Magazine article Management Review

FROM THE COLD When Countries Come In: They Were Once Political Pariahs, but Now They're Warming Up to the Global Economy and Cooperating with Foreign Companies

Magazine article Management Review

FROM THE COLD When Countries Come In: They Were Once Political Pariahs, but Now They're Warming Up to the Global Economy and Cooperating with Foreign Companies

Article excerpt

Throughout the world, vast markets that were once closed to the United States are opening up. From the balmy shores of the Caribbean to icy steppes of Central Asia, countries that were in political exile a few short years ago are shrugging off their isolation to take part in the global economy.

Executives in the United States and other trading nations view these markets as the final frontier: As they join the global market, they need everything from hamburgers to hydroelectric plants. And companies that get in early enough stand to make great profits and win long-term trade and investment advantages.

Often, the countries in question are just emerging from decades of economic madness and political repression. But even the threat of war and international terrorism, local corruption and the absence of basic amenities-conditions frequently found in such markets-have not stopped companies big and small from considering the opportunities they present.

The Major Players

The most notable new members of the global economy in this decade include South Africa, Kazakhstan and Vietnam, emerging from the barriers of apartheid-induced embargo, the Soviet straitjacket and war, respectively. Two others, Cuba and Iran, are sending clear signals they want to join, but admittance awaits political rapprochement, above all with the United States.

At first glance, these five countries are an unlikely grouping, given their geographical diversity and varying levels of development. But their similarities are more striking than their differences:

They can be distinguished from other emerging markets by the political nature of their isolation, their current determination to be good members of the global market and the distances they have traveled to meet that goal. In the past two years, all have instituted major reforms of their economic regimes, chiefly through privatization and foreign investment programs.

Together, the five markets have a GDP of $510 billion and a total population of 206 million.

None has any serious foreign debt exposure, and all are poised to enjoy rapid economic growth as their relatively untapped natural resources are developed and extracted. "There is a tremendous hunger for imports of all kinds," says Charles Fair-banks, director of the Central Asia- Caucasus Institute at Johns Hopkins University, Washington, D.C.

Several common factors give these countries the potential for vastly expanded trade and cross-border investment-far greater than that of most conventional emerging markets. They are resource-rich (primarily oil, precious metals and agricultural products), they have substantial consumer markets (of 10 million or more), and their populations tend to be highly educated (literacy rates among the five average 88 percent).

Any country coming in from the cold has its share of liabilities, of course. These five markets, in particular, all have hostile neighbors, and their newly liberalized trade and investment regimes are less than five-years-old.

What's more, all are undergoing major internal political transformations with outcomes that are by no means certain.

Cuba and Vietnam still carry many of the burdens of Marxist economics, while Iran and Kazakhstan must implement significant reform to their commercial legal codes to meet global standards. South Africa, for its part, faces the arduous task of making the once racially skewed economy function as a whole.

On a practical level, entering these countries means dealing with markets that have long been isolated from the global economy. "You have to tailor marketing to an essentially virgin consumer audience," says Bill Rieber, professor of economics at Butler University, Indianapolis, Indiana.

Taking the Plunge

Nevertheless, companies cannot afford to ignore markets that may substantially improve the bottom line, according to some experts. …

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