Globalisation is throwing up new consumer potential in the emerging world and shattering old theories of economic management. Banks failing to track this fast-moving target will be consigned to history.

Globalisation is working itself out in strange and unpredictable ways. It is producing an unexpected and ever-changing list of winners and losers. It is prompting mergers and acquisitions activity and strategic tie-ups that will reshape worldwide business. Most profound of all will be the macroeconomic and monetary impact that threatens to turn current theories on their heads and bring about new thinking in economic management.

The changes are happening so fast that only by constantly re-evaluating their strategies can bankers, company bosses and indeed central bankers be sure that they are truly on the right path. The message is: if you are confidently assuming you have it sorted, think again; you are almost certainly wrong.

Let us consider the hullabaloo in New York about the loss of business to London, especially in the area of initial public offerings (IPOs) from companies in the emerging markets wishing to raise international funds.

Pie enlargement

Those campaigning for an overhaul of the red tape, rules and litigation mania that they claim is losing New York its edge as a world financial centre – as described in this month’s cover story – are definitely right to make the business environment more user friendly. It is a job worth doing and will benefit the New York markets and all those who work in them. But New York’s loss of business is also due to the rise of financial markets in the emerging countries themselves. “The pie is getting bigger and the pieces more evenly distributed,” as one analyst describes the process.

Companies, banks, markets and indeed whole countries have to find their competitive position in the new milieu. Barclays’ recent pitch for ABN AMRO, which, if successful, would create the world’s fifth largest bank, can also be seen in the context of responding to globalisation and the power of new market forces.

Putting together key emerging market franchises would be a fundamental part of any deal. ABN AMRO owns Brazil’s fifth largest bank, Banco Real, while Barclays has South Africa’s second largest player, Absa. Brazil’s 180 million population and South Africa’s 50 million population are two critical parts of the desperately sought and fought after emerging markets growth story. At a stroke, if this deal worked, two great franchises in two of the most significant emerging markets are brought together under the same roof. Hence analysts should be looking less at the potential for cost saving in the UK and the Netherlands, which are comparatively light, and more deeply at the emerging markets growth story. Can Brazilian designed and tested financial products be sold into South Africa?

In a different approach to exploiting the new consumer potential unleashed by globalisation, Citigroup and Vodafone have unveiled a new mobile phone-based international money transfer service aimed at the world’s unbanked. Currently one billion people worldwide hold a bank account but some 2.5 billion have a mobile phone, a figure that is expected to rise to four billion – more than two-thirds of the world’s population – by 2010.

Therefore, if mobile phones can be used by the world’s unbanked to make payments, companies such as Sweden’s telecoms giant Ericsson are all set to clean up. Companies that think differently will win out in this game as opposed to those that merely roll out their existing wares under a new label.

Moving on to macroeconomics, a paradigm shifting process like globalisation is indeed constructed of thousands of micro decisions and individual market shifts but the impact at the top level can only be profound. How this impinges on monetary policy is still far from clear but that it will have unforeseen effects is certain.

Some central bankers, in a similar vein to overconfident CEOs, may believe that they have got globalisation figured. Success at bringing down inflation rates has lulled them into a false sense of security and a false view that somehow monetary science has triumphed and inflation totally conquered.

Inflation complacency

Former International Monetary Fund managing director Jacques de Larosiére casts aspersions on this notion in an article in this month’s issue of The Banker. Falling inflation rates, it transpires, may be due less to state-of-the-art monetary policy and more due to factors such as the 40 million low wage earners entering the world labour market every year and their enormous output of low-priced consumer goods.

With financial markets becoming ever more complex in nature, and the creation of new forms of credit, the challenges for central banks (happily skipping from monetary targeting to inflation targeting as a means of coping with a fast-moving object) may be too great to cope with. Central banks may be independent but it may be the entire government, and governments, that have to sit down and work out what to do after the party ends… suddenly, if past experience is anything to go by.

Just when you thought it was safe to go out…


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