The Big Scramble

The scramble for the emerging world is upon us. With the recent surge of wealth in many countries outside the West, companies and individuals are increasingly reallocating their resources and interests to a growing stock of opportunity. Like the European expedition and eventual partitioning of Africa and Asia in the late 19th and early 20th Century, Western focus is on valuable assets abroad—or at least it should be. This time, however, it’s a race to snatch-up a share of two billion consumers expected to emerge over the next twenty years. Moreover, this huge surge of wealth appears to have sidestepped Europe’s current economic stagnation and political tension.

This is a pinnacle moment in history, where leaders—especially entrepreneurs—should positively embrace change and capitalise on a seismic shift in power, wealth and consumer demand.

The World In 2050 

Emerging regions are generally considered as those economies and markets that are industrialising and growing rapidly. However, as I shall discuss below, the term “emerging” is increasingly becoming out-dated. Many of the countries considered troubled and weak not so long ago, have quickly gained power and significance in the global arena.

  Country                        GDP ($Billions)

1.China	24617
2. US	22270
3. India	8165
4. Japan	6429
5. Germany	3714
6. UK	3576
7.Brazil	2960
8. Mexico	2810
9. France	2750
10. Canada	2287
11. Italy	2194
12. Turkey	2149
13. South Korea	2056
14. Spain	1954
15. Russia	1878
16. Indonesia	1502
17. Australia	1480
18. Argentina	1477
19. Egypt	1165
20. Malaysia	1160
21. Saudi Arabia	1128
22. Thailand	856
23. Netherlands	798
24. Poland	786
25.Iran	732
26. Columbia	725
27. Switzerland	711
28. Hong Kong	657
29. Venezuela	558
30. South Africa	529

 (*HSBC Global Research, The World in 2050, 2011)

Predictions like that of the Global Research Team at HSBC have monumental implications on the world, as we know it today. Findings show that 19 of the 30 countries on the list, currently termed “emerging”, will make up a combined GDP five times what it is today. Those 19 economies will contribute twice as much to global growth than the entire developed world (the other 11 economies on the list), which will eventually overtake the current developed world, in terms of overall GDP.

This is precisely why Jim O’Neil, Chairman of Goldman Sachs Asset Management argues that at least eight of these economies should be called “growth”, not “emerging” markets. These are commonly known as the BRIC (Brazil, Russia, India and China) and MIST (Mexico, Indonesia, South Korea and Turkey) consortia. In his book, Growth Map, O’Neil writes that approximately “two billion people are going to be brought into the global middle class between now and 2030”. It’s not entirely clear what “global middle class” means, but The Economist published a report in 2009 which characterises the group as “having a reasonable amount of discretionary income, so that they do not live from hand to mouth as the poor do… where people have roughly a third of their income left for discretionary spending after paying for basic food and shelter”.

This information suggests that a rare convergence of opinion, between humanitarians and capitalists, is taking place. Globalization and the free market appear, as far as the facts show, to be distributing wealth across the globe. With billions of people leaving poverty and per capita income rising, fairness and equality is slowly being restored. Or is it? On the flip side, the UN predicts that if population growth-rates remain, on average the same over the next 40 years, there could be over 10 billion people alive in 2050. Countries with the highest growth rates are predominately found in Africa and Asia. Therefore, It’s not certain whether global economic-growth will offset the influx of billions (potentially) entering into poverty over the coming years.

One thing is clear, however, the scramble for the emerging world is underway. Entrepreneurial interest, investment and changes in policies are taking place. Platforms are popping up that are changing the infrastructure of business. More and more minds are focusing their ideas and ambitions in these parts of the world, to create new profitable enterprises and the chance to lay a path for a new world, with less poverty, more education and less inequality.

The Scramble: Entrepreneurship

As the landscape of the planet is changing, entrepreneurs are “copycatting” existing business models in the West. Successful products and services are being reinvented and adapted to different parts of the world to suit their own market demands and cultural needs. This way there is room for the enterprising spirits to remake the old as well as invent the new. Entrepreneurs provide jobs and attract interest and investment in these countries boosting the countries competiveness and conducing social development through knowledge dissemination.

Russia, for example has its own spin on social networking with VK.com, which has attracted over 130million users over six years. It has established itself as the second most visited site in Russia fending off Facebook’s overwhelming growth and market dominance. The founder, Pavel Durov launched the website after graduating from St Petersburg State University in 2006—two years after Facebook’s launch. Whilst it’s a copycat, which essentially performs the same functions as Facebook, VK developed a distinctive user-interface preferred by users—receiving over 35million users a day.

Africa is also fast becoming a hotspot for business. Fred Swaniker, CEO and co-founder of African Leadership Network (ALN) said recently at an annual gathering in Ghana “If we adopt an entrepreneurial mindset, then we can really change the game and create magic out of ashes”. He also mentions that the current 5% growth rate is not enough and should be “10-12%”. Africa has the youngest population in the world and should be better prepared to take risk. The “Accelerating Entrepreneurship in Africa” scheme, which includes Ethiopia, Ghana, Kenya, Nigeria, South Africa, and Tanzania, found that 57% of people are now interested in entrepreneurship as a career. However, there is still a clear need for advice on investment policies and regulations. Basic fundamentals, such as access to capital and business-friendly infrastructure for young wealth creators remain insurmountable. Governments aren’t making it any easier with high taxes and complicated administrative procedures taking months to register a company.

Without a doubt the potential for business success in Africa is growing. According to a recent study done by Ernst and Young, FDI (foreign direct investment) projects grew by 27% in 2011, boosting Africa's share of the world's investment to almost a quarter. Also FDI inflows should reach $150bn by 2015—double its current value.

This unearths another unfolding of events happening on the planet, namely the growing integration between emerging countries. There is an increase in investment between African nations as well larger emerging regions, such as Turkey, China and Brazil investing in African resources and raw materials to satisfy their demand for industrialisation. These emerging regions do not only share interest in Africa. For instance, relations between Turkey and China are growing. In a recent conference they announced a plan to grow bilateral trade by fourfold to $100Billion over the next eight years. It was only last month where Turkey’s Akbank and The Bank of China launched a “China desk” in Istanbul in a bid to provide services to both Chinese and Turkish firms and enterprises.

Europe should be looking at these activities as opportunities to climb its way out of a manic cycle of recession and austerity. Germany is leading the way in Europe in adapting to this change. China is already its largest non-European importer. The Economist predicts that China will become the world’s largest importer by 2014. Yet, many sceptics still doubt China’s potential to be a stronghold of the world economy. Bilateral trade between Germany and China stood at €144Billion last year and at this year’s Hannover Trade Fair, Chancellor Merkel said, "we're working on making this even more”.

The UK can only try to keep up. David Cameron’s recent, yet delayed, Asian tour marks strong interest in the scramble, forming important trade alliances with countries such as Japan, Malaysia and Indonesia in April this year. Britain certainly needs to refocus foreign efforts to boost trade and growth if it wants to avoid prolonged recession. As a leading financial services’ provider is not unreasonable to start focusing their consulting expertise in countries (such as those in Africa) in need of institutional restructuring for long term growth.

The world is changing dramatically and the time to get involved is now. Interest in entrepreneurship is growing and its importance in the integrated development of the globe cannot be ignored. The opportunities are out there, it’s simply a matter of taking the first step into the unknown to achieve tomorrow’s dreams.

By Gence Emek

The End of ‘Supermen’?

Leadership plays a major role in shaping business, the economy and the full realisation of human potential. One way or another it affects all our lives. It is no surprise therefore that good leadership is crucial to sustainable growth across the world. But what is ‘good leadership’?

With the recent onslaught of the financial crisis and the subsequent economic slowdown and recession, the implementation of countermeasures is required to offset lasting negative effects. Furthermore, the developed world is under mounting pressure from emergent regions, ignored for the most part of the last decade. All things considered, decisions need to be made that will ultimately make or break the future prospects of the developed world.

However, in the West we continue to use dated methods that will only worsen the current situation in the long term. European governments and firms are cutting costs right down to the bone, mainly by reducing operations and firing employees. These leadership techniques are worn down and simply ‘old hat’.

We are desperately in need of ‘growth leaders’ that will continue to develop the UK and the world through innovation and forward thinking. Carol Dweck, Professor of Psychology at Stanford University and author of Mindset, originally inspired this idea. She has covered extensive research on the personality of leaders and aims to establish what it is that makes some individuals successful in a sustainable and healthy way, and others destined for a destructive ascent to self-glorification. According to Dweck, the dichotomy has to do with the way people perceive their abilities. This is what she calls “mindset”.

The debate has typically focused on the tension between nature versus nurture. People generally believe their destiny is determined by the configuration of their genes, or the development of skills and abilities at an early age, which sets them up for the rest of their lives. Some might even believe in an amalgamation of the two. However, according to Dweck’s findings, abilities are continually shaped and developed over the course of human life. Of course, there is no denying that people’s characteristics are predisposed a certain way, but it is the right mindest that brings to fruition our full potential.

Many of us, says Dweck, tend to construct our ambitions, actions, plans and so on, based on praise, reward, acceptance and conformity. These types, whom belong to what she calls the ‘fixed mindset’ group, also tend to avoid actions that lead to criticism, disappointment and isolation from the peer group or norm. According to Dweck, people who have the fixed mindset split people into two broad categories, ‘good-bad’, ‘superior-inferior’, ‘successful-failure’ and so on. They designate themselves in one of the categories based on the outcome or potential result of their actions.

Research done by Dweck et al. suggests that a significant number of people do actually behave this way much of the time. Moreover, according to Dweck, many people shape their entire lives according to this ‘fixed ideal’: avoid looking like a failure and pursue praise and reward. This is intuitively counterproductive to your development and must be avoided at all costs. Continually avoiding failure and pursuing ‘pedestal treatment’ all the time will lead to a humungous ego, which sits on a foundation so fragile and superficial that when it is put to the test it will eventually crumble under the pressure.

It is unfortunate that many leaders exercise themselves in this way. One need only look at the collapse of major global players, such as Lehman Brothers and Enron, to see the fixed mindset in action. Malcom Gladwell, writer and journalist (author of Outliers), says that leading consulting gurus, such as McKinsey, have been “obsessed with talent” and believed that some “people either have it or they don’t”. Any sign of failure or “lack of talent” of employees would be immediately dealt with and fired. Conversely, they would, as in the case of Enron, avoid confronting leaders they perceived as godlike. Both Jeffrey Skilling (CEO) and Andrew Fastow (CFO) led people to believe they were geniuses, superior to everyone else, and their methods were beyond the comprehension of the rest of the company’s employees, partners and affiliates. They enjoyed their superiority so much that they manipulated financial loopholes to augment their godlike status. It is not surprising that they were on an inevitable course to destruction and devastating criminal exposure.

Consider Alfred Dunlap, famous for making one hundred million dollars from the turn-around and sale of Scott Paper. Dunlap is a fixed mindset CEO. He once said, “making my way in the world became a matter of self-respect for me, of a kid trying to prove he was worth something… to this day, I feel I have to prove and reprove myself”. Dunlap sought to prove himself by getting rich, he says “if you’re in business, you’re in business for one thing—to make money”. In 1996, Dunlap took over Sunbeam. In his typical ‘Chainsaw AL’ ruthlessness, he sold two-thirds of the firm’s plants and fired half of all the employees. His plan was to bump up the stock price over the short term, to sell it and maximize profits. Ironically, the stock went up so high there were no longer any buyers. Forced to run the company, he fired people who questioned him and continued inflating revenues. It was not only the revenues that were overinflated, but Dunlap’s ego grew so big that it eventually burst after the company suffered massive damages. He inevitably fell apart and was removed from the company. Dunlap was later investigated by the Securities and Exchange Commission and was expected to be in technical default on a $1.7 billion bank loan.

These examples expose the symptoms of a more fundamental disease. Chasing gains and avoiding small losses in the short-term, precisely sums up the events leading up to the explosion of the property bubble, accumulation of toxic assets and ultimately the credit crunch. It is unfortunate, that politicians and leading global players still pursue short-term gains to win elections, secure profits and promote themselves. Some banks, for instance, have made losses with no sign of recovery after the financial crisis, but their bonuses still seem to be pouring in. Some recoveries appear superficial at this stage, as they have merely cut costs to unsustainable levels.

Dweck offers us a more constructive alternative to this flawed mindset, she calls it the “growth mindset”. According to Dweck these people pursue self-development, learning and long term sustained growth. They don’t believe that talent is enough, but believe that in order to stay on top, ability must be maintained and developed constantly over time through hard work. They do not pursue a polished status in itself but their own development, the development of their team, and relationships. They welcome challenges and see it as a way of becoming better people. Most importantly, they do not perceive failure the way the fixed mindset people do. They recognize that they are only human and resist fearing failure as they expose themselves and their weaknesses and ultimately grow as a consequence.

This is perfectly captured in a recent study using young schoolchildren. These kids, aged five to six years old, were given some problems which increased in difficulty over the course of an observed test period. Researchers found that children would come to different stages of the test based on their natural abilities. However, what happened next is most amazing. Some children started to cry when it got too tough and some tried to continue but inevitably surrendered with aggressive spouts in-between. Some children however, increased their concentration as it got harder and some were completely focused on the task at hand they could not be drawn away from it, whether they were naturally clever or smart, that made no difference in later stages. One child even rubbed his hands together and said something along the lines of “right, let’s do this”. The results show that the growth mindset kids were more likely to learn complicated problem solving techniques, irrespective of standard intelligence scores before the test.

Fortunately, there are business leaders with the growth mindset, such as Jack Welsch, the former CEO of General Electric (someone that is not as popular as he should be, in my eyes). He joined GE when it was valued at fourteen billion dollars and twenty years later brought it to a value of $409 billion (the most valuable company at the time). So why is he one of the “right’ let’s do it” people? The following extract from his biography shows why, “I hate having to use the first person. Nearly everything I’ve done in my life has been accomplished with other people… please remember that every time you see the word ‘I’ in these pages [reference to his autobiography], it refers to all those colleagues and friends and some I might have missed.” Dunlap, who once called himself a “superstar in his field”, does not exhibit this self-effacing spirit. Welsch recognises that he is not some fixed entity in the world above the rest, but always learning and growing, with small losses and gains in the short term, he knows that he will overcome challenges in the long term.

Currently, many developed countries across the globe are suffering numerous effects of the crisis, through austerity or other social-economic nightmares. The economy—or society more generally—is not something separate from us, but inextricably tied to people, our psychology and of course mindset. We are in a place right now in the UK where economic disparity is at its highest since the early ‘70s, and the gap is projected to continue to grow. Unemployment and tax increases in the UK have led to the demise of small business in the most deprived regions in the UK, dependent on local enterprises. This only exacerbates the situation. All things considered, it is not surprising that the NHS recently published two health reports, one of which states that the primary cause of death in young men in the UK is suicide and the other writes that alcohol related deaths have increased by more than one quarter in the last decade. It is not unreasonable to relate such problems to a lack of good leadership.

The fixed mindest needs to change. The reverence of “supermen” has gone, it just is not believable anymore. The real heroes of the future will be growth leaders. Leaders who will not let pride and artificial sensibilities get the better of them and thus conduce the demise of our future and the full realisation of human potential.  Not only will we be better, stronger and more dynamic, but it will be sustainable and healthy, and collectively it will perhaps change the course of the world.