Fast-growing home markets have been the launchpad for globally competitive emerging market companies, partly because these firms have learned to compete at very different income levels. Moreover, they know how to work around inadequate infrastructure. McKinsey’s research suggests that these companies are growing more than twice as quickly as their counterparts in developed economies.
Emerging market large companies’ growing global clout is reflected in flows of foreign direct investment (FDI). As recently as 2001, only 5 percent of outward FDI came from countries outside the Organisation for Economic Co-operation and Development; by 2011, that share had soared to 21 percent. China’s outward FDI rose by almost 50 percent per year from 2004 to 2010, while Brazil, Singapore and Hong Kong have been major investors in Europe.
Those who have been writing obituaries for the emerging market boom should give serious consideration to these trends. The new breed of emerging market multinational is diversifying its revenue around the world. If growth in these companies’ home markets slows, they will diversify even more aggressively. The global economy is now their platform.
Richard Cooper is a professor of international economics at Harvard University. Jaana Remes is a partner at the McKinsey Global Institute, based in San Francisco.
Copyright: Project Syndicate