Developing Economies Outdistance Developed World

By Faisal Hoque

Squashedby the strains of the European debt crisis and a sluggish U.S. recovery, theworld is looking to the dynamic economies of Brazil, Russia, India, China andSouth Africa for a much-needed boost. Even though the growth forecasts forBRICS are slowing down, these developing economies are still leaps and boundsahead of the United States, Europe and Japan?and they will account for nearlyhalf of global growth by 2020, according to Goldman Sachs.

Theglobal economy is being led by knowledge that doesn?t require complex corporatestructures or gargantuan factories to dominate. As innovative minds connectwith worthy partners across the globe, a new kind of competition threatens thedeveloped world.

Between2000 and 2011, global investors, led by the United States and the UnitedKingdom, pumped nearly $1.4 trillion (via more than 27,000 acquisitions) intothe world?s 15 highest growth markets, according to an analysis byinternational law firm Freshfields Bruckhaus Deringer. The analysis selectedthe 15 countries with the highest gross domestic product growth: Argentina,Brazil, Chile, China, Egypt, India, Indonesia, Malaysia, Mexico, Nigeria,Poland, South Africa, South Korea, Russia and Turkey.

?Lookingahead, the expectation is for emerging markets? [mergers and acquisitions] toplay an even greater role in global M&A activity,? said Edward Braham,global head of corporate at Freshfields. ?The situation varies by market, butthe combination of higher growth prospects, under-consolidated markets and anumber of substantial companies that are open to M&A provides a strongimpetus for deals.?

GlobalM&A is likely to jump this year, as more companies pursue deals infaster-growing markets such as Brazil and China, according to a new survey oftakeover professionals by Brunswick Group. As the global M&A contest intensifies,the developed world must seize opportunities or face a mounting threat. In anycase, it will change the playing field for all participants.

Lookat the mining industry. Anglo-Swiss mining group Glencore International andcommodity trader Xstrata are in talks to create an $88 billion behemoth thatcould quickly scoop up competitors. The biggest-ever mining deal is a keyindicator that natural resources will lead M&A this year. Western companiesstill dominate global mining activity, but that could change quickly as thegrowth regions that hold the majority of the world’s remaining mineral reservesgain an edge.

FollowingGlencore?s $10.1 billion initial public offering in May, the merged businesswill have ?ample firepower to target new buys,? and likely spur other resourcegiants including BHP, Rio Tinto and Vale to reevaluate their M&A plans amidstepped up competition, found a new study by data provider mergermarket, inassociation with international law firm Squire Sanders. ?Aside from the shakeupcaused by the mega-merger, there are a number of other underlying forcesbubbling up in the industry, which may also provide a boost to deal flow,? accordingto the Global M&A Series Energy & Resources 2012 report.

Expectto see more deals like Brazil?s Vale?s sale of bauxite mines and other aluminumassets to Norsk Hydro for $4.9-billon. The global race is zigzagging acrosscontinents. Groups of steelmakers in China and Japan and manufacturers inGermany are joining forces to secure access to iron ore and other rawmaterials.

Manufacturersof electronics and other products that rely on rare-earth metals areincreasingly concerned with the risk of dwindling exports from China, theworld?s top producer of these minerals. Meanwhile, Chinese and Indiansteelmakers are mulling M&A overseas to compensate for shortages in theirdomestic supplies of coal.

Naturaldisasters?like the magnitude 9.0 earthquake that battered Japan’s Northeasterncoast and the flooding in Thailand that killed 815 people?further complicate thebattle for control in these industries.

Ina global marketplace where boundaries no longer exist, competition isintensified by unforeseen events like those tragedies, changes in economic andpolitical conditions, and by the nimble competitors that can spring up from anycorner of the world. It?s up to every player, regardless of size, to be readyfor any change. It?s never been more essential to thwart threats before theyappear on the horizon and to seize opportunities before rivals even sense themcreeping up.

FaisalHoque is the founder and CEO of BTM Corporation. A former senior executive at GE and other multinationals, Hoque has written five managementbooks and established a research think tank, the BTM Institute. His latest book,The Power of Convergence, isnow available. ? 2012 Faisal Hoque