Get ready for the next wave of globalization. The emergence of the emerging markets is old news, of course; after all, Tom Friedman discovered that the world was flat back in 2005. But even as much of the developed world is struggling with weak consumer demand and stubbornly high levels of unemployment, the emerging-market countries are writing a new chapter in the story of the global economy.
We are accustomed to thinking of our economic relationship with the countries Fareed Zakaria describes as "the rest" as a two-way exchange between west and east or north and south: Western companies setting up call centres in India or manufacturing their goods in China, for example; and, more recently, savings-rich emerging-market economies, especially China, investing in U.S. Treasuries, or Russian oligarchs buying London mansions.
That was Globalization 1.0. In the next stage, some of the biggest deals and some of the most important capital flows will be between emerging markets, with no need to stop over at Heathrow or JFK. Forget the past decade's race-to-the-bottom rivalry between Wall Street and the City of London to be the world's financial capital; the new motto of the moneymen, as one Manhattan banker put it to me this week, is "Mumbai, Dubai, Shanghai or goodbye."
One place you can watch Globalization 2.0 gathering pace is on the 49th floor of the "C" tower in the high-tech, high-rise complex the locals call Moskva City, on the banks of the Moskva river, about a kilometre downstream from the Russian White House, where Prime Minister Vladimir Putin is currently installed. The fancy modern furniture (the "Ziricote veneer," a sign informs visitors, is "sourced in Chile") and contemporary art are standard New York hedge fund decor. But Stephen Jennings, the 50-year-old New Zealander who receives visitors here, is betting on a world that bypasses the West altogether.
Mr. Jennings is a founder and CEO of Renaissance Group, a Moscow-based financial company with ambitions to be the premier investment bank for intra-emerging-market capital flows. As he put it, he wants Renaissance "to provide the plumbing".
Last year, he went home to Wellington to deliver the annual Trotter lecture, a stage he used to lay out his vision of the rise of indigenous emerging-market players. "Multinationals' advantages in terms of know-how and capital have been neutralized by their inability or reluctance to grow explosively in complex, foreign environments," he argued. "In many emerging markets and in an increasing number of industries, the market leaders have local roots. The largest metals group in the world is Indian. The largest aluminum group in the world is Russian ... The fastest-growing and largest banks in China, Russia and Nigeria are all domestic."
Mr. Jennings knows that emerging markets are "highly idiosyncratic." But, he told me, some of the savviest emerging-market champions seem to be discovering that they have more in common with each other than with their erstwhile tutors in the West: "They have analogous business models and states of development ... they are all culturally attuned to these fast-growing markets."
One of the best examples is eight floors above Mr. Jennings' office: Digital Sky Technologies, the Moscow-based Internet investor that made a global splash with a landmark deal with Facebook. Earlier this year, DST formed a three-way partnership with Naspers, the South African media company, and Tencent, the Chinese Internet firm. Together, the three hope to dominate the emerging-market Internet space. Another seminal intra-emerging-market deal was the acquisition by Bharti, the Indian telecom giant, of most of the African properties of Kuwait-based Zain.
A high-tech executive who lives in California and has close ties to Bharti told me the Indian company has a competitive advantage over Western rivals in what he believes will be the explosively growing African market: "They know how to provide mobile phones so much more cheaply than we do. In a place like Africa, how can Western firms compete?"
It would be wrong, of course, to count the West out. Multinational behemoths such as GE, Coca-Cola and HSBC have been quick to understand the opportunity emerging markets represent and are agile in adapting to local conditions. The reliability and the reputation of these global brands can make them appealing partners for even the most aggressive emerging-market entrepreneurs. And when it comes to paradigm-shifting innovation, Western companies such Apple and Facebook are still setting the international agenda.
In fact, it may be Western politicians rather than Western CEOs who will be blindsided by the coming wave of globalization. Lacklustre economic growth and persistent unemployment are fuelling protectionist sentiment in many developed countries, especially the United States. At a time when emerging-market countries and companies are getting better and better at doing business with one another, that impulse may not only be self-destructive. Even worse, it could be futile.
Chrystia Freeland is global editor at large for Reuters.