SHIFTING FULCRUM ( ? )

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The last decade and a half has been seminal in yet one more recasting of the world. There has been major revision of the frame work of reference in interpretation of technological, financial and social events. The first major shift came in the early 1990’s when it was realized that it was possible to measure intellectual assets and the wealth that it would represent. The emergence of Bill Gates was a phenomenon which had revolutionary overtones in the world of work and that of the industry.

Knowledge management at one stroke revolutionalized investment patterns and parameters of industry evaluations. Gradual emergence of China and India not to overlook the intrinsic strength of Japan, Singapore and other countries of South East Asia ensured that Asian perspective was more than just a geographical concept. The prosperity of west Asia and the assertion of the power of hydro carbon made sure that the only real conflict in the world was conflict for control of resources.

The rest was the problem of branding. I am trying to make sense of it in categories that one is used to.

The markets slowly recognized this shift and United States was no longer the growth pole of market economy. It was not even the final market or destination. The current US sub-prime crisis has all the indications of a major convulsion and the shape of the world as and when it blows over, may be different from what it was before the current recession.

IMF has confirmed that US economy has gone into a recession which essentially means negative growth in two successive quarters. It has been actually confirmed, interestingly, that US economy going into recession does not mean global recession any more. The G-3 economy, which means US; European Union and Japan, it is estimated, will have 1.3% growth. The emerging economy lead by China and India could still be growing at 6.7%. The world economy itself is expected to have 3.7% growth in 2008. The significant dimension is that 3.7% growth is lower than the 2007 average of 4.6%.Clearly this is not global recession.

The emerging capital markets of Dubai, Bahrain, Mauritius show that what used to be earlier seen as not so prosperous, today is poised to take the leap forward. Asia is not only attracting attention but also investments. No global company can afford not to have China or India strategy. China remains prime destination for investment with India having moved from the sixth place in 2003 to the second now. The investment flows are indicators of the shifting fulcrum.

It is estimated that China alone has nearly 2 trillion US $ of foreign exchange reserve, Japan has 90b, India 300b, Korea 350b add to it Hong Kong and Singapore. The total reserves in this region are 4 trillion US $. These countries in the absence of regional frame work have been putting that money in US treasury bonds which have been yielding negative real rate of return for the past few years. Hence the management of foreign exchange reserve has become a challenge.

It is not surprising there far that some countries have set up sovereign wealth fund. China singly has set up a sovereign wealth fund of 200b $ as the economic geographic changes. There is a new list of debtors and creditors. China is doing different types of investments, diplomatically and economically, while Indian companies have entered the game of acquisition in a major way. Investment in natural resources be it oil or coal is a part of international diplomacy. A lot of investment is also taking place in African countries which have natural resources endowments. Internationalization of operations with large companies having footprints in different parts of the world is becoming an Asian phenomenon. Tata’s with the acquisition of net steel in Singapore, millennium steel in Thailand, Corus in England and Netherlands have today footprints in 40 countries. An achievement any ethnic group would be proud of.

Between resources and market lie the real industries strategy for any corporate. There is talk of the Asian Economy Community. Regional commercial architecture is growing in Asia which may acquire similar significance to that of the European Union or NAFTA. Financial integration and cooperation is the flavor of the times and international unions and associations have a large role to play.

Global financial integration is also important and as several products and services enter the market, the investment opportunities widen as they never done before. By the same token as the complexities of these products and services have grown so has the risk enhanced. Good management is the answer and proper structuring of organizational processes will alone ensure organizational effectiveness.

It is important to realize that acquisition is one ball game and effective running of the day to day operations is something cans another. The challenge of managing investments and organizational growth in the modern world will be difficult to organize unless there is a proper awareness of the shifting nature of the fulcrum.

The other challenge which is imminent for managing the emerging investment opportunities and using them for organizational growth is the constant up gradation of knowledge and skills of the human capital and up gradation of technology.

Unpredictable flow of capital flows however continues to be a problem.

‘Globalization expands the opportunities for unprecedented human advance but for some it shrinks those opportunities and for others erodes human security. It is integrating economies, culture and governance but fragmenting societies. Driven by commercial market forces, globalization in this era seeks to promote economic efficiency, generate growth and yields profit. But it misses out on goals of equity, poverty eradication and enhanced human security.’ The debate goes on. It is obvious that those involved in this debate are emotionally pre disposed. They do not wish to face the truth. This is not because they are dumb but they have an inability to recognize facts to be what they are.

Human mind being what it is, can always find arguments for what it wants to believe in and what it seeks to do. The generic truths of existence and economic reality are another set of factors altogether. That liberalization and globalization has increased the vulnerability of the relatively weak is a fact of life. Obviously it cannot be addressed till the stake holders of liberalization and globalization first recognize it as a problem.

In the meanwhile, the economic fulcrum has definitely moved and progressive financial sector liberalization cannot be the solution of problems of equity and common sense.

It is important to recognize that if the welfare of the weak and their vulnerable is to be managed effectively, it is important to mitigate the risks arising out of the progressive financial sector liberalization. As indeed, the cost of housing plummets in the US and not so long ago the rates of interest on housing loans were going up in India, obviously, the cost of borrowing was likely to go up. It is about time we recognized that higher rate of interest itself is an indicator of likely default.

The symptoms are clear. The indicators of the economy are possible to decipher. What is needed is the management craft of reinventing at least the financial sector, as the fulcrum shifts. India, with its innate conservativeness in the financial sector, could indeed set the pace.

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