New rules for tomorrow's world

The financial crisis should not blind us to the fact that the world is not what it used to be. New players have entered the world economy and they have changed the rules of the game. The power base of the world economy, which used to be centred on the United States, Japan and Europe, is now more diluted. Money, work, brainpower and technology can be accessed almost everywhere.

In the early stages, global companies entered emerging markets mainly to lower their supply costs. Today, their roles are shifting and they are key players in the development of emerging nations, which are eager to build their infrastructure and develop their domestic consumption. But tomorrow, global companies will have to compete with homegrown companies and brands that are being born and bred in today's emerging nations. Emerging markets are becoming emerging powers. The partners of today will become the challengers of tomorrow.

The first wave of globalisation (1985 to 2000): In the first part of this movement, Western companies focused on access to cheap supplies, such as labour, raw material or logistics. As a result, the prices of most goods produced globally have declined. In the next part, companies moved from seeking just cheap labour to also seeking cheap brainpower. China, Russia and India produce roughly 14 million university students a year, almost as many as the US. The main characteristic of the first wave of globalisation is, thus, "deflation".

The second wave of globalisation (2000 to 2020): The second wave is now in full swing. The priority is not so much to have access to cheap supplies, but rather to have access to the domestic markets of emerging nations.

One of the most important changes may be the birth of a middle class in Asia, including Russia, and Central Europe, Latin America and the Gulf region. This new middle class - just like in Europe and the US in the 20th century - is eager to buy branded products (status symbols), such as electronics, cars, housing, better healthcare, holidays, etc. This new class will be the engine of growth for the next two decades.

New products to serve new customers: Companies need to develop a new business model that aims at serving the poorest who are entering the world of consumption. Some products already exist: The US$100 (Bt3,214) PC, the $2,500 car (Tata in India) and micro-credit. This market will grow to a huge proportion in the future.

In the second wave of globalisation, salaries will increase and drive further increases in private consumption, raw material prices, food prices, etc. As a consequence, while the first wave was characterised by "deflation", the second wave will then be struggling with that old demon, "inflation".

For companies, a surge in inflation means reviving the good-old cost-efficiency strategies. However, most of the management techniques that are available to attain such a goal have already been implemented: quality and reengineering in the 1980s, outsourcing and off-shoring in the 1990s, full globalisation in the 2000s. What is left?

Today, one of the avenues increasingly explored by companies is to reduce the complexity of their business models. Globalisation generates unnecessary levels of complexity in the way companies operate internally and relate to their customers.

As Peter Drucker put it: "There is nothing so useless as doing efficiently something that should not be done at all…"

This is the first part of a series. Excerpt from "The New Waves in Globalisation and Competitiveness" written by Stephane Garelli, director of IMD's World Competitiveness Centre.

Text has been edited for size.\

      At a glance

n In the first wave, Western companies focused on access to cheap supplies. So, prices of most goods declined. "Deflation" was the defining character.

n In the second wave, salaries will increase and drive increases in private consumption. So, the defining idea will be "inflation".