Adjusting to BRICs in Glass Houses: Replacing Obsolete Institutions and Business Models

Abstract

Global adjustment to the rise of the BRIC and other emerging economies is an important challenge for firms in the advanced economies. Emerging market firms increasingly trade and invest globally while monetary imbalances continue to rise and hobble advanced economy firms. Advanced country firms feel like they live in glass houses as the tectonic forces of technology, demographics, globalization, sustainability, and climate change force obsolescence in their business models. In this article, this overseas projection of economic power by the rising new economies is illustrated by the Indian and Chinese overseas economic expansion focused on Africa. This analysis shows that noneconomic state-driven entities are likely to be a significant part of the rise of South-South economic trade and investment flows and it poses theoretical and practical problems for existing market-based economic and geopolitical institutions. Global adjustment to these new realities is also challenging as existing multilateral institutions seem to be inadequate. These changes in the global environment have significant implications for policy makers and managers of global companies. © 2013 Wiley Periodicals, Inc.

Introduction

The world faces a new set of challenges as it accommodates the large newly emergent developing economies such as the BRICs (Brazil, Russia, India, and China), South Africa, Mexico, Poland, Indonesia. These new large economies are now so important that global agreements for trade and investment promotion can no longer be pursued without their participation and leadership. Yet, existing market-driven multilateral institutions essential for orderly global governance were set up after World War II when the US and its allies dominated the economic landscape, and now seem to be inadequate to the task. Consequential changes in the global environment have significant implications for policymakers and managers of global companies.

For the past six decades, since about the middle of the twentieth century, there has been a strong push for multilateral trade and investment agreements to lower barriers to international economic flows. These multilateral agreements have been spectacularly successful and have eliminated in many cases, or greatly lowered in other cases, global barriers to trade and investment flows. This market-driven multilateral approach to global economic integration has been carried out with the strong backing and leadership of the United States and its allies and until recently was on the way to achieving a unipolar integrated global economy with its many attendant economic benefits. This orderly progression is now under threat. With the rise of the BRICs like China, India, and other large emerging economies, in relative terms the dominance of the United States and other advanced economies seems to be declining. Further, the rise of the new economies is associated with a mix of noneconomic state-driven entities. Consequently, the old market-driven ways of global economic integration are unlikely to work well in the future.

Further, traditional spheres of influence have reflected geopolitical economy considerations, with the United States developing strong north-south political and economic interests and influence in South America and with Europe similarly developing strong ties to its south in Africa. In recent years, China and Japan are similarly focusing their influence south in Southeast Asia and Australia. Asia, Europe, and the United States, of course, also have economic ties to other contiguous areas to their east and west with Asia trading with the United States and Europe, the United States trading with Asia and Europe, and Europe trading with Asia and the United States. However, with the rise of the new large economies, this tripolar view of the economic world is breaking down to become more of a multipolar world.

In addition, traditional modes of economic interaction have emphasized trade and investment flows among the developed countries (north-north economic flows) and only secondarily the flows between developed and developing countries (north-south economic flows). In contrast, economic flows between developing countries (south-south economic flows) have received much less attention, perhaps because such flows have been relatively small until recently.

Measured by purchasing power, emerging market countries now make up over half (55%) of the global gross domestic product (GDP), with south-south trade growing much faster than global trade so that it now accounts for 18% of all global trade up from 7% in 1990 (Athukorala, 2011). However, with the rise of south-south economic flows, the process of global economic integration seems to have stalled in recent years, with multilateral agreements giving way to many bilateral and regional trade and investment agreements. There is now the high likelihood of the multipolarization of the global economy with consequent loss of the benefits arising from an integrated global economy.

Further, the recent 2008 global financial crises were preceded by an unprecedented rise in international payment imbalances. While global government reserves were about $200 billion in 1990, they had risen forty-fold to over $8 trillion in 2009 with another $4 trillion in sovereign wealth funds, all available for any balance of payments emergencies (Taylor, 2011). Most of these foreign exchange reserves were accumulated by countries in Asia and the gulf region, and while these reserves helped them better weather the 2008 global financial crises, they also reflected a massive and relatively concentrated buildup of global payment imbalances (with some developed economies like the United States suffering corresponding large deficits). Indeed, according to Gordon Brown, the former prime minister of Britain, the rise of the economic south and the global payments imbalances were among the basic causes of the 2007–2008 economic crises and, further, they will also likely cause additional crises in the future (Brown, 2011).

One reason for the buildup of these huge foreign exchange reserves among the emerging economies may have been their response to the earlier failure of international institutions, such as the IMF, to lend to Asian countries without humiliating and unwise conditional requirements during the 1997 Asian financial crises (actually, these policies were a continuation of similar earlier unwise policies in Latin America). While the rise of Asia and other large emerging economies is not going to go away anytime soon, existing global institutions seem unable to accommodate this rise. Further, it seems that the situation is likely to get worse with south-south economic flows growing much faster than traditional flows.

Moreover, all of these changes in the global economic framework are happening at a very inconvenient time for the developed countries. In recent years, the tectonic forces of demographics, sustainability, technology, and globalization are forcing obsolescence in developed country business models (Aggarwal, 2011). “Southern” economies and companies are challenging developed country economies and companies at a most inopportune time—with their business models rapidly becoming obsolete, businesses in the developed economies feel they are living in “glass houses” while the rise of the new “southern” economies seems like “BRICs raining down on their glass houses.”

While there may be more than one reason for further deterioration in payments imbalances and economic polarization, this article examines the heretofore inadequately explored role of the rise of south-south economic flows. The analysis presented here shows that traditional European, US, and other developed country dominance in trade and investment flows is being significantly supplanted by trade and investment flows among developing countries. These changes are leading to a relative decline in European and US economic hegemony and perhaps the rise of a strong new southern economic bloc. Further, this analysis indicates that the nature of the economic ties in this southern bloc may be quite different from traditional trade and investment ties dominated by the developed countries. For example, it is likely to include a larger proportion of noneconomic state-driven entities.

However, the rise of these large new economic powers and related south-south economic flows have to be accommodated by other economic powers and by existing global institutions. Such accommodation is likely to be less than smooth especially as existing multilateral institutions are inadequate to the task, having been structured over seven decades ago when the global economy was quite different. Thus, this article calls for bold and creative solutions in the form of significant and major changes in existing multilateral institutions or the creation of other new institutions to accommodate the rise of the new economies. The nature of the new international institutions, or the significantly changed existing international institutions, will have important implications for policy makers and managers of multinational firms.

Rise and Overseas Projection of Southern Economic Power

In recent decades, the global economy has seen the rise of a number of newly emergent economies, the most prominent of which have been exemplified by the acronym BRIC (Brazil, Russia, India, and China). Other economies that are also rising can be said to include at least countries like Poland, Indonesia, Korea, and South Africa (PIKS); Mexico, Argentina, Nigeria, Turkey (MANT); and many others. As the formerly small economies rise on the global stage, they are ever more likely to project some of their economic power overseas through trade and investment. According to the Asian Development Bank (ADB, 2011), based on market exchange rates the share of the south in world GDP rose from about 25% in 1980 to 45% in 2010, of which developing Asia alone contributed two thirds.

Rise of South-South Trade

The share of south-south trade in world trade is also growing rapidly, having more than doubled in less than two decades, from 7% in 1990 to 17% in 2009 (Table 1). As Table 1 shows further, south-south trade grew more than tenfold from 1990 to 2009 and now accounts for about half of the trade of the “southern” economies. Naturally, these percentage increases in the economic role of the “south” are much higher if calculated based on purchasing power parities.

Table 1. South-South Trade in World Trade, 1990–2009 (Total Merchandise Trade)

Developing Asia now accounts for about three-quarters of this south-south trade, with the People's Republic of China (PRC) alone accounting for roughly 40%. South-south trade increasingly seems to be replacing trade with the developed countries. For example, as shown by the figures presented in Table 2, after the 2008 global financial crises there was a lot of talk of the Asian countries decoupling from the Western industrial economies. Of course, it remains to be seen if this trend continues or accelerates.

Table 2. Developing Asia Decoupling from the European Union and the United States: Percent of exports to the European Union and the United States

In fact, there is much potential for further rise in the importance of south-south trade as tariff levels and other barriers to such trade continue to decline further. Average tariffs facing south-south trade were estimated to be three times higher than tariffs on trade with the north at about 12% in 2000, having declined from three times as high in 1983 (Lourdes, 2004). As Table 3 shows, tariffs on south-south trade are consistently higher than north-south or north-north trade. It has been estimated that tariff declines in manufacturing and agriculture can each increase trade by up to $31 billion in each of these two sectors, with similar gains in the service sector (Lourdes, 2004). However, for these gains to continue it is critical to have global governance institutions dedicated to tariff reductions in south-south trade, especially as existing institutions seem to place inadequate attention to such trade and investment.

Table 3. Tariffs on South-South Trade versus Other Trade: Developing Country Tariffs Biased against Developing Countries

Further, economic theories developed when south-south economic flows were insignificant may also be hindering efforts to understand and accommodate the rise of such flows (e.g., traditional trade theories seem to have trouble explaining the observed nature of south-south trade and investment). The widely used Heckscher-Ohlin model of comparative advantage has little to say about the composition of trade when factor endowments are similar across countries. Given that a great deal of trade observed in the world is between countries with remarkably similar factor endowments, alternative models that can explain such flows are needed.

One example of such alternative explanations is Linder's hypothesis (Linder, 1961) that trade is determined by similarity in demand structures so that countries with similar levels of income per capita would trade more with one another. Therefore, one would expect south-south (and north-north) trade to flourish given similar demand structures. Empirical studies confirm Linder's hypotheses in that there is more trade among countries with similar levels of GDP per capita (e.g., Hallak, 2006), among Organization for Economic Cooperation and Development (OECD) countries, and among developing countries (McPherson, Redfearn, & Tieslau, 2001).

Second, the substantial trade flows between countries with similar relative factor endowments can also be justified by models of increasing returns to scale and monopolistic competition. In these models, increasing returns in production leads countries to trade in slightly differentiated products, even if the products' factor intensities (and the countries' factor endowments) are quite similar. Empirical studies show that exports from the least developed countries (LDCs) to other countries of the south had greater skill content than exports from LDCs to the north (Amsden, 1980). In addition, greater learning effects and technological spillovers arise from south-south trade (Amsden, 1986). South-south trade also seems to have a much greater role than trade with the north in beneficially transforming emerging market economies (Klinger, 2009). These are just some examples of the type of new thinking necessary to understand the rise of south-south trade. Clearly, much additional work in this area is still necessary.

Next, we illustrate how south-south foreign direct investment is difficult to fully explain using traditional theories developed to explain advanced country foreign direct investments. We illustrate these difficulties using two examples of outward foreign direct investments (OFDIs) from India and China, the two most prominent of the BRICs. The first example is based on OFDI from India and the second is based on inward FDI in Africa from India and China.

South-South Foreign Direct Investment: Indian Example

Driven by its many economic advantages, foreign direct investment (FDI) in general, and south-south FDI in particular, has been growing rapidly especially over the past few decades. According to Lipsey and Sjoholm (2011), OFDI from emerging market countries now makes up over a quarter of all global FDI—up from almost nothing two decades ago. Table 4 presents some statistics in this regard. Indeed, as shown in Table 4, while FDI from the United States still dominates FDI from any other country, the FDI share of the southern countries has been growing rapidly and in many cases now exceeds FDI from the non-US developed world such as European and Japanese FDI. In addition, the rise of outward FDI from the southern countries is particularly notable in being contrary to traditional theories of FDI that generally posit FDI flowing from the developed countries to the developing countries.

Table 4. Inward and Outward FDI Stocks, Five-Year Averages, Selected Economies ($ Billions)

It is beyond the scope of a short article to discuss the overseas activities of all of the major new economic powers. Fortunately, the overseas projection of Indian economic power discussed next is illustrative of what other rising economies, such as China and the other BRICs and PIKS, are doing. The Indian economy has been growing rapidly since the economic reforms of the early 1990s and now seems to be on the way to becoming a major global economy, perhaps eventually becoming the third-largest economy following the United States and China. As expected, India has been projecting its newfound economic powers overseas. The next section reviews briefly the nature of this nascent Indian overseas projection of economic power focusing on OFDIs by India in Africa, another developing region.

While many Indian firms are tempting acquisition targets and some have been acquired by MNCs from other countries, here we focus on outward Indian FDI.¹ Based on analysis of recent trends, there are many traditional reasons for Indian firms to engage in outward FDI including the need to enter new markets to maintain growth, to gain proximity to global customers, to expand market share and customer bases, and to acquire technology, raw materials, and other valuable inputs from foreign countries (at costs lower than free-market prices). For example, Indian firms have acquired firms in other less developed countries to help them gain easier access to a target's resources and markets. These deals are profitable because of many market imperfections such as a high unmet demand for foreign investment in some of these economies. As usual, another important reason driving the “urge-to-merge” is the pressure of rapidly increasing domestic competition.

Indian firms also engage in cross-border acquisitions in countries where their technology has not yet become obsolete while others do so to save on labor and production costs. Some Indian firms, especially in the pharmaceutical sector, strive to increase their market share by enhancing their product range or to diversify the portfolio of their products or services. However, while much Indian FDI is in other developing countries in Africa,² the Middle East, and Southeast Asia (see Accenture, 2006), in recent years, Indian FDI in the developed countries has also increased significantly.³

Many Indian firms engage in direct investments in the developed countries to gain access to new markets and to expand their overall technical capabilities and existing knowledge bases (Aggarwal, 2010). In most cases, the knowledge and technical expertise gained abroad can help the acquirers in improving their productivity in the domestic Indian market as well.⁴ Acquisitions in developed markets have been attractive to Indian firms also due to the opportunity to learn how to compete in highly competitive environments with advanced legal systems and sophisticated production and marketing technologies.

Nevertheless, significant outward FDI from India is still in its early stages and faces a number of challenges (Pederson, 2008). For example, it has been widely contended that some overseas acquisitions by Indian companies have been driven by other than purely commercial reasons. A case in point is the criticism of Tata Motors for being driven by national pride to overpay for its acquisition of the marquee brands, Jaguar and Land Rover. Attempts by Indian companies to acquire MTN, the South African multinational wireless phone company (first by Reliance Communications and then by Bharti Airtel), have not been successful, with the latest 2009 offer by Bharti Airtel nixed by the South African government.⁵

Bases for Indian OFDI

One of the primary questions in understanding global expansion of firms is how they overcome the limitations of foreignness when they cross borders.⁶ The reason for cross-border expansion is that, in the presence of market imperfections the gains from cross-border activity, generally in the form of lower-cost inputs such as inexpensive raw materials or not otherwise available technology, are greater than the costs of foreignness. A second explanation is that FDI brings certain advantages, developed domestically or elsewhere in the firm network, to the new host country to overcome the limitations of foreignness. These explanations have been widely explored mainly in the context of MNCs from the highly industrialized countries. However, it remains to be seen if these traditional explanations work for firms from India—a relatively poor and underdeveloped country but where services are already the largest sector.

We consider three theoretical explanations for FDI, two traditional and one designed to accommodate emerging market OFDI, and examine how they apply to Indian OFDI. We start with the two main modern theories of FDI, the OLI paradigm (Dunning, 1993, 2000) and the Process Theory of Internationalization (PTI) Uppsala model (Johanson & Vahlne, 1977; Johanson & Wiedersheim-Paul, 1975). Finally, we also examine a hybrid theory based on home government–directed comparative advantage developed especially for FDI from emerging economies (Aggarwal & Agmon, 1990).

The eclectic OLI paradigm of Dunning (1993, 2000) combines the insights of industrial organization, international trade, and market imperfection theories to explain the internationalization process as governed by three general factors: the ownership advantages of the firm (O), the location advantages of the market (L), and the internalization advantages of conducting transactions within the firm rather than on open markets (I). The ownership advantages include the firm's asset base and knowledge power, such as management knowhow, international experience, and ability to develop differentiated products. Traditionally, these were considered to be directly related to size, which helps the firm achieve scale economies, absorb the resource costs of international competition, and enforce contracts while protecting its patents (Buckley & Casson, 1976). The location advantages refer to the earnings potential and risks associated with specific markets; the premise is that firms will first seek to enter the larger and least risky markets with the best growth potential (Herring, 1983). The internalization advantages relate to the relative costs of integrating the assets and skills of the firm with a foreign counterpart. Shallow modes of entry (such as exports or licensing) tend to minimize these costs, while deeper modes of engagement (such as FDI) involve higher costs. Agarwal and Ramaswami (1992) note that the optimal entry mode usually becomes a compromise between the firm's available resources, risk-adjusted expected net returns, and desired degree of control. While the transaction costs–based OLI paradigm is sufficient to explain many instances of emerging market OFDI, it is often deficient and other explanations have to be sought.

The Uppsala model, also known is the PTI theory (Johanson & Vahlne, 1977; Johanson & Wiedersheim-Paul, 1975), differs from the transactions costs based approach of the OLI eclectic paradigm by focusing on the process through which firms incrementally engage in foreign markets via a learning process. At the early stages of internationalization, firms have little knowledge or experience of doing international business or of specific foreign market conditions, implying these firms face a great deal of uncertainty and risk. They respond to this challenge by gradually building their international involvement and learning along the way as they build their knowledge, experience, and commitment to internationalization. The PTI predicts that firms will initially enter markets that are close to their home base (in terms of geographic, legal, cultural, or other economic measures of distance) because the costs, uncertainties, and risks are lowest there, and that they will further internationalize over time as they gain experience—thus, the preference of emerging market firms investing at least initially in other developing countries.

While the OLI paradigm focuses on discrete rational decision making and the PTI emphasizes organizational learning, both imply that the internationalization process likely will be a sequential one, a process where firms initially internationalize into geographically, culturally, and psychically close markets at shallow levels of entry modes. As their OLI advantages increase over time, or as they learn and gain experience and confidence, according to the PTI, firms will reach further afield at deeper levels of engagement. Aharoni (1971) described this process in life-cycle terms with firms servicing foreign markets with increasing commitment, starting with exports and leading eventually to overseas manufacturing. Aggarwal (1984) and Dunning (1993) also outline life-cycle stages of a firm's internationalization: from exporting to direct sales, to initial foreign part production, leading over time to new foreign production that deepens and widens the value-added network, and finally to regional or global integration.

Finally, the Aggarwal and Agmon (1990) model emphasizes the supportive role of the state in explaining outward FDI especially from developing countries. In this model, the fixed natural comparative advantage of a developing country is modified by government intervention and investment in non-tradable capital goods such as education and/or technology. This creates a dynamic long-term home government–directed comparative advantage for firms based in a country which encourages them to move forward in the product “life cycle of firm multinationality,” where shallow modes of foreign entry such as exports by firms are followed by deeper modes such as FDI, starting in countries with low cultural, political, economic, or psychic distances (Aggarwal, 1984).

Many Indian firms invested overseas based on their location advantages (L) such as having a low production cost base in India to support foreign sales; (O) serving export markets with FDI thus internalizing the cost advantage (I). However, the fact that much Indian FDI started with neighboring regional and culturally similar countries before expanding further afield clearly indicates consistency with the PTI theory and a commitment to learn and gain experience before taking greater risks. Finally, Indian FDI would have been much lower and occurred later, but for the heavy investments made by the Indian government in research and development (R&D) and world-class technical education (e.g., the Indian Institutes of Technology). This moved the comparative advantage available to Indian firms to favor outward FDI earlier than it might have been possible otherwise—FDI from developing countries being a later stage than FDI from the developed countries in the life cycle of multinational firms (Aggarwal, 1984; Aggarwal & Agmon, 1990).

While the discussion above is useful and illuminating, the core question that FDI theories must address concerns the mechanisms of how a company overcomes its liability of being foreign when it engages in cross-border expansion. It is the contention here that Indian and perhaps other multinational corporations (MNCs) from the poorer countries may enjoy a number of advantages developed in their home markets that they can use overseas to overcome the liability of foreignness. These include managerial abilities developed while working in their home countries in poor cultural, ethical, legal, and institutional environments with weak infrastructures and limited availability of external finance so that such Indian firms are preadapted to succeed in other poor institutional environments. Firms from other developing countries may also reflect these advantages in their outward FDI activities. Some examples of a few of these special skills developed at home available to Indian firms when they go overseas include:

• 1.
  Low-cost production/design bases: Indian companies can and do use the lower cost domestic production, R&D, and design bases as a strength to extend their businesses internationally. This strategy likely played an important role in the recent acquisition of European and US steel and auto companies by Indian companies. Many contend that this is also the model that has been used by Indian information technology (IT) companies to very successfully expand globally. Another developing example of this strategy are the Indian mass-production-style medical procedures (like open heart operations at Narayana Hrudayalaya Hospital and cataract and eye operations elsewhere in India), which are designed for low-income Indian consumers that have been modified by Indian hospitals for foreign medical tourists from overseas.⁷
  In general, it has been noted recently that Indian companies are able to create low-cost versions of advanced-country products for the poorer consumers at the “bottom of the pyramid,” which can and often are then modified and adapted appropriately to recompete successfully back in developed markets. There are many examples of the latter including the inexpensive Little Cool refrigerator with only 20 moving parts (no compressor) and the Mac400 heart monitor developed by GE India. As another example, an Indian company now has the largest fleet of electric cars on the road, giving it an unequalled edge to export electric cars overseas and license its technology to GM for the Chevy “Spark” built for the US market.⁸ Similarly, another example is the “Nano” automobile developed by Tata for the Indian market and now being exported to Africa, Southeast Asia, and Europe.⁹ In many cases, low-cost versions of many products developed for a poor market can be augmented and introduced in developed markets and still be priced lower than similar products developed in the rich countries.
• 2.
  Natural endowment driven technologies/abilities: Indian companies may have comparative advantage in certain technologies useful for global expansion, such as nonfading dyes that stand up successfully to bright sunlight, which can best be developed in a country with India's natural endowments. Other examples are the foreign distribution of materials such as rubber, palm oil, spices, and tea and IT service companies staffed by lower-cost English-speaking Indians, as well as cultural products such as Bollywood movies.¹⁰
• 3.
  Leveraging cultural and institutional understanding: Indian MNCs can reduce the costs of foreignness by taking advantage of cultural and institutional similarities between the home and host countries as they engage in OFDI. Institutional structures in many developing countries, especially in Asia and Africa, are underdeveloped and similar to the Indian institutional structure reducing the costs and risks of operating in these countries for Indian MNCs. The parents of these Indian MNCs have much experience adapting to their home governments' demands and doing business in a poor institutional environment with inadequate infrastructure—experience that is useful in adapting to doing business in similar host environments overseas. In addition, in many of these countries, Indian diasporas are widespread, providing an initially friendly and familiar consumer base for Indian companies (e.g., Indian banks initially expanded overseas mainly to serve overseas Indian populations).
  While there is considerable and high profile Indian investment in the developed countries, foreign investment by Indian firms seems to favor other developing countries. There can be many reasons for this. One reason may have to do with Indian firms' experience and ability to work with the underdeveloped institutional and infrastructural environments common in developing countries. Indian firms have the opportunity to develop these abilities working in their home environment and so are better preadapted to work in other developing countries. Indeed, in developing countries, these abilities may provide Indian firms with an advantage over firms from the developed countries who may not have experience working in countries with poor institutional and infrastructure environments. Of course, similar factors may account for the success of south-south FDI from other developing countries.
• 4.
  Leveraging government support: Many developing country governments may encourage outward FDI by their firms in order to support national goals that have significant positive externalities, such as the acquisition of new technology and market knowledge, foreign projection of economic power, employment of highly educated citizens, and other economic advantages of globalization. To achieve these goals, home country governments may offer tax breaks, subsidized human capital and financing, and other inducements to their firms undertaking outward FDI (Aggarwal & Agmon, 1990).

As this brief review of the nature and drivers of Indian OFDI shows, OFDI from the newly ascendant economies share some similarities with OFDI from the developed economies, but they are also quite different in many ways. Studies of OFDI from other emerging markets also reinforce this conclusion. For example, compared to OFDI from the developed countries and reflecting their home country characteristics. OFDI from emerging market countries has been found to be less capital intensive, with plants that are smaller, less productive, and have fewer local spillovers in the host country (Lipsey & Sjoholm, 2011). Next, we examine more closely another example of the changing nature of emerging market OFDI, the Indian and Chinese OFDI in Africa.

India and China in Africa: Contrasting Approaches

Though Africa accounts for only 4% of the world economy, it is home to one of every seven people on our planet. With a population of over a billion people in 54 diverse countries, Africa has both some of the poorest and some of the fastest-growing economies. The traditional image of Africa popularized by Conrad's Heart of Darkness could not be more outdated for large parts of Africa. While parts of Africa remain dominated by intractable wilderness, many African countries are resource rich and some are hotspots with dynamic economies and double-digit rates of economic growth.

Africa is a diverse continent, and it can best be considered as having two subregional categories (North versus sub-Saharan Africa), each with distinctly different characteristics with regards to GDP, integration in the world economy, and political stability. Compared to sub-Saharan Africa, the five North African countries are wealthier and more integrated with the world economy. While average 2009 purchasing power parity (PPP) GDP per capita for Africa is $2,800, the five North African countries average $8,400, and South Africa at $9,700 is the highest (African Economic Outlook, 2009). With the exception of Algeria, North African countries had until 2011 enjoyed relative political stability, contrasting with violent conflicts in some sub-Saharan African countries. In contrast, South Africa is the richest African economy having maintained political stability after decolonization and is now the African economy most integrated with the world.

Africa's share of global trade and investment declined steadily until about 2000 and then reversed course and started to go back up. Over the past decade, real economic growth in Africa has averaged about four and a half percent per annum—a fairly high rate of growth, though not as high as that of China and India. However, this overall rate of real economic growth also included countries with double-digit growth rates. The better economic performance witnessed since the early 2000s also translates into the slow emergence of an African middle class that could number as many as 300 million out of a total population of one billion. This rising African middle class is likely to trigger more market-seeking and efficiency-seeking FDI in the future (Mahajan, 2009).

However, the structure of this renewed trade is quite different. In recent years, African trade with other emerging economies has overtaken not just trade with the United States, but also the larger trade with its traditional partner, the European Union (FRB Dallas, 2011). As the examples in Table 5 show, African trade with China and India has been growing faster than trade with Europe. Interestingly, in this new century, African trade with Europe has been growing at a fairly high rate, but its trade with China and India has been growing at much faster rates.

Table 5. African Trade with China, Europe, and India

As with trade, south-south FDI in Africa has also been rising but changing in nature. The overall performance of Africa in attracting FDI had been weak but it picked up and changed after 2000. Through the 1990s, Africa accounted for only about 5% of cumulative FDI inflows to developing economies compared to a share of 22% and 17% for South America and Southeast Asia. Further, inbound FDI has been distributed very unequally within Africa with the lion's share going into South Africa. It has been suggested that during the 1990s FDI inflows to Africa were hampered by a number of factors including political instability, macroeconomic mismanagement, lack of transparency, unfriendly regulatory frameworks, poor GDP growth, lack of infrastructure, a high degree of protectionism, excessive reliance on commodities, and weak governance standards (Aggarwal & Ayadi, 2012). Historically, as with trade, European countries and other advanced economies had been the key economic players in Africa, but the past decade has seen a significant increase in the economic involvement of other developing countries, especially China and India (hereafter alternatively referred to as Chindia).

In addition, the sectoral distribution of inward FDI to Africa has also changed. Traditionally, investments from the OECD countries were driven by resource acquisition. For instance, with the aim to reduce oil dependency on the Middle East, American companies have actively engaged in exploration ventures in the continent. EU-based FDI follows the same trend: after years of sanctions toward Libya, EU-based companies have turned to the country for its hydrocarbon reserves. Colonial and historic ties are still strong so that since the 1990s France has been the leading investor in Morocco; United Kingdom's companies have important stakes in South Africa, Madagascar, and Zambia; Italy takes the lead in Tunisia; and Egypt sources a significant share of its foreign capital in the United States.

Overall, one-third of FDI in Africa in recent years has been for natural resource extraction. The remaining two thirds of foreign capital has been invested in manufacturing, services, and telecommunications (UNCTAD, 2010) with a recent slow but steady rise of off-shoring activities (Kearney, 2010). While data limitations and differences in FDI definitions make it difficult to assess accurately the importance of Asian-based investors in the continent, since 2000 Asian investors originating from China, Singapore, Malaysia, and India have become key players in African economies, accounting for an FDI stock of $30 billion in 2008 (UNCTAD, 2010).

Since 2000, Chinese OFDI to Africa has increased substantially, reaching an average level of $326 million per annum between 2003 and 2006 (OECD, 2008). However, Indian OFDI in Africa has been more important than the Chinese. As with Chinese FDI in Africa, it increased rapidly in recent years (at a compound annual growth rate of 43% per annum since 1997). Indian FDI in Africa grew from a pedestrian $205 million in 1997 to over $11 billion in 2007, while Chinese FDI stocks in 2008 in the continent amounted to $7.8 billion (Freemantle & Stevens, 2009).

However, there are important differences between Chinese and Indian FDI in Africa. Reflecting China's political system, a large number of Beijing companies operating in Africa are state owned. State-owned enterprises (SOEs) are almost exclusively responsible for all the Chinese deals in extractive industries while small and medium-sized companies (SMEs) are active in the other sectors (Kaplinsky & Morris, 2009). Among the 800 Chinese companies reported to have activities in Africa, 100 large SOEs operate in extractive industries (UNCTAD, 2007). In addition, managers of Chinese companies, especially larger ones, are often connected to provincial governments and, in addition, follow guidelines from the Party and central government (Wang, 2007). Consequently, it is not easy to state to what extent the corporate governance structure of Chinese businesses is independent from the state (Burke et al., 2008).

In contrast, Indian companies tend to be privately owned and are more likely to follow profit- and market-seeking motives. For example, according to Aguiar and colleagues of the Boston Consulting Group, while only one privately owned Chinese company makes the list of the top 100 FDI source companies from rapidly developing economies, only one Indian company in the list is state controlled (Aguiar et al., 2009). Overall, the Indian FDI share has more or less equal numbers of private and public companies.

There are also significant variations as regards the entry of Chinese and Indian investors. Differences in ownership structures translate into different business strategies and to commercial risks being perceived differently. Chinese firms tend to enter new markets in Africa by building new facilities, creating business entities that are vertically integrated, buying labor and supplies from China rather than local markets, and selling in Africa mostly to government entities. They rarely facilitate the integration of their workers into the African socioeconomic fabric. Such nonrecourse to local labor creates increased social tensions, especially in countries where the unemployment rates are high.

However, Indian firms are generally market driven and so are more integrated locally. Most Indian companies in Africa acquire established businesses, are less vertically integrated, prefer to procure supplies locally or from international markets (rather than from Indian suppliers), engage in far more sales to private African entities, and encourage the local integration of their workers. As cited in Broadman (2007), in a 2006 survey of 450 business owners in Africa, almost half of the respondents who were ethnically Indian had taken on African nationalities, compared with only 4% of firm owners who were ethnically Chinese (the other 96% had retained their Chinese nationality). This finding suggests that, reflecting their long history in Africa, Indian businesspeople are substantially more integrated into the African business community than are the relatively new Chinese business managers and owners (Broadman, 2008).

More than a century ago, Mohandas Gandhi found his calling in South Africa, and today many Indian companies find South Africa the perfect gateway to the rest of the continent (Walker, 2008). As a case example of this strategy, the Tata Group is present in 11 African countries. Its investments in Africa are closing in on the half-billion-dollar mark, and it plans on taking that close to a billion dollars over the next few years, with a base in South Africa as the gateway for Tata's operations in the entire continent (Mahajan-Bansal & Suri, 2009).

Indian investments in Africa are believed to be more transparent and socially beneficial than Chinese investments in Africa. Allegations about corruption, nontransparent practices in bidding, lack of respect of social standards, nonrecourse to local labor, and nonintegration of Chinese workers are often cited as some of the main drawbacks associated with Chinese FDI in Africa. India is arguably a more collaborative and sustainable partner, while China is considered more opportunistic but more willing to work even with failed states (Halper, 2010).

In general, it seems that Indian companies in Africa are more integrated with the local economy, whereas Chinese companies operate almost as free-standing enclaves (Nanji, 2010). The main reason for this collaborative approach is that India has been trading with the African continent for hundreds of years. In the British colonial period, thousands of Indians were taken to Africa to work. Today, about two million people of Indian descent live in Africa, many of them running their own businesses. On the whole, India has a far better reputation in Africa than China, which has been criticized for using predominantly imported Chinese labor in its African projects (now over a million strong), and for a tolerant attitude toward the poor human rights records of many African regimes (Jenkins & Edwards, 2006).

As this brief review of India and China as the new major investors in Africa shows, the modes and processes used by these newly ascendant economic powers are likely to vary greatly from the past and is likely to include a heavier role for state directed entities.¹¹ The nature of global capitalism in the modern era is likely to veer away from a primary dependence on market driven entities for the past three quarters of a century since World War II. Again, there is still much work to be done in understanding the nature of these new modes of FDI by the rising new economies.

Interestingly, the accommodation of the rising new economic powers into the global economy has to take place in an environment of major upheaval in the developed economies. We next examine how the recent global projection of Indian and Chinese and, more generally, southern economic power fits in with, and is likely to be influenced by, the larger overall trends and forces in the advanced industrialized countries.

The New Global Economic Environment

We live in an age of great economic discontent and disruption. The increasingly prevalent technologies of communication and transportation are leading to more frequent national and international clashes between lifestyles and economic classes, and between freedom and modernity on the one hand and tradition and poverty on the other. Further, unprecedented tectonic forces of evolving demographics, sustainability, technology, and globalization are changing the global economy in a number of ways including a great rise in the importance of the formerly underdeveloped countries with small economies.

Fundamental Forces Changing Global Business

Recently, all businesses have been facing and dealing with a number of interrelated forces: demographics, technology, and sustainability. These forces not only impact each other, they are the fundamental drivers of globalization, interacting with and influencing each other in a complex brew specific to each country, industry, and business. This article contends that in dealing with the challenges of globalization, businesses must understand how globalization is influenced by these three underlying driving forces—demographics, technology, and sustainability—with effective business strategy reflecting and integrating these underlying forces.

First, demographic changes are slow moving but inexorable. There is a strong negative correlation between national income and birth rates across the world. While incomes are rising and birth rates are declining in most countries, the aggregate world population is still rising, albeit at a declining rate, so that the current world population of about seven billion is expected to rise to nine billion by 2050 and possibly to ten billion by 2100. While human ingenuity will undoubtedly find new materials and resources as old ones are exhausted, it is likely that we have run out of the “low-hanging fruit” (e.g., new land uncovered in the Western hemisphere, advances in public health, and mass higher education) in our quest for economic growth (Cowen, 2011). Further, even though birth rates are declining and life expectancies are rising everywhere, population growth is uneven across countries.

The proportion of the elderly and retired as compared to the young and working age varies greatly across countries. For most developed nations, this dependency ratio is increasing rapidly, while it is still generally declining in most developing countries (but not for too long—this ratio is expected to reverse as early as 2015 in China). Given that pension obligations are a major part of fiscal challenges in most countries, these global and national demographic changes have important implications for fiscal policies and business strategies. More generally, there are likely to be larger numbers of young people in the “southern” economies and larger numbers of older people in the “northern” economies. These demographic changes globally, and the north-south imbalances in such changes, have major implications for the mix of products and marketing that would be appropriate.

Second, businesses face important changes related to sustainability and climate change mitigation. Regardless of the few remaining scientific skeptics, most businesses face multiple pressures to respond to sustainability and climate change mitigation issues. Indeed, while governments across the world have yet to agree on appropriate joint efforts in response to sustainability and climate change mitigation, many businesses (like Wal-Mart and Cummins Engines) and governments (like California), are taking the lead in using sustainability and lower carbon footprints to drive innovation, profits, and social policy. This increased attention to sustainability and climate change mitigation is also being driven not only by demands from the public but also by large institutional investors and regulatory bodies, such as the Securities and Exchange Commission (SEC). For example, the SEC has asked for increased corporate disclosure with regard to carbon emissions, with such disclosures being coordinated by the Carbon Disclosure Project (funded by large institutional investors).

Third, we face many changes related to technology. In fact, we are now transitioning from the industrial age to the information age, with the focus shifting from atoms to electrons to photons. Information and communication technologies are being supplemented by new materials and business models that involve the deconstruction of value chains. Consumption is dematerializing with ever smaller proportions of income spent on heavy physical objects and ever larger proportions on intangibles. It is now possible and will soon be imperative to plan for and provide mass customization in every business model. Further, given the automation of most routine work by computers in various forms, the nature of work itself is changing as it is becoming less physical or observable. Human intellectual ability, the main form of work, can now be extended and sourced globally. The pace of change in the nature of work is unlikely to slow down. According to Moore's Law, that has now held for over a quarter century, computing power continues to double in power and halve in cost every 18 months.

Further, technology and the increasingly electronic nature of goods is reducing marginal costs so they are practically zero—leading to new business models where some goods (e.g., e-mail) may be free but the associated consumer attention and ability to sell them other goods is worth a great deal. This is indeed the business model being used by many of the most successful new age firms such as Google and Facebook. This business model is now being extended to a much larger range of intangible goods such as air travel (e.g., Ryanair) and increasingly to physical goods such as print newspapers and magazines (Anderson, 2008).

Technology is deconstructing value chains for every business (i.e., it changes where a business adds value), with some previously valuable locations and processes declining in value-added activities while other locations and processes are rising in value-added activities. In order to understand the full impact of technology, all businesses have to deconstruct the value chains of their products and services, and have to reengineer and focus on the new best places and processes to add value, and perhaps, outsource other parts of the value chain to where value may be added more efficiently. Thus, we are seeing the continuing growth of domestic and international outsourcing and the growth of ever longer and more complex supply chains and generally more focused and less vertically integrated businesses. These changes in value-adding activities have important consequential implications for employment and public policy and are transforming whole industries and the international competitiveness of entire countries.

One aspect of value-chain transformation is the increasing economic possibility of mass customization where it is possible to provide customized products cost effectively to the masses. Driven by advances in IT, individual customer preferences and requirements can now be transmitted to production locations to produce output customized to the needs of individual consumers within ever shorter time periods. This phenomenon of mass customization is most easily accomplished for intangible products and services, but it is becoming increasingly cost effective for physical goods as well (e.g., the BMW plant in South Carolina already produces individually customized automobiles cost effectively for shipment to over a hundred countries).

Not all businesses will be equally adept at developing and implementing new business models to reflect deconstructed value chains, and many of those that are slow or incapable will go out of business. Indeed, as businesses face these great challenges in the move from the Industrial Age to the Information Age, the average tenure of a company in the S&P 500 is declining; it is now only 15 years, having dropped from 75 years in 1930 at the height of the industrial age—as another measure, 40% of the S&P 500 have been dropped over the past 10 years, and this percentage is even higher for other indexes, such as 66% for the Nasdaq 100 and 69% for the Russell 2000 (Money, 2011, pp. 40–41).

Not only does technology help globalization by facilitating international communication and transportation, but globalization makes technology more valuable by providing larger global markets for any new technology.¹² Thus, technology and globalization form a mutually reinforcing cycle that makes each more pervasive over time. Consequently, with the continuing rise of technology and declines in the importance of distance, every business faces increasing globalization. But globalization is heavily influenced by demographics, sustainability, and technology. Demographic forces are creating global imbalances in national worker populations and in government finances that create additional forces for migration and globalization. As an example, the forces of demography, sustainability, and technology mean that many formerly economically backward and underdeveloped countries can now grow rapidly and even leapfrog some traditional steps in the process of economic development. Indeed, the global economy is being reoriented as the major emerging economies such as China and India become a larger portion of the global economy.

Policy Implications of the Rise of New Economies

The last six or seven decades have seen a huge reduction in cross-border economic barriers. These reductions were led by the newly triumphant postwar United States and its allies and have resulted in multiple-fold increases in international trade and investment flows and the resulting era of historically unprecedented economic growth. While the process has not always been entirely smooth, as the economic fortunes of many countries also changed over the years, it has led to an extraordinary run of three quarters of a century of sustained high rates of economic growth and wealth creation unprecedented in human history. There is no other comparable period in mankind's history. Among the great rise in general living standards, this global prosperity has also meant that hundreds of millions of people have for the first time in history been able to move out of lives of abject poverty. Multilateral global reductions in trade and investment barriers over the past three quarters of a century have clearly and undoubtedly been very beneficial for humans.

However, we are now at a time of transition as this old and heretofore reliable system of wealth creation faces significant changes and perhaps even a possible breakdown. As noted briefly, the forces of demographics, sustainability, technology, and globalization are now coming together to transform the world economy in new and challenging ways. These changes include a breakdown of traditional business models in the rich countries and the rise and emergence on the global stage of some formerly developing and poor economies with new and changed agendas and modes of projecting power globally. We are faced with BRICs as we live in “glass houses.”

Consequently, the transition to accommodate a new set of economic powers (e.g., China, Brazil, India, and others) into the world economic system can be bumpy and has the potential of becoming an outright disaster. These much needed accommodations are hindered by an inadequate understanding of the nature of the south-south trade and investment flows. Further, existing multilateral institutions seem to be inadequate to the task, having been structured over seven decades ago when the global economic structure was quite different.

Role of International Institutions

International institutions are important as they facilitate the flow of information and shape expectations, including what is considered national best interests. They are the building blocks of international governance and so constrain and govern national behavior (Martin & Simmons, 1998). As noted earlier, one indication of the failure of existing international institutions is the recent proliferation of bilateral and regional free trade agreements that are limiting the welfare effects of global economic integration.¹³ In general, most multilateral institutions are currently structured to give inadequate attention and power to emerging economies. Consequently, major changes in existing multilateral institutions required to accommodate the rising new economic powers are proving to be very difficult. Indeed, the expected and the observed responses of ad-hoc marginal changes in these multilateral institutions seems to be “too little and too late.”

However, the new large emerging markets need these institutional changes to continue to grow at rapid rates (e.g., King, 2011). Ironically, many of these changes that give greater prominence to the large emerging economies in multilateral institutions, like the International Monetary Fund (IMF) and the World Bank, would be beneficial even for the developed economies. For example, if these institutions were restructured to give greater weights to the large emerging economies, they could do a great deal more to resolve the 2012 European payment crises and future US balance of payment crises. However, such changes are currently stalled and large emerging economy contributions to a Euro-firewall fund at the IMF are being held up, conditional on significant quota reform. Speaking of the fund to assist Europe, the Brazilian finance minister said, “We conditioned the money to the completion of the IMF's quota reform so that emerging countries have larger representation.”¹⁴

Thus, it seems we need bold creative solutions for significant and major changes in existing multilateral institutions or, failing that, the creation of other new institutions to accommodate and reflect the rise of the new economic powers on the global stage. As an example of some tentative first steps toward accommodation, China is taking active steps to make the yuan a more global currency, and it has allowed international trade settlements and bonds in yuan, and the Chinese capital account is also expected to be deregulated over the next few years. India is also starting to show leadership in this global deregulatory effort and has signed many free trade agreements.¹⁵ Other rising economies such as Korea and Brazil are also taking similar actions that all bypass existing multilateral global institutions. Indeed, it is not difficult to foresee the day when all of the emerging economies take coordinated leadership actions in this area. However, these changes require either new international institutions and/or significant changes in the structure of existing multilateral institutions such as the United Nations, World Bank, and the IMF. Unfortunately, as noted earlier, these changes do not seem to be happening rapidly enough.

This inadequacy of international institutions that work towards multilateral trade and investment promotion has important implications not just for policymakers but also for private economic entities like MNCs. The recent trend of the replacement of multilateral economic agreements by multitudes of bilateral and regional agreements will only make doing business internationally more complicated. At a minimum, MNCs must take actions to offset and overcome the trade and investment limiting role of these agreements that are likely to all be different from each other. At the margin, the costs of these MNC actions are likely to result in lower levels of trade and investment and lower welfare levels. Thus, to the extent possible and practical, it would be useful to get back to a regime of multilateral trade and investment agreements.

Conclusions

After three quarters of a century of unprecedented growth, the global economy is now facing significant change. The tectonic forces of demographics, technology, globalization, sustainability, and climate change are forcing obsolescence in developed-country business models and simultaneously leading to the emergence on the global stage of some large developing economies. These economies have defensively accumulated very large foreign exchange reserves that have demonstratable potential to destabilize the global economy. Thus, it is important that international institutions change to smoothly accommodate the rise of the formerly developing economies and of south-south economic flows.

This rise of south-south economic flows is illustrated by the Indian projection overseas of the growing power of its economy as it engages in global outward direct investment. These examples illustrate FDI by other rising “southern” economies such as Korea, Brazil, and others that are also very active overseas. Trade and investment among these ascending economies and their other less developed brethren has for decades been growing much faster than global trade and investment. However, as illustrated by Chinese and Indian FDI in Africa, this new south-south FDI can be quite different compared to traditional modes, depending much more on state-driven firms and institutions.

Rising south-south economic flows with their unusual modes have to be accommodated by the existing economic powers—an accommodation that must happen while the global economy also deals with major restructuring of value chains and business models. Unfortunately, existing multilateral institutions are inadequate to the task having been structured over six decades ago when the economic world was quite different. History has shown that such transitions in power can be messy and dangerous, so there is much need for bold global leadership.

Notes

1. A case in point is Ranbaxy Laboratories, an Indian pharmaceutical MNC, which was acquired on very attractive terms in 2008 by Daichi Sankyo, a Japanese pharmaceutical company.

2. According to Financial Times, “This is Africa” (September 14, 2009), India invested $1.88 billion in greenfield projects in Africa in recent years. Also see “BRICS in Africa,” Economy, Standard Bank (August 31), pp. 1–9, and Freemantle & Stevens (2009).

3. For example, according to an Ernst and Young and FICCI joint report released in June 2009, Indian companies bought 143 US companies in 2007–2008 (94 deals) and 2008–2009 (49 deals).

4. One example is the use of technology from the acquisition of Daewoo Commercial Vehicles of Korea in 2004 to upgrade the Tata “Prima” range of trucks made for the domestic Indian market.

5. See, for example, Timmons, H. (2009, October). Bharti and MTN abandon talks on potential merger. New York Times, p. B3; and Sharma, A., & Bellman, E. (2009, October 1). Bharti, MTN disconnect deal worth $24 billion. Wall Street Journal, pp. B1, B2.

6. It should be noted here that the limitations of foreignness in FDI is just a special case of the more general limitations of newness when a firm expands into new markets or technologies.

7. See Anand, G. (2009, November 21). The Henry Ford of heart surgery. Wall Street Journal, pp. A1–A12. Another example is the global expansion of VNL, an Indian telecom company that developed extremely low cost solar powered telecom base stations initially for use in the poor rural and remote parts of India (Time. (2009, December 28). Global business: Tech pioneers, p. 6).

8. See, for example, Bellman, E. (2009, October 20). India firms shift focus to the poor. Wall Street Journal, pp. A1, A18; and Bajaj, V. (2009, October 28). The tiny leader of the pack: Reva, an Indian maker of electric cars is poised to upsize. New York Times, pp. B1, B7.

9. In response, Nissan/Renault and Bajaj announced low cost competitors to the Nano (Gulati, N., & Relia, A. (2009, November 11); Nissan's India minicar plan advances. Wall Street Journal, p. B3).

10. Another example of this is the multinational nature of Indian IT companies with English-speaking inexpensive workers like Wipro (with operations in 53 countries), which has been outsourcing its Indian projects to its workforce in Egypt (Leahy, J. (2009, November 12). Wipro begins to outsource its Indian workload. Financial Times, p. 16).

11. Chinese trade with and FDI in Brazil follow patterns similar to China's activity in Africa (see for example, Economist (2012, January 14). Seeking protection: China becomes Brazil's biggest economic partner—and its most difficult one).

12. For example, according to Bill Ford, the head of Ford Motor Company, to make electric cars more affordable, Ford designed the Focus to be a truly global car (Ford, 2011).

13. These regional and bilateral agreements have risen from 25 in 1975, to 50 in 1982, 214 in 2006, and to over 400 in 2010 (see Bartels & Vinanchairachi, 2009).

14. See Kenny, C. (2012, June 18). Help not wanted. Bloomberg Business Week, pp. 4–5.

15. These actions are consistent with its rich history of free trade as documented in the great many pillars all over south Asia from Emperor Ashoka's time and in writings such as Kautilaya's 2,500-year-old text, the Arthashastra (Rich, 2010).

Biographical Information

Raj Aggarwal, CFA, is the Frank C. Sullivan Professor of International Business and Finance and former dean of the College of Business Administration at the University of Akron. He has an undergraduate degree in Industrial Engineering, an MBA, and a doctorate in Corporate Finance and International Business. He is a Fellow of the Academy of International Business, a Fulbright Research Fellow, and the author of a dozen books and over a hundred scholarly papers. He is the editor-in-chief of the Journal of Teaching International Business, has been the finance area editor for the Journal of International Business Studies, and the editor of Financial Practice and Education. He is or has been an elected president or vice president of the Eastern Finance Association, Financial Management Association, the Academy of International Business, and Financial Executives International. He has received many teaching and research honors including a distinguished scholar award, the distinguished faculty award, and a Larosiere best essay award in global finance. He has served as a judge for the Industry Week 100 globally best managed companies, for the Tech-Know Awards for the best internet companies, and for the E&Y Entrepreneur of the Year Awards. He has lived and worked in India, Japan, Australia, and Singapore and has been a consultant to the UN and the World Bank, US government agencies and government ministries overseas, and to the boards and senior managements of Fortune 100 and other businesses. He has been a board member for Manco Inc. (Duck, Loctite, and Lepage brands), BPM Forum, and Hawken School; Fifth Third Maxxus Mutual Funds, Flood Inc. (CWF brand), Alchem Inc., and Gooey.com Inc.