Standing on the Sun. Christopher Meyer
are disputed given uneven interpretation of what really constitutes a trained engineer. But less arguable is the trend of Western multinational corporations establishing R&D centers in emerging markets. And still more convincing is the rising number of multinationals headquartered in emerging economies. Every year, the Financial Times publishes its FT 500 of the world's largest multinational firms. Between 2006 and 2008, the BRIC representation on this list more than quadrupled, from fifteen to sixty-two.6
What does the repotting of capitalism in new territory mean for the shape it takes? It means quite a bit, because geography is a matter not only of longitude and latitude but also of history and culture. The various societies of the world have their different ideas of fairness, social equity, the value of transparency, and the role of government. Traveling in 2009, Chris had a fascinating reminder of this in the space of one day. He picked up a newspaper as he left Mumbai to go back to Boston, and read about one implication of the Indian Congress Party's election triumph: the fact that the new administration would need to reshuffle federal ministries out of obligation to its coalition partners, because certain ministries offer richer opportunities for bribes. (Bureaucrats dealing with the telecom industry, for example, enjoy access to particularly deep pockets.) This transitional challenge was reported without a trace of opprobrium, essentially in the way one might find an American business page story reporting on negotiations of acquisition terms and conditions between Hewlett-Packard and Palm.
Ten hours later, having endured the forced march through high-end retail that is Heathrow's terminal 5, Chris picked up a London paper and saw a very different tolerance for governmental grubbing. The news was full of the expense scandal in Parliament, some MPs having crossed the line in terms of which personal expenses could be considered to have been incurred in the course of their work and charged to taxpayers. Still later, having arrived on U.S. soil, he saw a news report in which strenuous objections were being made to U.S. oil industry executives' even being present in meetings focused on policy making.
In short, different attitudes prevail toward government and the state, the desire for wealth, and the rule of law. All these things vary with the cultural heritage of a society. This is why the R in BRIC has turned out to be silent: Russia's cultural heritage turns out to be a major impediment to its economic progress.
We have a theory as to why Western managers have been slow, in general, to recognize the implications of the emerging economies' growing scale and sophistication: it's because they set the changes in motion, first, in the offshoring wave, and then in the outsourcing wave, for purposes of their own. If you look at the business press coverage of the 1980s, it is clear how managers regarded these economies then: simply as sources of cheap labor. This was the decade of Ross Perot's “giant sucking sound”—the noise he perceived as jobs rushed out of the United States into post-NAFTA Mexico.
It wasn't until the 1990s that the role played by emerging economies expanded in the eyes of Western managers, and, even then, it was only to see them also as markets: buyers as well as makers of Western goods. Multinational consumer goods companies cast a hungry eye on those tens of millions of new middle-class consumers, whose numbers, as a direct result of offshored production jobs, were rapidly swelling.
It is only in the past several years that we have seen leading multinationals shift their perspective on emerging economies as themselves sources of innovation, much of it better suited to local markets and some of it destined to take on the world. Fortune 500 companies now have ninety-eight R&D facilities in China, and sixty-three in India. GE's health care group built its largest facility in Bangalore.7 When Hewlett-Packard opened its newest research center in June 2011, it chose to put it in China. HP CEO Léo Apotheker told reporters, “It is in China, for China, but also for the world because the R&D capabilities here in China we want to leverage for other markets as well.”
The old mental model has persisted in some quarters, long after the BRICs were declared to be rising powerhouses. In many minds, the mature economies of the West remain at center stage; other nations are the cheap labor to produce its goods, the new markets to buy its goods, and the new adherents to the Washington Consensus. Practitioners of capitalism in these countries have their own perspectives, though, and it does not consign them to such minor supporting roles.
This, in fact, is the big news about the emergence of those economies—news that most managers in mature economies are missing. They have a sense of foreboding that we are entering some kind of new epoch, which some like to call “post-American,” in which the lion's share of global wealth creation will no longer be accounted for by the United States. They worry that U.S. firms, as their nation loses its 800-pound gorilla status in the global economy, may see their dominance threatened. They suspect that worldwide manufacturing and marketing will no longer revolve around the tastes of the U.S. consumer. But they haven't pondered the higher-level effect: the vibrant economies of new global players like China, India, and Brazil will not simply win more hands in the increasingly global game of capitalism. They will also rewrite its rules.
Placed in New Hands
Sweta Mangal is a Mumbai entrepreneur. When Chris asked her about leaving Pratt & Whitney to found her business—about which more in a moment—she had this to say:
While I was working in the U.S., I thought life was so mechanical. The economy is already developed. You'd find everything was exactly the same, every day … and everything worked like magic.
I'm a person who comes from a country where nothing works. I missed that! I missed the traffic jams, I missed that the lights go off, that when you go someplace there's always confusion. In the U.S. I never thought I could create something, because everything is already there. That's what got me thinking: maybe I can do something better in India, because India has so many opportunities.
Mangal gave us a few glimpses of how a fresh kind of capitalism might be cultivated by new hands. When Chris met her in 2009, her business, Dial 1298 for Ambulance, was being celebrated as a success—and it still is one. But to our eyes it was a curiosity. Chris is a longtime strategy consultant to Fortune 500 firms, and Julia is a veteran Harvard Business Review editor. We've spent our time around the thoroughbreds of capitalism and know how to size them up. This thing looked like part donkey, and maybe part monkey. Throw in a duck for good measure. As Mangal explains the challenges she and her colleagues faced bringing 9-1-1–style ambulance service to Mumbai, all the individual decisions they made sound perfectly reasonable. It's impossible to bootstrap such a service, for example, because the ability to respond instantly across a wide geography is a necessity on Day 1. You can't start with one ambulance and grow from there; you need a fleet of ambulances. But who will invest on that scale when the business has never existed before? Will there be sufficient demand at a price people can afford? Will cost control suffer if money is invested as philanthropy?
To obtain the funds without losing discipline, the founders of “1298” created a second entity: a nonprofit foundation that could accept charitable donations to fund the purchase of the vehicles. Then that foundation provided the services of these ambulances to the company, charging only for hours of actual use. Lacking the operational expertise to run an ambulance service, they partnered with the London Ambulance Service to learn how it's done. What's more, India lacked a pool of emergency medical workers, so Dial 1298 persuaded educational institutions to start training them.
To the eye of a Western capitalist, accustomed to keeping its sectors neatly compartmentalized, all this looks jury-rigged—a business model constructed of baling wire and tape. But it works, and more important, once you set aside Western preconceptions, it looks as if it could even be a model for others: find a source of patient capital—the donors accessible to a foundation—yoke it to a for-profit business that can survive only if it's efficient, and access know-how wherever you can find it. And oh, yes, while you're at it, create a new category of jobs and persuade universities there's a financial opportunity in training people for them. Dial 1298 has expanded into other cities, and others are copying its model.
By the way, Mangal mentioned another obstacle people pointed out to her—the objection that no one in Mumbai would pay for ambulance service. “So I went to the emergency room and asked