Global Trade: Shift of global trade in emerging corridors

My early experience and curiosity on international trade was fuelled by purchase my granddad’s stories of his travel in pursuit of trade, his British passport with stamps of Aden, Kenya, Tanzania, and the spice and diamond trade in which my distant relatives were involved, and learning history and geography around the Silkroad route.  As I grew, I experienced trade around export of oil seal and auto parts to Africa, trading of export subsidies and license, diamond and jeweler exports from India to western countries, the export of toothbrush and plastic wares from India to Russia, Russia export of heavy equipments to India and the growth of state owned enterprises in India, the barter and escrow clearance mechanism between Russia and India, exports of garments and electronics from Thailand and Malaysia, and the migration of Indian doctors and engineers to developed markets.  

Over the past 15 years, there has been a dramatic change in trade corridors and patterns. Indian markets have become sort of a world super mart; we can buy everything from imported chocolates, fashion brands, fast food, smart phones, information communication technology (ICT) products, and services which slowly are being manufactured or produced locally in India. Indian companies are also establishing footprints in information technology, satellite services, pharmaceuticals, automotives, and knowledge based services. English medium schools ad colleges are being established everywhere in small villages as people want to emulate success while aspirations soar higher and higher!

The recent changes are profound in India and will continue though a vast population is still not getting a fair deal. However, improvements is in horizon as individuals, local and multination corporate engage in socially responsible initiatives to create equitable opportunities for the underprivileged.  Government initiatives are helping some of worth mentioning are initiatives on right to education, inclusive banking, electronic financial systems, and mandatory corporate social responsibility (CSR) contributions by corporate, deployment of information technology for virtual education to meet changes of shortages of teachers, and state initiatives on infrastructure development and growth.

‘Silkroad ‘a timeless reminder

Our historical context of emergence of international trades is associated with that of ”Silk Road", “The voyages of Zheng He, Christopher Columbus, Vasco Da Gama”, ” Colonization”,  “The opium wars”, “The Doha round of WTO on multilateral trade”, and “the emergence of the bilateral FTA and the economic agreements”. 

Of all trade trends, trade along the Silk route popularly called ‘Silkroad” is a timeless reminder of emergence of trade among Europeans, Romans, and The Asians. With modern technology and guns, sea routes replaced Silk Road and colonization gained momentum in Asia, Africa and Latin America. The sea routes extended from Europe, Mediterranean through India and South East Asia to Java and North East China. Let’s not forget the trade hubs of past years cities of Aden, Surat, Cochin, Colombo, Penang, Rangoon, and Malacca extending up to Hong Kong.

Trade along the Silkroad routes also helped create civilizations, transmitted cultures, technology, language, social order, disease, and genes. Alliances were forged to maintain peace or fight against common enemies. Accidental voyages lead to discovery of Americas. Currencies, governance and trade rules, trade clans, migrations and tariffs emerged.  Buddhism and Islam made use of the trade routes in its spread to Central Asia, India and China and Christianity to Latin America. The colonialization, opium wars and slavery slowed or suspended trading as emerging market economies fought for independence and closed their markets for almost 25 years until the steady opening up lead to developed markets and its multinationals help open up emerging economies.

Modern day trade surge starting around 1990’s signifies the best time for free trade and services. Modern day trade has created jobs, grows economies and helps raise global living, improves demand for services, nutrition standards, helps political stability, world peace and harmony.   The trade trends seem irreversible as population demands developed market lifestyle, education standards, and a significantly improved quality of life.

Much has not changed in the modern day though the nature, pattern and routes of trades have changed substantially with information technology, education and modern modes of travel making trade easier, efficient, transparent, and volatile. The modern day trade involves exchange of goods and services that emerges from value specialization, quest for resources and new markets and acquisition of new technologies. The modern day trade still places heavy emphasis on integrity, trust, exchange of information, risk taking, dealing with different cultures and society and valuing differences.

Emergence of new corridors of trade power:

Somewhere in mid 1980’s, the emergence of Asian tiger as a result of competitive labor market and lax environmental laws led to outsourcing of goods by the developed markets to Asian tigers until labor markets became less competitive, compared with China, as economic development increased.

The 1990’s saw China’s transformation into a global factory, creation of complex supply chain to acquire resources and trade in competitively priced goods. Similarly, India emerged as the leading exporter of high end information technology services as it capitalized on its competitive educated labor force.  Indian and Chinese companies also capitalized on the political and cultural linkages of the large Diasporas in the Middle East, USA, and UK.

China and India’s emergence as trade and service hubs also created demand for resources and commodities from the resource rich countries like Indonesia, Australia, Brazil, South Africa, and Middle East. All these countries collectively created large corridors of trade often so called emerging markets or south south trading partners. 

European and North American economies are going through a period of low growth rate and unemployment; will these challenges create structural changes that fuels innovation and labor productivity to make these economies competitive!  Let’s not ignore this possibility.

Trade has also spurred growth of tourism, migration, education and skills. There is an increase in demand for ancillary services – hotels, air and surface transportation, food and educational services. 

The world trade is expected to rise to US$122 billion in 2030 and US$287billion by 2050. World trade is expected to rise by 61% of world GDP in 2030 to 76% in 2050.  By 2050, World population in Emerging Asia will rise to 47% and share of Emerging Asia’s world GDP to 46%; the lion’s share being shared by China, India and Indonesia. 

What’s driving the shift in trade!

The current world phenomenon is driven by a few important factors.  Rising GDP and growth of consumers in emerging markets and a share in demographic dividends is fuelling trade, infrastructure development, fall in tariffs and trade barriers, trade related services and expansion of economic activities to newer markets.

The population in developing economies is experiencing improved standard of living, social and economic development; growth in services is linked to trade. Millions have been lifted out of poverty in China, India, Indonesia and other SE Asia countries. The accelerated use of information communication technology is also improving awareness of goods, services and opportunities. For example, Indian is leaping forward from no technology to smart phones and tablets!

Past 10 years, the world has seen a significant reduction in manmade and natural barriers to trade, transportation and packing cost. There is a surge in bilateral free trade agreements, increase in a highly educated and mobile population, and extensive use of information and communication technology for exchange of information.

The growth opportunities for emerging multinationals are also supported by availability of risk management tools, financing, and pricing benchmarking on local and international futures exchanges. Sovereign wealth funds, export credit agencies and banks from Asia are establishing their footprints with emerging multinational companies. 

Emerging market brands and multinational companies are a force to reckon. There is a convergence of process, value systems, capabilities and corporate governance standards of EM companies with that of the developed market companies. The cash hoard of developed market companies is also fuelling organic growth and M&A in emerging markets!