Center of economic gravity shifts to Asia

By EgovAsia Editors | Feb 15, 2010

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Two-thirds of respondents in a survey of 1,017 executives from around the world believe that the global recession is accelerating the shift of economic activity towards Asia. But few say their companies are well-prepared. This is the main finding of "The big tilt: the rise of the East and what it means for business", a special report by the Economist Intelligence Unit.

“The emerging Asian markets require a new approach, which is why we have focused resources on getting closer to the growth, innovation and talent that is coming out of this part of the world,” says John Chambers, CEO of Cisco, who was interviewed for the report. Cisco, a US technology company, has appointed a chief globalization officer and located the executive in Bangalore, India, in response to changes in the world economy.

“The shift in the center of economic gravity is perhaps the most important economic trend facing companies, yet most admit they are not ready for it,” says Nigel Holloway, editor of the report. ”To prepare, companies need to build a business that fully understands consumers in every market. You can’t do that if all your top executives are cloistered in the head office.”

Executives surveyed predict that Shanghai will become one of the world’s top three financial centers in 10 years’ time, after New York and London.

Asian M&A in the West will come to dwarf Western M&A in Asia. Almost nine in ten respondents in the survey foresee a rise in Asian purchases of Western businesses in the next 10 years. Only four in ten expect an increase of transactions in the opposite direction.  Asia will no longer rely on trade with the West as its main source of growth. Four-fifths of the 303 CEOs who took the survey predict that Asian economies will rely increasingly on domestic demand and on intra-regional exports to fuel growth.

About half of companies who describe themselves as well prepared for the shift eastward are innovating their way to success by partnering with local firms in the foreign markets and with local customers.  Half of these firms are also going to enormous lengths to understand local cultures – something that will become a competitive differentiator in the next 10 years.

According to the survey,  the best way to prepare for penetrating foreign markets is to locate senior corporate executives in those markets rather than at global headquarters.