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569 weeks ago

The ‘southern Silk Road’. What it means for you and your business now.

The ‘southern Silk Road’. What it means for you and your business now.

We’re fortunate to be living now, although it might not seem like it at times – especially over the past few months.

We’re fortunate because we have lived through one of the longest periods of economic growth ever and, because we are living through a time of significant change and realignment in international business and trade. This brings forward opportunities to Australian companies, especially if they are ready for them.

Forget being resilient. Businesswomen and men need to understand, deeply, the changes that are occurring in world trade, finance and business if they are to be relevant and ‘in business’ in 20 years time.

HSBC economist, Stephen King wrote about the shifting trends in world trade and commerce in 2011 in his paper titled, The Southern Silk Road. Turbocharging ‘South-South’ Economic growth.[1] Among other statements he said: “South-South” connections are set to revolutionise the global economy. We believe that trade and capital flows between emerging areas of the world could increase tenfold in the next forty years.’[2]

Senior Advisor at Oxford Analytics, Afshin Molavi, comments that: “We are witnessing a tectonic shift in global trade flows. Trade and commerce are no longer linked to the old colonial powers, they are moving towards the emerging economies of the South,” and “the South is now growing independently of the ‘old West”.[3]

China, of course, figures large in all this with recognition that an emerging Redback zone and internationalisation of the Renimbi are core planks of the new silk road . . . or the global infrastructure value/trade chain. The APEC meeting held in Beijing in November 2014, ‘underscores a the ongoing shift in the global ecosystem, heralding a new world order.’[4]

So what does this actually mean for someone in business in Australia, the Middle East or anywhere else for that matter?

It means the world is changing, and changing fast. This story is not simply about globalisation, free markets or greater international trade. It’s about a fundamental shift in world economic, trade and political power. It’s about realignment on a global scale, something that has occurred regularly but not quickly, throughout time.

As Stephen King from HSBC noted in his 2011 report:

“It is time for a major re-think about the world economy. We are embarking on an extraordinary new phase of economic development dominated by the new superpowers of Asia and the Southern hemisphere. For many people familiar with a US or European-dominated world, this is an uncomfortable idea. It is an idea, however, that we need to get used to. We are witnessing the formation of new South-South economic connections which we believe will radically change the nature of global economic activity.[5]

Some of the stats

Of the roughly $15 trillion in world trade that takes place today, nearly 1/3 is conducted between emerging and developing economies;[6

By 2050 China will conduct 73% of its trade South-south and India and Brazil will be at 83%;[7]

By 2020 some 28% of international trade will be denominated in RMB and by 2015 (NOW) half of China’s trade with emerging markets with be settled in RMB;[8] McKinsey forecasts that by 2020 total trade flows between China and the Middle East will mushroom (their word not mine) to between $350 to $500 billion, with China-GCC trade accounting for the majority of the share;[9]

By 2050, the emergingworld will have increased five-fold and will belarger than the developed world;[10]
19 of the top30 economies by GDP will be countries that wecurrently describe as ‘emerging’ [11]

The dynamics

Unlike the original Silk Road, the ‘southern Silk Road’ won’t only be confined to Asia and Europe. It flow from connections over land, across the sea, through the air – both by aeroplane and via the Internet.
Because the costs of transportation and communication have collapsed in recent decades, it’s much more geographically diverse, offering the potential to create viable linkages between Asia, the Middle East, Africa and Latin America. If it’s able to advance (trade and other barriers for business being reduced/remove), the Southern Silk Road will radically alter the dynamics of the global economy in the years ahead.[12]

The economic centre of gravity is about to undergo a major shift.[13]
Australia, as an integral part of APEC – whose economy is closely linked with that of China and Asian nations, and who is developing closer ties with India and other emerging nations – is in a unique place compared to the ‘older’ European nations and the faltering USA.
Australian business need to get out of their European/US business and cultural comfort zones and actively seek to engage the ‘new silk road economies’ if they want to thrive and survive past 2030.
Linked to economic growth is the altered ‘geography of development’ as described by Sanjaya Baru. ‘The story of trade and development now has to about embracing the rise of the new South-South trade corridors and offering opportunities for better lives across the global ‘South.’[14]This is where business becomes a force for good.

What this mean for business in January 2015?

Centre stage now belongs to the traffic on the southern Silk Road;[15]
Recognise the growing role of South-South trade and move your business, no matter how slowly or cautiously, to engage those countries and nations that are an integral part of this trade;
Start to develop new, personal connections with strategically placed businesses…and start now;
A key difference between the West and East/South is HOW business is conducted. In the West it’s a transaction. In the East and South relationships come first;
Connect with people and companies that are already working in the East and South;
Start today . . .you’re already several years behind.