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Emerging Markets

In my career and my life I have found the key determinants to success include one’s ability to take on a challenge and adapt to change. Change comes in many forms: your responsibilities, your callings, and your addresses. 

I’d like to talk about the evolving global economic picture and what that means to the United States and to your futures. Second, I want to point out how internet connectivity and social networks are helping to further transform the private and public sectors.

Cartoon country balloons in a man's hand

Changing Markets 

In developed economies, real GDP during the past eight years was a meager 14 percent; in developing nations, GDP growth was nearly five times as high as 69 percent. The result has been a seismic shift in the global economy. In 2010 developing economies purchased or produced a majority of the world’s steel, mobile phones, and concrete. In the second quarter of 2011, there were more personal computers purchased in China than in the United States. The emerging markets, which accounted for only 31 percent of the world’s global GDP as recently as 1990, now account for half. 

We can learn much from an age when today’s most advanced economies were themselves emerging. By studying how these countries made the journey from developing to developed, we can gain valuable insights into the projected course of modern emerging markets.

The world was a very different place in the year 1000. Western Europe was an impoverished backwoods. The majority of the world’s wealth lay in the East. Asia, not including Japan, accounted for more than two-thirds of the world’s GDP. China and India were the world’s two largest economies.

Around the year 960, China entered a period of rapid development. By the year 1280, its population had nearly doubled and its economy was the envy of the world. 

Soon after, fortunes began to change. The world’s more developed economies entered a long period of stagnation while once-impoverished economies began their ascents. By 1500 western Europe’s per-capita income had nearly doubled. As Europe’s economic growth inched upward, China’s stalled. During the 19th century and for most of the 20th century, the wealth gap between Western civilization and the rest of the world grew wider. Countries in the West that had once been emerging markets became dominant, while China and India languished in comparison. 

When we look back, we can see many parallels to the economic transformations occurring in our own era. It is true that the past is not a perfect guide to the present, but one core lesson is that the emerging markets of one era can be the developed markets of another era. The opposite is also true; markets are cyclical, not static.

Since 1980 China has amazed the world with growth rates averaging 10 percent. Last year the country overtook Japan to become the world’s second-largest economy. China’s GDP is projected to surpass the United States in purchasing power parity in 2016. When that time comes, China will regain the title it lost years ago as the world’s largest economy. 

China is not the only country that has experienced an economic renaissance; Brazil, Russia, India, and China generated 45 percent of global growth from 2007 to 2009. The countries of sub-Saharan Africa have recorded an average annual growth rate of 5.8 percent since 2004. Around the world emerging markets have grown maybe four times as fast as developed markets in the past decade. 

What’s driving this rapid growth? In large part it’s the same forces that propelled Western economies during their growth periods: savings, investments, education, and liberalizing economic policies. In 2000 emerging markets graduated 30 percent more university students than developed countries. Now it’s twice as many. Between 1980 and 2008 the number of Indian students enrolled in American institutions of higher education increased tenfold, while the number of Chinese students increased nearly thirtyfold.

I’ve also seen the impact in workforces. When I went to work in Asia, the senior management in major companies were generally Caucasians. Now they’re all local Asians. They’re being educated, assuming leadership roles, and doing very well. 

Another factor contributing to growth in emerging markets is smart public policy, such as strengthening the rule of law and intellectual property rights, deregulating industries, and modernizing financial services. Emerging markets have also become more fiscally disciplined. This stands in stark contrast to what we saw at the height of the Asian financial crisis. The debt-to-GDP ratio in emerging Asia was 60 percent in 1998, with the United States at about 65 percent. Since then the debt-to-GDP ratio in Asia has declined to 41 percent; in the United States it has risen to 85 percent. 

No country better illustrates this economic progress since 1998 than Indonesia. Having lived there, my family and I experienced the rule of a dictator, and we were also there when circumstances changed. During the latter half of the 1990s, Indonesia struggled economically and politically, but in recent years it has opened its economy, lowered debt levels, begun to combat corruption, and emerged from the financial crisis. 

Some facts about Indonesia demonstrate how emerging countries are becoming global powers. Indonesia is the most populous country behind China, India, and the United States. It has the second-most Facebook accounts, behind the United States, and has the third largest number of Twitter users in the world. In 2005 there were 1.6 million Indonesians in the middle class. In 2010 that number had risen to 15 million.

A world history of GDP

As we reflect on Indonesia’s achievements, there’s another country with many similarities that also has potential to follow in its footsteps: Egypt. Both were governed by a dictator; during that time both countries experienced low levels of economic growth. Egypt, like Indonesia, has had a very rapid transition to democracy. They both have large youth populations that will mature in the coming years. The key question now is whether Egypt, a country of 82 million, can replicate the success of Indonesia, a country of more than 200 million, but it’s too early to tell. Egypt has enormous potential to emerge as a democracy and, by doing so, to serve as an example to other countries throughout North Africa and the Middle East. If that were to happen, it could help unleash a new era of growth.

With more than half the population of all the countries that have participated in the Arab Spring, Egypt could exert huge influence in the region. And the country also underscores my point about superpowers of the past: Egypt of ancient times not only gave us pyramids, but it also gave us innovations in mathematics, medicine, and agriculture. After a long period of decline, Egypt has the potential to wield significance on a world stage once again.

Changing Technology 

Thinking of the changes engendered by the Arab Spring, it would be hard to overstate the importance of the internet and especially social media on these movements. But there have been other foundational changes as well. Consider the increase during the past decade in the number of people with internet access; it has increased from 361 million in 2000 to 2.1 billion in 2011, and by 2020 it is expected that 5 billion people will be online. Expanded internet connectivity coupled with rising living standards are also giving way to an explosion in the quantity of information being generated. The information created from the dawn of civilization until 2003 is equivalent to the amount of information that was created every forty-eight hours in 2010. This amount of information is projected to be created every hour by 2020. 
We continue to see mobile phone use in new and different lights. In 2009 the data from all texts, emails, streaming video, music, and other services on American mobile devices surpassed the data used for voice on cell phones. Expect this trend to spread throughout the world. 

Woman with block falling apart in her hand

Expanded connectivity coupled with greater consumer usage is creating opportunities for a range of companies. Google, Facebook, and Amazon are taking specific information received from customers of other services, synthesizing it, and employing it back at their customers. Google uses algorithms, derived from search behavior, that analyze your history and target advertisements back at you. Amazon makes recommendations of particular books and other merchandise based on your buying history and that of others like you. Facebook and LinkedIn make suggestions of friends, contacts, groups, jobs, and activities. 
By mining information, companies target suggestions to individual consumers, hoping to create more favorable experiences. As the digital world has expanded, there’s also been a steady growth in online spending. In 2000 online advertising reached $8.3 billion. Online advertising spending reached $72.2 billion in 2011—a historic year, since more money was spent on internet advertising than on print advertising. 

These developments have both positive as well as negative implications. Let me start with the positive. For many businesses the explosion of information and connectivity translates to lower operating costs. As there are efficiencies, higher productivity, and more easily targeted advertising, the cost of acquiring customers is reduced. For example, as customers attain information on their own, there’s also less need for large inventories or sales teams. Customers identify what they want by seeing it and reading about it online, not by looking at merchandise in brick-and-mortar stores. The reduced costs across a range of sectors will be good for earnings prospects and will make these companies more profitable and more attractive. 

Now let me turn to the downside of social connectivity and the internet. One of the by-products of technology is likely to be higher unemployment. As consumers obtain more information on their own and as businesses can target their customers more effectively, there will be less need for customer-facing employees such as retail sales associates and cashiers. 

Let me tell you about a Chinese company called 360buy. It’s an online merchandise retailer with very few employees and no retail stores. It sells goods across a multitude of categories at very low prices. Customers can enter any store, take a picture of a product’s barcode with their phones, and text it to 360buy, which sends back a picture of the same product with a much lower price. Customers can purchase it on their phones and have it mailed to their houses. This is pulling the customer away from the retail store. Entities like 360buy can be great not only for consumers who get lower prices but also for companies that employ fewer people. But as more companies adopt this model, the benefits of convenience and low prices may reveal new challenges that come with eliminated jobs. 

As technology produces more efficient businesses with reduced costs and stronger balance sheets, there’s likely to be a bigger burden on the governments saddled with the increased welfare spending associated with higher unemployment. Adding to the burden will be the fact that governments often cannot achieve comparable efficiencies; they typically find it difficult to reduce headcounts since public sector workers enjoy union protections. 

Those with high incomes will benefit from technology-driven changes in the form of lower-priced goods and, likely, as investors in some of these fast-growing companies. But those with lower incomes will be vulnerable to having their jobs eliminated by emerging technologies. It will be a challenge for those who are displaced by technology to find new opportunities. We may see a resurgence in U.S. manufacturing, but it would probably provide lower-wage jobs and require workers to gain new skills. 


A Chinese proverb says, “When the winds of change blow, some build walls, others build windmills.” There is opportunity in volatility. When the established order is being remade, the barriers to success are much lower. Examples across the decades prove this. The electric razor, the car radio, and nylon were launched during the Great Depression. The technology that brought Xerox copies was actually developed by a worker who was laid off in the early 1930s and grew frustrated making handwritten copies as a part-time job. Many leading American companies got their starts during the recession of the 1970s: Federal Express, Microsoft, and Apple. When the old ways of doing things aren’t delivering robust economic growth, there is a greater willingness to experiment. 

People standing under a grad cap

Education is fundamental to seizing opportunities associated with new technologies and changing global GDP trends. There will continue to be jobs available to those with college degrees, but the number of jobs that don’t require college degrees will continue to shrink and these jobs will pay less. This underscores my point about adapting to change. This country, like so many others, must do more to promote high achievement in education, to make sure students graduate with the skills they need to access the opportunities ahead in the 21st century. 

Your ability to be open to change will drive your careers. Be prepared to move—to new countries even—to pursue experience and capture opportunities for professional and financial growth. Be willing to consider positions with non–United States companies, which are going to be growing very quickly. Achieving success may require a different model from the one your father and mother grew up with. But if you can adapt and be flexible, you’ll be very well positioned. There are incredible opportunities ahead. 

Article written by Eric Varvel
Illustrated by Aad Goudappel

About the Speaker 
Eric Varvel is CEO of Credit Suisse Investment Bank and a member of the Executive Board of Credit Suisse Group and Credit Suisse, based in New York. He is also a member of the Marriott School’s National Advisory Council. He and his wife, Shauna, have five children. This article is adapted from the Honored Alum Lecture he gave in October 2011.

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