Emerging Economies

The era of Globalisation continues...

Albeit this time, the rules of the game have changed. In the past, the so-called developing countries used to bank on the developed economies, particularly the US, to bail them out during times of trial. But now the landscape is changing. The capital flows have changed directions. New leaders are threatening to rule the global economy. Emerging economies being forced to devalue their currency, banks in these economies going bankrupt, the Governments defaulting on their loans are all things of the past now. In the current scenario, it is the western markets, especially the US, which are in troubled waters. With the disastrous subprime crisis and many of the investment firms and banks collapsing, the erstwhile superpower is in a severe financial crunch. Add to this the weakening dollar and you have trouble in paradise.

Many of the western institutions are imploring shareholders and creditors to give them a fillip. And no prizes for guessing who these knights in shining armours are: Investors from the Emerging Economies! For example, Singapore's Temasek Holdings has invested around $20bn in Barclays, Standard Chartered and Merrill Lynch, while the Government of Singapore Investment Corp has put $11bn into UBS and $6.9bn into Citigroup. The China Investment Corporation has taken a $5bn stake in Morgan Stanley and invested $3bn in Blackstone. The Abu Dhabi Investment Authority bought $7.5bn of Citigroup equity. And these are just the investments by the state. There are millions of private investors too in the market.

The sudden infusion of cash in these formerly cash-strapped countries can be attributed to the rising costs of commodities. A few years back, the oil price was about $11 a barrel and now it is fluttering around the $100 mark. The middle-east suddenly found itself doused in money. India and China are the fastest growing economies of the world, outpacing the saturating American and European economies. Much of the Chinese economy is represented in manufacturing. Walmart, the American retail giant, has most of its products manufactured in China. In contrast, India's economy is mainly powered by its world-class IT related services. It also happens to be the world's second largest software exporter. Almost 51% of India's GDP comes from its service sector. Formerly, excess population was one of the reasons held responsible for the poor economic conditions in these developing countries. But the bane has turned into a boon now. How else can we explain the cheap labour that has enticed many companies to offshore their operations to these economies? Hand-in-hand with the growing population comes the availability of new market opportunities. We see lot of foreign direct investments into the markets of these emerging economies. Influx of FDI has a positive effect on the local currency of the country, making it stronger, thus the exchange rate improves, boosting the purchasing power of the country.

Blame it on their traditional outlook of not preferring to spend beyond their means, but emerging economies have strong regulatory economic policies. Their central banks keep the currency stable and foreign currency reserves high. China's central bank now has foreign reserves totaling $1.6tr, Russia's has $519bn, India $314bn, Taiwan $287bn, South Korea $264bn, Brazil $195bn, and Singapore $178bn.

The emerging economies have become the changing face of the global scene. As World Bank President, Robert Zoellick rightly says, "G7 is now ineffective and should be replaced by the steering group that includes China, India and Brazil". And today emerging economies do not include just the BRIC (Brazil, Russia, India, and China); there are several other players in the field who are jumping on the bandwagon like the other developing countries in Asia, Latin America, Africa, and the Middle East. According to studies and projections done by PricewaterhouseCoopers, India would grow to almost 90% of the US Economy by 2050, China could overtake the US Economy by 2025 and Vietnam may be the fastest growing of the emerging economies, Nigeria, Philippines, Egypt and Bangladesh also have high growth potential.



The table here shows the GDPs of different countries projected for the year 2050. On careful observation, we see that for most of the developed countries like USA, Japan, Germany, UK, France etc., the GDP either remains the same or is decreasing. But for the emerging economies like China, the GDP increase is 500% and for India, it is a whopping 1200% increase.

The reality shaped by the emerging economies can be realized in the balanced growth across the world, challenging the lopsided economic clout of the Europeans and the Americans. In the past few years, China, India, and Russia, together with other fast-growing economies mostly in Asia and Latin America, have averaged almost 7% growth compared with 2.3% in rich economies. According to a study by Goldman Sachs, by 2039, Russia, India, China, and Brazil together could be larger than the combined economies of the United States, Japan, the United Kingdom, Germany, France, and Italy. China alone could be the world's second-largest economy by 2016 and could surpass the United States by 2041.

Look at the following examples appearing in the newspapers today:
- Brazil overtakes US as top destination for investment in biofuels.
- China overtakes UK as a key country for investment in renewable energy.
This is just the tip of the iceberg for bigger things to come. It won’t be long before these emerging economies are catapulted to the big league of the G7. Going into the future, the prominence of these emerging economies is only going to increase, with the power to influence the workings of the world economics.



China Rising:

Among these emerging economies, the one country that shows tremendous promise is China. The emergence of China as a formidable economy can be mainly attributed to the shift from a centrally-planned economy to a more market-oriented economy, development of the private sector and liberalisation. The rapidly growing economy of China, its huge export earnings and its unrivalled position as the global manufacturing leader – all these have had a resounding reverberation in the global economy.

Though the US is still the single largest economy, its economic supremacy is being eroded. In the early 2000s, China eclipsed Germany to become the world’s third largest economy with 6 per cent of the world gross domestic product (GDP). It is expected to overtake Japan's GDP within a decade. According to the Asian Development Bank (ADB; Manila), the Chinese economy grew 10.4% in the first half of 2008 and 12.2% in the second half of 2007. The economy has been extremely buoyant, with real GDP growth averaging more than 11 percent for the last several quarters with the GDP growth in 2007 being 11.9%.

China’s enormous potential market, cheap workforce and commitment to liberalise have attracted lots of foreign direct investment in the world. So much so, China has beaten Western Europe for the top spot for FDI ‘attractiveness’ and has been ranked the most attractive destination for foreign direct investment, ahead of Eastern Europe and Western Europe. Also, China topped the top ten High-Tech Exporters for the year 2005 with exports worth 406 Billion U.S. Dollars, beating United States, Japan and Germany to the top slot. According to predictions by Goldman Sachs, China’s currency could double in value in ten years’ time if the current growth rate continues.

Furthermore, the investment boom still continues in China. The purchases of U.S. bonds by the Chinese have risen to more than 2 percent of the GDP of the US. Also, the Shanghai stock index, over 2006 and 2007, has increased by 400%. By the end of 2007, China witnessed one of the year's best-performing stock markets and was home to the world's largest company for a few weeks. The evolution of China's version of Wall Street is a leap forward for an economy that is on its way to becoming a world leader.

Every economy has its share of challenges and the same holds true for China too. The extremely fast growth of China will eventually slow down as low-cost labour will give rise to higher wages and living standards. Intellectual property protection has been another major challenge in China. China's piracy on video, CD, and software continues to increase annually. China is one of the biggest violators of copyrights. China is also under the scanner for the environmental damages that it is causing due to lack of proper environmental regulations. China's GDP accounts for only about 5 percent of the world's total in the world, yet its coal consumption accounts for about 30 percent of the world's total; electricity consumption about 13 percent of the world's total; and consumption of steel products about 25 percent of the world's total. Another aspect that might hamper China’s growth is the low levels of innovation and its positioning as just a manufacturer. However the Chinese Government is taking initiatives to overcome these challenges. Measures are being taken for the regulation and implementation of the intellectual property rights. Stricter environmental regulations are being enforced to control its emissions of pollution. Steps are also being taken by the authorities to ensure that China is no longer just a workshop of the world. More emphasis is being laid on innovations. China aspires to move from the tag of “Made in China” to “Created in China”. With these problems taken care of, there is no stopping China from becoming the global superpower sooner than expected.

Behold! The hidden dragon is rearing its head and how!

References:
Euroweek (5/16/2008) Supplement, p33-35: Author: Evans, Julian
Economist, 2/16/2008, Vol. 386, Issue 8567
PricewaterhouseCoopers Press release
Goldman Sachs - Ideas
Global Insight, Inc.
Article by Ruthven, Phil. BRW, 1/17/2008, Vol. 30
U.S. News & World Report, 1/14/2008, Vol. 144

Entrepreneurship Reloaded!

Are management graduates meant to be corporate servants or corporate masters? This very question challenges the Indian middle class mentality. We are programmed to study hard, earn management degrees, land lucrative jobs in MNCs, earn handsome salaries and live happily ever after. This would seem like a fairy tale to the working class populace of the yesteryears. What often goes unnoticed and unsaid is how happy and contented are these people with their fascinating jobs. Agreed that a salaried job has its own perks like big paychecks, foreign postings, job security, and lesser responsibilities, however, it also has its downsides of getting caught in a rut, boredom, lack of autonomy and freedom, constraints on creativity et al.

On the very first day of my MBA, when one of the professors asked how many of us would want to be entrepreneurs, more than 50 hands shot up which constitutes nearly 60% of the class. But the irony of it all is: the entire class has signed up for placements, including yours truly. This clearly shows the divide between having a dream and following it through. What is stopping us from following our dreams and becoming entrepreneurs? Is it the opportunity cost? Or is it our upbringing that has seasoned us to always play safe? Or might there be a more ominous reason - Lack of proper grooming and encouragement?

People tend to look at start-ups as an unsafe career option. True, during the inception of any enterprise, money might not come by very easily. Cynics may argue that given the time value of money and opportunity cost, a salaried job has higher returns than an entrepreneurial venture. But what they fail to consider is the bigger picture beyond all these mathematical calculations. I came across this quote by the Economist, John Maynard Keynes which I liked very much– “A large portion of our positive activities depend on spontaneous optimism rather than on mathematical expectation. If animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but mathematical expectation, enterprise will fade and die.” As an entrepreneur, one can create wealth for the society, create jobs, and solve problems of poverty, unemployment and underemployment rampant in many of the developing countries today. If there is apt vision, mission and innovation, money would follow on its own.

India being a developing country has a pressing need for entrepreneurs. With the booming economy and the emergence of new sectors, the landscape for starting new enterprises has never been better. We cry ourselves hoarse praising the likes of Dhirubhai Ambani, Narayana Murthy for putting India on the global map. If Ambani was contented with his salaried job in Yemen, we would not have had Reliance today. If Narayana Murthy had continued with his job in Patni Computer Systems, Infosys would not have become a household name today. If we have at least a few hundreds of visionary entrepreneurs like these today, India will soon surpass all the world economies. Why settle for being servants when we can be masters? Heck, we have got the talent for it!

Now coming to the grave question of what steps need to be taken to promote entrepreneurship among B-school students, many are of the opinion that entrepreneurs are born, not made. But I personally feel that this is not true. Each one of us has it within ourselves to be an entrepreneur. With grooming and nurturing in the right environment, we can all hope to become successful entrepreneurs in our chosen fields.

First and foremost, Indian business schools should take a hard look at the way they function. In most of the Indian B-schools, more emphasis is laid on the placements rather than on entrepreneurship. A B-school is as good as its placements. The problem is not only with the schools but with the whole education system. Most of the Indian business school rankings are based on the placements that a school offers. Show me one ranking system that ranks a school based on the entrepreneurship programmes that it offers. Without proper incentives, the schools are forced to focus more on placements than on other development programmes. Talking about curriculum, most of the schools structure their course studies depending on the industry requirements. Where are the good ol’ days when the curriculum was structured to provide overall development to the students? These days the sole aim of schools is to prepare the students for their job interviews. Even individuals with an entrepreneurial bent of mind are forced to take the beaten path in a bid not to be left behind.

Thankfully the scenario is slowly but surely changing in most of the B-schools. For instance, in my alma mater, Vinod Gupta School of Management, IIT Kharagpur, a new initiative called “Deferred Placement Programme” was recently introduced wherein which the students who wish to take up entrepreneurial ventures can opt out of placements, but they would be allowed to appear for the placement procedure for two years after the completion of their degrees. This would encourage more students to experiment with new ventures of their own with more confidence since they will have something to fall back on if the ventures fail to take off. Many other premier institutes are following suit and encouraging more students to take the entrepreneurial plunge. Students from different institutes can form entrepreneurial committees in their respective schools through which they can convince their institute authorities to introduce this programme which aims at motivating students going the entrepreneurial way.

Furthermore, these entrepreneurial committees should aim at motivating potential entrepreneurs by means of organizing guest lectures by eminent entrepreneurs from different sectors to learn both from their success stories and failures. The student community should take the initiative to organize more and more entrepreneurship fairs, games, workshops, business plan competitions and summits at B-school events. Since in most of the business schools, including my own, the students have a say in what courses they would want to study as a part of their curriculum, the student community in each school should insist on the introduction of entrepreneurial courses in the curriculum as this will go a long way in infusing practical as well as theoretical skills in the students. The aim of these courses should be to promote creativity, innovation, risk-taking, autonomy, self-confidence, leadership and team spirit. We can also form forums for students where different ideas of students can be pondered on critically, brainstormed by some of the best brains and previewed from all angles. This can result in some solid business plans taking shape which can be further pursued by the students as a joint venture.

It takes money to make money! One of the main challenges encountered by students wishing to become entrepreneurs is capital, which might not be easily available. Most of the institutes have entrepreneurial cells or incubators which encourage students to submit business plans of their proposed ventures and if the business plan is feasible, innovative and implementable, capital aid is provided for the start-up. The placement committees of the B-schools, along with inviting companies to the campuses, can also invite venture capitalists on campus to provide financial assistance to budding entrepreneurs. Students can form advisory councils to provide assistance to one another on their business plans. It would also be a good idea for different B-schools to come together and form a joint entrepreneurship cell where students from all participating colleges can share ideas and a common platform.

Like the Lead India advertisement which goes, “Tum chalo toh Hindustan chale”, instead of sitting around waiting for the institutes to do something, it is time we started taking things in our hands to make them happen. If the entire student community takes it upon itself to promote entrepreneurship, it will not be long before India starts manufacturing Dhirubhai Ambanis, Narayana Murthys, Azim Premjis by the dozen. It is about time we stopped following the herd and started following our dreams!

Moi!

I am a bundle of contradictions!
I am the bustle of the morning and serenity of the evening.
I love the freedom of the abstract and the conviction of the concrete.
I am impulsive and I am cautious.
I am gauche and I am sophisticated.
My ambition is my strength and my weakness.
I am what I am!

I am a rebel. My parents realized this as I was growing up, much to their exasperation. My rebellious nature brought with it the restlessness and the constant urge to prove myself. My extroverted childhood was followed by an introverted adolescence, but the rebel inside me stayed intact. Somewhere along the way, I metamorphosed from an awkward adolescent to a confident, gregarious and fiercely independent individual.