• Strategy
  • CFO.com | US

A Two-Track World

In a new book, Nobel laureate Michael Spence aims to help CFOs understand what growth will look like in a world where developed economies and emerging ones are moving at very different speeds.

The U.S. economy continues to bump along unsteadily, and the eurozone countries are grappling with ongoing debt crises. Japan, already stymied by years of economic stagnation, has been sidelined by a natural disaster. Yet, while these developed markets struggle, opportunities abound in the developing world, where a faster recovery, rapid industrialization, and booming populations are driving demand.

In his new book, The Next Convergence: The Future of Economic Growth in a Multispeed World, Michael Spence — winner of the Nobel Prize in economics, a former dean of Stanford Business School, and currently professor of economics at New York University’s Stern School of Business — explores the history of these two segments of the global economy and examines the challenges and opportunities that will arise as the established economies converge with the new drivers of global growth.

Recently, he spoke with CFO about the key points for finance chiefs to consider as they think about growth and expansion in the ever-changing global market.

What are some of the critical points in your book that you would relay to CFOs?

Twenty years ago, U.S. businesses would think of emerging economies as opportunities in the supply-chain sense but not necessarily in the market sense. That’s changing rapidly. These economies are getting very large and creating a huge amount of opportunity for those who can access them. So there’s a big opportunity in terms of corporate profits.

These markets are also shifting fairly fast, so my second observation is that one would have to be fairly fleet of foot in moving portions of global operations or supply chains around. China’s about to price itself out of lots of export industries where it appears to have been dominant in the past. So that economic activity will move to other countries.

Michael Spence

My third observation is that there is a huge investment boom coming in the global economy to sustain the growth in emerging markets. So, while it’s not a sure thing, it looks like the cost of capital is going up. I would say to CFOs that an efficient use of capital, focusing on access to reasonable-cost financing, should be a higher priority than it has been in the past 15 years in a very low interest rate, low cost of capital environment.

Because these emerging economies are moving up the value chain, they also represent a shifting pattern of competition in terms of our domestic activity. That affects so many industries differently.

If you’re a U.S. CFO with a U.S.-focused business, how will the growth in the developing world — and slowing growth in the developed world — affect you?
There are competitive challenges as well as huge opportunities in these markets. Domestic firms in our own country and a number of other advanced countries are going to have to transform themselves in terms of being capable to compete with other markets and establishing global supply chains. There’s a learning curve that goes with that.


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