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Colonialism's Enduring Dividends
Why European Companies Have an Advantage in Emerging Markets
BHASKAR CHAKRAVORTI is Senior Associate Dean for International Business and Finance at the Fletcher School, Tufts University, and founding Executive Director of Fletcher’s Institute for Business in the Global Context. He is the author of the book The Slow Pace of Fast Change. JIANWEI DONG and KATE FEDOSOVA are Research Associates at the Institute for Business in the Global Context and graduate students at the Fletcher School.See more by Bhaskar ChakravortiSee more by Jianwei DongSee more by Kate Fedosova
Last year was a turning point for the global economy. According to the International Monetary Fund, in 2013, emerging economies made up a higher proportion of the world’s collective GDP (adjusted for purchasing price parity) than advanced ones. That might seem like bad news for the old guard, but, in fact, it is an opportunity. Although the last twelve months have not been kind to emerging markets, forecasters still project significant long-term growth in many up-and-coming economies. In telecommunications, for example, a 2014 MarketLine report projected 16.4 percent market volume growth in emerging markets by 2017, four times the projected growth in Europe over the same period.
But it isn’t at all clear that Western corporations have recognized this new reality or how it will change their ways of doing business. Boston Consulting Group’s 2013 Global Readiness Survey found that only nine percent of multinationals’ top executives were based in emerging markets. Some corporations appear more ready and able than others to embrace these new economic realities, but it depends on which side of the Atlantic they are on. According to 2012 estimates from Morgan Stanley, companies headquartered in Europe generated just over 30 percent of their revenue from emerging markets, but U.S. companies got less than ten percent of their revenue from them. Corporate goals and management structures, which are similar among European and American firms, do not explain the difference. In fact, trends suggest that much of the wide transatlantic gap is a product of history -- and of colonialism in particular.
The United States is a former colony, of course, whereas many European countries are former colonial powers. And their former colonies, from Brazil and Colombia to India and Indonesia, make up a significant part of emerging markets. Western European corporations have a competitive advantage: a legacy of colonialism that provides cultural, linguistic, and political ties to many of these countries. The fact that the United States has no such legacy will be a liability as U.S. firms try to catch up to their European competitors and seize new opportunities in the world’s fastest-growing regions.
THE TIES THAT BIND