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Published: August 8, 2011
 / Autumn 2011 / Issue 64

 
 

The New Web of World Trade

Global Relationships for the 21st Century

The bonds between the GCC countries and the BRIC and Next 11 nations are growing stronger — a development that Western countries to date have viewed with trepidation, fearing that a zero-sum game will leave them cut off from increasingly significant consumer markets and sources of natural resources, goods, and services. But in an interconnected world, unexploited opportunities await players all over the globe.

The fact that these emerging alliances are still in their infancy means that companies and governments in the U.S. and Europe can act now to formulate a response. In doing so, they will need to recognize that the weakening of their own economies during the financial crisis has undermined their historical advantages in the GCC region and has enhanced the appeal of fast-rising emerging markets. To succeed, then, developed economies will need to capitalize on the strengths that their emerging competitors cannot yet match. For example, the U.S. and Europe are still world leaders in terms of building the capabilities and infrastructure that are crucial for innovation, and they have a history of helping GCC countries develop these assets as well. Many of the region’s oil companies relied heavily on contributions from their international partners in their early years, exchanging access to oil resources for foreign talent and technology. This trend continues today: For instance, King Fahd University of Petroleum and Minerals in Dhahran, Saudi Arabia, has formed a partnership with U.S.-based Cisco Systems to create a regional Cisco Networking Academy, which is intended to ensure that the university’s students are prepared to succeed in the digital economy. Companies in developed countries can also build on their extensive global supply chains to easily integrate new partners — whether as suppliers or as customers.

For their part, as the nations of the GCC look around the world to develop their network of relationships, they will find many opportunities with partners in both developed and developing nations. In order for these relationships to have the greatest impact in the GCC, the Gulf nations must seek the investors and trade partners that can help them address their pressing priorities: the creation of new jobs, competition that will spur their own national champions to greater success, and investment in their physical and educational infrastructure.

Gulf nations have begun building these relationships already, and in doing so their economies have become much less insulated than they were in the 1970s and 1980s. However, to increase their appeal to international partners, GCC countries will need to continue making progress on the internal reforms that are under way. Of the six nations in the GCC, only Saudi Arabia ranks in the top 20 countries in the 2010 World Bank Doing Business report, at number 11; Bahrain comes in at number 28, the UAE at number 40, and Qatar at number 50. They need to reduce the amount of red tape required to start or invest in a business, provide more transparency in business fundamentals, and invite more private-sector investment in industries that still have substantial government involvement. They should also expand their overall talent base by making it more appealing for foreigners who have critical skills to live in the region, while simultaneously developing their own people and ensuring that they have the right capabilities to build critical sectors such as energy, education, and communications.

GCC countries will also need to keep pushing forward on economic integration within the region, which will bolster their presence on the world stage. The countries of the GCC have much more clout as an economic bloc than as six separate entities, and they must continue to implement policies that reflect this perspective. A recent Booz & Company study assessed the progress of the GCC toward regional integration on a number of measures using a scale of 1 to 5, with 1 indicating “major setback to the goal” and 5 representing “accomplishment or near completion of the goal.” When all measures were taken into account, the study found that the GCC had achieved an overall score of just 2.9 out of 5. The Gulf nations must redouble efforts toward the creation of a monetary union, improve the coordination of customs and border policy, promote greater intra-regional investment, fulfill joint infrastructure commitments, and increase collective efforts in research and development. If the GCC can become a stronger economic bloc, the entire region will become a less risky, more attractive proposition for investment.

 
 
 
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Resources

  1. Ian Bremmer, The End of the Free Market: Who Wins the War Between States and Corporations? (Portfolio, 2010): The potential power of state capitalism.
  2. Economist Intelligence Unit, “GCC Trade and Investment Flows: The Emerging-Market Surge,” 2011: Presents research on the strengthening economic ties between the GCC and other emerging markets.
  3. Gideon Rachman, Zero-Sum Future: American Power in an Age of Anxiety (Simon & Schuster, 2011): A zero-sum approach to global economics, in which one country’s gain is another country’s loss, is undermining attempts to restart the world’s growth engines after the recession.
  4. Joe Saddi, Karim Sabbagh, and Richard Shediac, “Oasis Economies,” s+b, Spring 2008: Overview of the GCC’s growing economies and the nature of their development.
  5. Joe Saddi, Karim Sabbagh, and Richard Shediac, “The Challenges of Balance,” s+b, Summer 2009: Analysis of the difficulties confronting the GCC’s rapid economic growth.
  6. For more on this topic, see the s+b website at: www.strategy-business.com/global_perspective
 
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