2009 will be the first year since the industrial revolution when Asian or more correctly emerging econ-omies will be the only ones to record any growth in their gross domestic product in the world. This is not the same as decoupling but an indication of how the world would look like coming out of the recession. The figures put out by the Global Economic Prospects of the World Bank show that the OECD group of 30 countries will log a negative growth rate as would most other economies. That too is striking?it has probably never occurred in the 20th century but as the OECD group statistic dates only from 1961 that part is difficult to establish. The development is obviously not a statistical blip. It is an indication of how radically the production process has shifted in the world economy.
That also explains how companies across different economies are faring in this recession. The high level of mortality among the financial sector companies located in the US and Europe are on expected lines. But isn?t it surprising that hardly any real sector company in India, China or other parts of Asia, including South Korea, has gone under whereas there are very tectonic changes happening to their counterparts in the US and Europe. Since the real sector multi national companies are spread across continents, the shock of recession should have been more diffused on their bottom lines than the ones located in Asia, which are predominantly driven by their operations in single economies. That has not happened. The implications are obvious. Companies that are concentrated on the emerging economies are more resilient now and I suspect that coming out of the present turmoil they will emerge in far better shape. Even among the multinationals, just compare the way the South Korean Samsung has fared till now compared with General Motors.
The growth experience of the emerging economies is therefore likely to dominate the way companies would do business in future. This has vast implications. In the stock markets, for instance, if one were to invest in the top picks among the global stocks in 2009, it would be a brave heart indeed that would be swayed by the current list of top 50 in Fortune?s Global 500. The convulsions are already uprooting several of them but before 2009 is out there are going to be even more massive changes to that pecking order. Except the commodity companies like the metals and oil companies, whose plants are biased towards locations near mining spots, other companies are likely to be overwhelmingly anchored in the new economies. That is what investors too will prefer. You obviously cannot have a company planning to expand vigorously that does not do its business in the strongest growth regions. So once the global investors start picking up stocks across markets, as the first shock of the liquidity crisis gets over, it is difficult to believe that they can be overly excited by the earnings possibilities of companies rooted in the European and North American markets.
As a result of those changes, a fundamental shift would take place in terms of locations from where multinational companies do their core business. That process is likely to be accentuated by the fact that more companies with big bets in the leading emerging economies are in any case likely to weather the current crisis better than those centered on the European or even the North American markets. The change will of course take some time to spread. The chief constraint will be the lack of immediate availability of finance to make fundamental changes in their operations as the world hobbles out of the recession. But when it does happen, companies will not say they are oriented to the emerging markets. Instead they would be positioned there.
This will also mean drastic changes in the product cycles. Instead of refitting automobiles or any other products developed in markets like Europe to be transplanted to the emerging eco-nomies, companies will now develop them in the new growth economies. This is far more fundamental than changes in the settings of the research and development activities of companies.
What makes 2009 very significant is that the pressure of recession will telescope these changes. Companies will have to adapt very fast to survive. The alchemy that was producing sparkling investment avenues from moribund growth prospects in the OECD countries, through financial engineering, is now absolutely impossible for a long time. So the pace of these changes will now accelerate sharply.
In any case they should not surprise. They are just one more step in the Schumpeterian logic of creative destruction. Would this also mean changes in the technology front? That is more difficult to sort out. But products like Nano car from Tata Motors are the ones which could be the leading example of those changes.
?subhomoy.bhattacharjee@expressindia.com
