The Internationalists: Globalization, the Age of Information and the Developing World Ascent

By Christopher Jannou

Technology and globalization have created unprecedented opportunities for wealth creation whilst unleashing some of the most impressive forces for human advancement the world has ever known. These forces have also triggered what will likely be the last great development push the Modern Age will see. By 2050, the developing world as it is currently defined will be no more; with the exception of a few under-performers, there will only be the developed one. The Internationalists is a sweeping look at the forces shaping this next surge of economic and human development; from an investor who has logged the hard miles to know his subject inside and out.

• Language: English
• Publisher: Lulu Publishing Services
• Release date: Jun 26, 2015
• ISBN: 9781483431666

Book preview

The

Internationalists

Globalization, the Age of Information and the Developing World Ascent

Christopher Jannou

Copyright © 2015 Christopher Jannou.

All rights reserved. No part of this book may be reproduced, stored, or transmitted by any means—whether auditory, graphic, mechanical, or electronic—without written permission of both publisher and author, except in the case of brief excerpts used in critical articles and reviews. Unauthorized reproduction of any part of this work is illegal and is punishable by law.

ISBN: 978-1-4834-3167-3 (sc)

ISBN: 978-1-4834-3168-0 (hc)

Because of the dynamic nature of the Internet, any web addresses or links contained in this book may have changed since publication and may no longer be valid. The views expressed in this work are solely those of the author and do not necessarily reflect the views of the publisher, and the publisher hereby disclaims any responsibility for them.

Any people depicted in stock imagery provided by Thinkstock are models, and such images are being used for illustrative purposes only.

Certain stock imagery © Thinkstock.

1. Krishna Palepu, Tarun Khanna. Winning In Emerging Markets:

A Roadmap for Strategy and Execution. Harvard Business School Press

2. Art Director: Megan Casey; Teracore: South Africa

Lulu Publishing Services rev. date: 6/18/2015

For J.S.C.J.

Contents

Acknowledgements

Foreword

I. Introduction

The Internationalists

II. Where We Are

Commodity.com

The New Normal: Disruption

Cheaper, Better, Faster

Emerging Markets: A Definition

Quantifying the Market

A Cycle with a Difference

Enter the Middle-Class Masses

EMEs and the Post-Crisis World

Domestic Consumer Markets

III. A New World Order

Emerging Markets: Old View vs. New View

Terms and Definitions: What’s in a Name?

The New BRICS on the Block

Liberalization of Financial Markets

IV. What’s Going On in the EMEs?

The Next Billion

Access to Markets

Closing the Consumption Gap

The Great Technology Uptake

The Wired World

The New Talent Pool

V. Critical Inputs

Product Localization

Company Localization

Breaking the Cost/Price Envelope

Scale

Distribution and Supply Chains

Process Innovations

Sustainability

VI. Doing Business

Boots on the Ground

Local Partners

Local Talent

A Word about Contracts

Country Risk

Rent Seekers

Alphabet Soup: PPPs, BOTs, RFPs, and other Acronyms

Love Me, Tender

VII. Finance

Capital Markets

Private Equity and Venture Capital

Multilateral Development Banks and Agencies

International Finance Institutions

Development Finance Institutions

Local Institutions, Pension Funds, and Insurance Groups

VIII. Where the Opportunities Are: Growth Sectors

Energy

Renewables

Commodities

Infrastructure

Housing and Real Estate

Financial Services

Healthcare

Leisure and Hospitality

Media, Entertainment, and Advertising

FMCG, Products and Services

IX. 2050

Twenty-One Macro Trends

1. A Shift into the East

2. A Rise in Equality

3. Exponential Technological Innovation

4. The Era of Big Data

5. Always Connected, Always Online

6. Everyone (and Everything) Smarter

7. The Rise of Services

8. More for Less

9. The More Qualitative Life

10. Globalization as the Dominant Market Force

11. A More Urban World

12. Chips in Everything

13. The End of Privacy

14. The Global Infrastructure Boom

15. A More African World

16. Rise of the Sharing Economy

17. Increased Demand for Primary Inputs

18. Decreased Human Appropriation of Net Primary Production

19. Global Celebrity Culture

20. A More Secular World

21. Emergent America

X. Appendixes

Acknowledgements

I’d like to thank some people…

Firstly, Hal Wright, hail fellow well met. Thank you for accepting my invitation to join the other crazies on an adventure; for paying your share of the copious amounts of wine we consumed; for the rapport, long dinners, hard lessons and easy laughs.

Annely Vihmann, for giving us a home filled with love, tolerating the long absences and seeing what I saw; my mom Patricia, for being there at the critical moments, and for giving me whatever I got; father George, for showing me the world was my oyster and for setting the bar high; Lyle Greenfield, partner, mentor, dining buddy and buddha of Amagansett; Scott Oakford, an early believer, for his long friendship, wise counsel and for putting his money where his mouth was; David Jannetti, for stroking a check without any idea of what I was talking about—and for his trust and friendship; Blayn Broderson, for being the earliest believer and a steady confidant; Dee Sarbok, for heart and intellect in equal parts; David Salazar, for his elegant friendship, support and that West Coast thing he does; Ben Collins, for support, friendship and infectious Aussie charm; Robert Huggins, for being an early believer; Barbara Hall, for being a source of creative inspiration and for making ‘crazy’ feel normal; Craig Champion, John Wood, Ravi Jakhotia, Shamim Rahmen—kindred spirits in life and art; Adam Weber, partner and friend; Tom Van Vuuren and Rowan Pretorius, for never saying no; brothers Jason and Adam, for being related and cool; my sisters Ariane and Rhea, for being the smart ones in the family; lovely Dina, for putting up with me on the couch, keeping me fed and watered and for being the rock of the family; Johanna, for spending her Summer in the African bush helping us get the first one off the ground; Scott Ballard and Kyle Kalmes, for investing in the dream; Jessica and Laura Bentley, for coming to teach their brand of magic to appreciative Africans at my encouragement; Mark Krone, for his support and friendship; Kurt Tonies, for sage advice and steady friendship; Megan Casey, for instilling her creative joy in the project; Michael Spencer, for helping push the boulder up the hill; Carl-Johan Collet, for starting it all; and finally, Jagger Sebastien Cristiano—who never fails to remind me who I really work for.

And, of course, the Hollywood Foreign Press (not really).

Foreword

My first experience with the developing world goes back to the late sixties when I was four. That’s when my father, a sales manager with TWA, took an assignment in Jeddah, Saudi Arabia, to be part of a team dispatched to upgrade the royal airline, Saudia. My parents were young, deep in medical debt and in need of a break; moving to Saudi Arabia, with the full expat package and accompanying hardship pay, was the answer.

So he transplanted my mother, sister and myself out of a comfortable suburban house in the New York metropolitan area and we began a life as expats. My sis and I started school in Saudi Arabia with a collection of other expat kids and adjusted to our new normal. When Dad’s assignment ended after a couple years, we moved to Bangkok, Thailand, where I started first grade with the sons and daughters of American military parents as the Viet Nam war raged nearby.

There was a lot to recommend expat life. We traveled frequently; Dad’s airline connection meant that we flew basically anywhere for free. That included shopping trips to Hong Kong and Singapore, safaris in East Africa and snorkeling in the Red Sea. Even at that innocent age, I knew these experiences were life-affirming. But my young brain often couldn’t find the words to describe what I’d seen to friends and family back home; and so the sounds, smells, tastes and emotions inhabited a rich inner world that has traveled with me since.

These are wonderful memories. Many of them are visceral, like the smell of teak fishing boats and the sound of two-stroke tuk-tuk taxies; and strange tongues shouting in exotic markets filled with odd vegetables, dried insects and live animals; and the distinctive scents of peoples of different races and cultures; and the universality of laughter. I didn’t realize how much a part of my worldview they had become.

At some point my thirty-one year old mother had her fill of developing world chaos and took the kids back to New York. My dad, however, was hooked. And, as they say, the apple never falls far from the tree.

My earliest ambition was to be a National Geographic photo journalist. But my talents and aspirations leaned towards the arts—mostly music—and, against all advice, somewhere during university I decided that would be my calling. I dropped out of uni and began a lengthy apprenticeship in the clubs and studios of New York City. Success was far from assured. But I loved what I was doing and, in the end, we make our own luck. Eventually, fortune smiled on me in the form of an international hit record and, suddenly, my career was off and running.

What was happening was only a prelude to what would soon envelop the planet: the Digital Age.

Never quite famous (but irrefutably part of the industry’s cadre of overpaid working elite), I had a successful fifteen year run in the music business; first as an artist, then producer and, finally, media entrepreneur (salacious details for another book). I felt fortunate to have realized a dream and I was eternally grateful for it. By the end, however, I had come to terms with the fact the dream had run its course. The industry had become repetitive, less rewarding and far dumber than it had ever been, which is saying a lot. The reasons I longed to be in the business in the first place—art and heart—were quickly disappearing.

There was also another, more practical reason for a change. By now my companies were involved in the film, television, publishing and record businesses. And all of these businesses were becoming increasingly disrupted. Disruption, as a concept, was not on the lips of a lot of people back then; technology had already disrupted a few industries—like the travel business and film photography—but it was still early days.

Just the same, we could feel the change happening. Most of my industry pinned their hopes on the probability that all the turmoil was just normal cyclical stuff. Others wallowed in that oft used rest stop also known as the ‘first stage of grief’: denial. But it was soon apparent there was more to it. This was the era of Napster, palm pilots and the early generations of laptops. My email address was only a few years old and my cell phone was anything but smart. Change was in the air.

Though we couldn’t have known at the time, what was happening was only a prelude to what would soon envelop the planet: the Digital Age. Of course, none of us yet appreciated the profundity of events—nor the looming consequences. I only knew two things:

1. The music business was over as I knew it

2. More important things were happening in the world and I wanted to be a part of it

So I sold or assigned interests in my companies and embarked on a new vision for myself; media entrepreneur cum global entrepreneur. I spent the next few years reading up, networking, and globetrotting to get my bearings. The first opportunity took me to Costa Rica, where partners and I launched an award-winning ‘green’ beachfront resort hotel and luxury residences joint venture with the Morgans Hotel Group.¹ The project was ultimately mired in third world bureaucracy and entitlement delays (Developing World Lesson #1). But it became a platform to develop businesses in Latin American and the Caribbean, getting deeper into the emerging world with every opportunity. Eventually, we wound up in post-earthquake Haiti as part of the reconstruction, where I had my first interactions with the World Bank, IFC, USAID, OPIC and other development finance institutions (DFIs)—groups that would soon factor in our current businesses.

Then, in 2008, my Dad called to say an old friend had just been elected President of Tanzania. My father had since left the airlines to go on his own. Deal flow led him to East Africa, where he worked on a number of projects during the 1980s—rural electrification, transmission lines, power generation and the like. That’s when he befriended a young energy minister, soon to be Minister of Finance, who was clearly a rising star in East African politics. Now President-elect Kikwete was doing what all presidents do; reaching out to international investors. He approached my father who, in turn, asked my group to take a look at Tanzania as a favor to an old friend. I did. And, as goes the line from the film Jerry MacGuire, they had me at ‘Hello’.

We’ve been in Africa five years now. It’s the region where my group has made the most significant investments and sees the most actionable potential, given our interests. To date we’ve invested in real estate development, hotels, housing, financial inclusion, infrastructure, education and media. The opportunities have only been limited by our bandwidth and core competencies. The enormous growth prospects are only part of the draw; the other part is being swept into the arc of a great adventure.

This book is a compendium of everything we’ve learned on investing and building successful global businesses in the developing world and, in particular, frontier markets. It’s filled with resources, experiences and insights from a team that’s logged the miles, paid the dues and borne enough bumps and knocks to keep it real.

It’s also a look at technology and societal trends that will likely shape the next thirty-five years leading up to 2050. Why is that date the subject of so much speculation in countless books and white papers? Because that’s when we can expect a) global demographic trends to mature and stabilize, and b) a new economic parity to emerge between the current rich and poor worlds. 2050 is also close enough to be relevant to those us of alive now; and far enough into the future to realize transformational technology advances, many of which we are only now seeing hints (more on that in the last chapter ‘2050: Twenty-one Macro-trends’).

Experiencing the early days of disruption in the entertainment industry has sharpened my awareness of the signposts to future disruption and innovation. But in the end, it’s not about whether or not we’re exactly right about the future and how it will unfold; it’s enough that we’re awake to our environment and keeping an eye on the horizon. Engaging the future is a bit like surfing, really; the direction is forward but the exact track is unknown. The wave will tell you—but only in real time. That’s how it works in the Age of Information.

I’m indebted to a diverse group of economists, thought leaders and scholars for their original work on the topics covered in this book. People like Ruchir Sharma, Michael Saylor, C.K. Prahalad, Thomas L. Friedman, Fareed Zakaria, Robert D. Kaplan, Tim Hindle, Paul Krugman, Tim Harford, Marc Andreessen, Theodore Levitt, Matt Ridley, and Homi Khoras; honest brokers who are genuinely engaged and interested in the story of human and economic development. Whether you’re an investor, an entrepreneur, multinational, or simply interested in the course of civilization and the human experience, I hope this book inspires you.

I Introduction

The Internationalists

internationalism

[in-ter-nash-uh-nl-iz-uh m]

noun

1.the principle of cooperation among nations, for the promotion of their common good, sometimes as contrasted with nationalism, or devotion to the interests of a particular nation.²

A mentor once told me that nothing useful happens at the office; it’s all out in the field. Author Robert Kaplan put it another