Seize golden opportunity of rapid globalization

March 03, 2006|By DAVE YOUNG AND ANTONIO RIERA

Though many workers, executives and political leaders in the United States and other industrialized nations see the advancing Chinese behemoth as an economic threat, perhaps they should view China as the West's new land of opportunity.

According to Chinese news reports, vetted by the government, China expects to build more than 300 new cities over the next five years, bringing the total number of Chinese cities with populations over 200,000 to 1,000. By contrast, the United States has 125 or so.

More remarkably, by 2010, less than five years from now, close to 200 Chinese cities will have populations of a million or more.

What this means to the West is opportunity. By 2050, the United Nations estimates, seven out of 10 Chinese will live in cities. For every 1 percent increase in China's urbanization rate, the country must add some 3 billion to 4 billion square feet of new housing, pump 182 million cubic yards of potable water, generate 640 million kilowatts of energy, and spend some 260 billion to 270 billion yuan (about $35 billion). It will also have to dispose of 1.5 billion cubic yards of wastewater each year.

These are staggering challenges. And China is not alone. Similar dynamics are at play in India, Indonesia, Eastern Europe and other developing areas.

Growth and globalization change everything, and the current scope and speed are starting to test the limits. Just imagine the infrastructure needed to support 800 million new urbanites around the world and the sprawling industrial plants and logistics networks that will connect them into the global economy.

China and other rapidly developing countries are ill-equipped to go it alone. Besides, many of their most pressing needs fall in exactly those areas where Western companies excel: low-polluting electric power generation, commercial aircraft, telecommunications, waste disposal, natural resource management and water quality.

Western companies also can help with the construction of new housing, roads, ports, airports, medical facilities and other infrastructure needs.

One of the developing world's greatest needs will be for capital. We estimate that China and other rapidly developing economies will require some $1.7 trillion to $2 trillion annually in investment capital, much of which is available, waiting on the sidelines for the next big opportunity.

The speed at which today's economic and social changes are taking place is unprecedented. The creativity needed to keep up with such change also is unprecedented.

Technology is not the only realm requiring creativity and rapid innovation. The world's financial markets and institutions also must adopt new strategies, create new products and adapt to rapid change, as they have many times in the past.

Twenty years ago, for example, who had heard of real estate investment trusts (REITs) and hedge funds? Fifteen years from now, we will be looking back on other new financing instruments and arrangements.

The new investment alternatives might, for example, enable investors to finance a portion of the projects - selected, perhaps, by sector (housing, road building, wastewater treatment), by date of maturity, or in ways not yet contemplated or understood.

All these devices and arrangements will enable investors to "bundle" their investments across geographical borders in new ways that minimize risk and maximize returns.

While China is the current focus of globalization, the bigger story is the unseen opportunities the globalization phenomenon is creating for developing and developed economies.

Regardless of where a country sits economically, what globalization is likely to bring is growth: new development for countries on the rise, redevelopment for countries such as the United States, Japan and Germany, and new opportunities for all.

Globalization will fuel the global economy; strategy and innovation will define the winners.

Dave Young is a senior adviser and Antonio Riera is a senior vice president of the Boston Consulting Group.

Knight Ridder/Tribune Information Services

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