Case Study

A world to conquer

Asian business is reforming. Its emerging multinationals will change the way we all live

BUSINESS power follows economic power. In the 1920s British firms owned 40% of the global stock of foreign direct investment. By 1967 America was top dog, with a 50% share. Behind those figures lie cultural revolutions. The British spread the telegraph and trains in Latin America. American firms sold a vision of the good life, honed by Hollywood and advertising. Kellogg’s changed what the rich world ate for breakfast, and Kodak how it remembered holidays. The next corporate revolution, as we describe in our special reportthis week, is happening in Asia. This too will change how the world lives.

Arrested development

Asian capitalism has brawn. The continent’s share of global GDP has risen from a fifth to 28% since 1984. It is the world’s factory, a diverse region of rivals bound together by supply chains. But it lacks brains and global savvy. Asia smelts 76% of the world’s iron and emits 44% of its pollution, but hosts only a tenth of its most valuable brands and venture-capital activity. Its multinationals punch below their weight, owning 17% of the world’s foreign direct investment. Wealthy Japan and South Korea have a cast of superstars, such as Toyota and Samsung. But few other firms command the world stage.

That is because Asian capitalism has been too cosy. In the boom between 2002 and 2010 easy profits were made at home—growth was fast and labour and credit cheap. Two-thirds of big Asian firms are state-controlled or “business houses” (often family-run). These incumbents tend to be chummy with the government and get cheap land and loans. Half of all billionaire wealth in Asia has been made in sectors, such as property, that are prone to cronyism, versus 15% in the West. Outside Japan, Taiwan and South Korea, innovation has been neglected. Mahindra & Mahindra and Great Wall, car champions from India and China, have a combined...