Global Trends

This afternoon we had a consultant from the Eurasia Group visit our class. This group works with the PwC leadership to identify global trends and assess the various strategies PwC should consider pursuing. It was an interesting discussion to have in such a diverse group where everyone could contribute their first-hand understanding of situations in their home countries. While nothing presented was earth shattering, I appreciated being able to fit my understanding of current events into the broader perspective. Here is a brief summary of the "5 Global Trends to Watch in the Next 3-5 Years."

1) Realignment of Power: In the past, the U.S. was the global policeman, the driver of growth and was generally perceived as a safe harbor for investment. Emerging markets were thought to be highly risky due to their uncertain political positions. Now, there is a shift in the balance of power where the U.S. is really seen as an exporter of risk (both politically such as in Iraq and Iran, and economically as in the current credit debacle). By contrast, emerging markets are the focus of growth and are perceived as safe investments. During the August credit crunch, while the U.S. markets were falling, the emerging markets held fairly constant and were the surprising object of a "flight to safety."
Another interesting comment that was made when we were discussing this point related to the effect of the U.S. economy. Even if the U.S. economy dips into a recession in the coming months, while it may cause a recession in the EU, it is unlikely to impact China. The Chinese government has a sufficient supply of capital to flood the market and they also have a vested interest in maintaining their economic stability leading up to the 2008 Olympics.

2) Realignment of Capital: Following from the point above, there is a huge inflow of capital into the emerging markets - both from developed countries and, perhaps more significantly, from other emerging markets (e.g. large investment by one of China's banks in South Africa's largest bank). The investor base is broadening to more often include Asian central bank reserves, sovereign wealth funds, private equity and hedge funds.

3) Growing State Intervention in Markets: There is a rising protectionist sentiment which is causing governments to intervene in more ways, such as immigration restrictions, environment and health & safety regulations (think Mattel) . In the U.S. there is also a concern that foreign investment in U.S. companies is too significant, which will only make FDI approval more politicized. These concerns are frequently driven by national security issues (think Dubai Ports controversy). Increasingly global M&A's will be scrutinized and U.S brands will be targets of foreign companies. The implication for companies is that they will have to do a lot more leg work at the beginning of the investment process to clear the regulatory path.

4) New Energy & Climate Environment: Investments in nuclear, natural gas and other alternative energy solutions will continue to increase. In the U.S., environmental policies will increasingly be another point of political friction.

5) Technology and Innovation: Emerging markets are increasingly seen as sources of innovation and are using this to attract further investment. Another aspect of this point is that recruiting and retaining talented human capital will continue to be crucial for success.

We spent less time discussing the last two points because by that time our group had somewhat hijacked the discussion. :-) We talked about the comparative advantages of China and India and also what countries might become the emerging markets in the next 10-20 years following China, India, Russia and Brazil.