacturing sector and a rising middle class. It is still officially a communist state although they have changed their label. They say that their philosophy is no longer Marxism-Leninism but Market Leninism. 

As Zheng Bijian put it, the most important strategic choice the Chinese made in the late 1970s was to embrace economic globalization rather than detach themselves from it. It is clear that China is going to be a world leader but what implications will that have? There is a lively debate on that in China itself. 

According to Rajiv Kumar, the Chinese miracle is best summed up by observing that in 1978 Deng said that China could not do without global capitalism and that three decades later it is clear that global capitalism cannot do without China! At the Bank of China there is only standing room as Greeks, Italians, Americans and others flock inside, waiting for loans. As for the Japanese, they are not so much hoping for loans but they expect Chinese tourists because that boosts their economy. I am happy to be alive, first because we all hope to stay alive, but also because this is an absolutely amazing time. In the words of Uri Dadush of the World Bank, by 2020 China, India, Indonesia, Korea, and Vietnam together could generate more wealth than the United States, Japan, and the European Union combined. The speed at which this change is happening is stunning. 

Nobel-prize winner Michael Spence has written a book called The Next Convergence; The Future of Economic Growth in a Multispeed World in which he points out that there are different degrees of convergence. By the way, we are using the terms “developed” and “emerging economies” but we need to come up with a new vocabulary. In any event, there is a huge demand for business education in what we call emerging economies, especially in Asia. 

We see a paradigmatic collapse of what we used to know as a first, second, and third world. We now have a convergence that is taking place. This is not to say that everybody is part of that convergence. There are landlocked countries in Africa that are being left behind. There is a book by Paul Collier entitled The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It. Despite the massive shift of many people in the poor world from subsistence to consumption, there are the so-called least developed countries that are not catching up. 

A point that I like to stress is that countries like China, India, and Indonesia are not emerging but re-emerging. It is clear that they are going to produce a greater combined gross domestic product than Europe and the United States because they are far more populous. After all, Asia accounts for 60 percent of the world’s population. What is taking place is a historical shift. In 1820, China’s share of global GDP was 33 percent. By the time that Mao died it was 3 percent. Two centuries were lost but now Asia is returning to the world scene. Globalization has been around for centuries and it has been dominated by different powers at different times. Different peoples had their moments: the Romans, the Arabs, the Mongols. And since the 19th century, the world has been dominated by the West. 

In the mid-19th century, the Japanese decided to adopt the slogan “If you cannot beat them, join them”. However, the Chinese refused to do that. Their government had a sense of superiority because they were the Middle Kingdom. They did not want to have anything to do with the West. Then, in 1978, Deng Xiaoping and the people around him decided to launch the Chinese economic reform program. That may be one of the most important years in Chinese and world history. The consequences have been amazing for China and remarkable for the world. We are now talking about China shaping the world economy. 

There is a fascinating Chinese DVD series called “The Rise of Great Powers”. It has nine chapters: Portugal, Spain, the Netherlands, Britain, France, etc. It ends with the United States. This is a very interesting film that I recommend very strongly: it comes with English subtitles. It shows how the Chinese look at the rest of the world and what they think that they can learn from others. They say that the European powers rose through imperialism but China nowadays does not want to be an imperial power. Yet, the symbols that the Chinese are using nowadays suggest that they see the rise of their country as the return of the great Middle Kingdom. Business educators need to think about the sources of Chinese leadership because some of the important issues are not at the state level but at the corporate level. 

Everybody is talking about China, but what about Brazil? That country was called the land of the great future that never seems to be achieved. People were talking about Brazil already back in the 1950s, when I was a child, and they were wondering when that country’s potential would be capitalized on. I believe that Brazil has taken off by now. What is interesting about that country is not just its economic dynamics but also its social dynamics. Since 1995, Brazil has registered significant improvement in terms of poverty and income inequality reduction. There has been a significant increase in terms of average monthly income per person, average years of schooling, and percentage of households with a washing machine and a sewage connection. 

Many countries want growth, but what kind of growth? Brazil’s is a very interesting model, achieving a combination of economic growth and social improvement. Laura Tyson said that a big mistake of business schools is the fact that they are not bringing globalization to the globe. In Brazil, however, enterprises aim for inclusive growth. This is something very different from corporate social responsibility. It is about achieving a civil society. 

In 2001 or 2002, I was in Dubai, listening to a speech by the head of the Emirates Airlines. They had flights to Mumbai and Shanghai and they were starting daily flights to Sao Paolo. That is extraordinary because in the past if you wanted to go from Shanghai to Sao Paulo you had to go through London or Frankfurt. But the Emirates made it possible to cut the route. 

The point I am making is obvious. Europe’s share of global population is decreasing. According to August Comte, French philosopher and father of positivism, demographics is destiny. We are going to be living in an increasingly urban world. As a result, all business schools should consider the issue of urban development. There is also a tremendous rise of the aspiring classes. The term was coined by CK Prahalad. You see this rise in China, India, Indonesia, Africa and other places. People are moving from subsistence to consumption. They expect better lives, not just in terms of DVDs and cell phones but they also want better schools for their kids, and welfare. And they are beginning to travel around the world. 

I live in Lausanne in Switzerland. People from other countries tend to confuse Lausanne and Lucerne. I was in Lucerne once and I thought I was in Mumbai because there were Indians all over the place. I wondered why. Apparently, it is a major destination for the aspiring Indian classes because many Bollywood films are made in Lucerne. So they come to see the places where their favorite films were made. These are some of the great market opportunities of the future. Unfortunately, we have global dynamics but we do not have global governance to keep pace with the situation that we have. 

It is important to remember what Charles Darwin said: 

“It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change”. 

Remember also this quote from Peter Drucker: 

“The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic”.

Event:
19th CEEMAN Annual Conference: Management Education in a Changing World: Are We Ready for the Challenge?
Categories:
Filmed:
September 2011
Published from:
October 2011
Citation:
Jean-Pierre Lehmann, Panel: Emerging Markets and the Changing Business Landscape,
Accessed: April 23 2018,
Available at: http://video.ceeman.org/lectures/638/2011_ceemanac_tbilisi_lehmann_pemcbl
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