The Rise of the Multi-Polar World

Developing economies—spearheaded by China and India—are challenging the collective dominance of the United States, Europe and Japan, giving rise to a "multi-polar" world economy. This study looks at the drivers and characteristics of this latest phase of globalization and the implications for businesses looking to achieve high performance.

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The contours of the global economy are changing.

The collective economic dominance of the United States, Europe and Japan—the so-called triad economies—is giving way to a greater dispersal of global economic power as developing economies contribute an ever-increasing share of the world's output, trade and investment. The raw figures tell their own story: today the developing world accounts for 49 percent of global gross domestic product (GDP), up from 39 percent in 1990, and is likely to surpass the developed world within the next two decades.

The emergence of a world characterized by multiple centers of economic power and activity—a concept we term the "multi-polar world"—is being driven by three powerful, mutually-reinforcing trends:

• The increasing power of information and communications technologies: Faster communications have allowed business functions to be disaggregated geographically and have also brought a vast array of service activities, many located in emerging markets, within the scope of international trade for the first time.
  
  
• Government policies to increase economic openness: Successive rounds of trade liberalization under the auspices of the World Trade Organization and the accession of some key emerging economies—especially China in 2001—have dramatically increased levels of economic interdependence.
  
  
• The increasing size and geographic reach of the multinational enterprise: A search for new markets, economies of scale and new sources of capital and labor has vastly increased the geographic presence of multinational companies in emerging markets.

Globalization is now becoming a two-way process in which emerging economies are changing from passive recipients to active shapers of globalization. The name of the game is increased economic interdependence, as demonstrated by the five key dimensions that make up the multi-polar world:

• Winning Talent: Talent has now become a global commodity, fought over by multiple competitors.
  
  
• The Flow of Capital: Suppliers and demanders of capital are becoming ever more geographically diverse and intertwined.
  
  
• The Battle for Resources: Emerging economies are growing and so is their appetite for natural resources of all kinds.
  
  
• The Emerging Consumers: Emerging economies are becoming important consumer markets in their own right.
  
  
• The New Map of Innovation: Developed nations can no longer take their lead in innovation for granted.

Multinational companies from both the developed and the emerging economies need to understand these trends if they are to achieve high performance in an increasingly complex global environment:

• Market Focus and Positioning: High performance will depend on a finely tuned ability to adjust market focus and positioning to constantly shifting locations and sources of competitive advantage. National and regional boundaries will become less important as companies begin to organize by value creation rather than geography.
  
  
• Distinctive Capabilities: Companies will need to be simple on the inside, but differentiated on the outside—simplifying their global operations to achieve scale economies while differentiating their products and services for the diverse markets in which they operate.
  
  
• Performance Anatomy: Culture matters–having a diverse leadership team with knowledge spanning disparate markets will be of utmost importance. At the same time, core values will need to be maintained and strengthened.