of Professor Christensen’s case studies of the impact of disruptive technologies on legacy competitors—is the textbook example of this transition in the steel business. By building mini-mills, which can be constructed at less than a tenth the cost of large, integrated steel mills and operated more efficiently, Nucor outflanked North America’s steel giants. Chopra hopes to apply the same approach to power generation. The second revolutionary wave he hopes to surf is the shift to renewable sources of energy. And finally, he hopes to take advantage of the liberalization of the Indian economy and the country’s consequent burst of economic growth. An example of Chopra’s approach is Bharat’s decision in 2012 to invest in a rooftop solar power project in Gandhinagar, the capital city of Gujarat, in western India, constructed after World War II. This pilot plan lets power companies rent roof space for solar panels from the buildings’ owners—a way of getting around the shortage of space and the logistical and bureaucratic difficulties of new construction in India.
“I’ve helped so many entrepreneurs when they were just a piece of paper, and I thought, ‘I could do that,’” Chopra said. “When you work in a corporation, when you retire, you only look back. As an entrepreneur, you are always looking forward. I wouldn’t be happy in my life if I was always looking back.”
Wherever you go in the emerging markets—or the fast-growing markets, as their boosters are trying to rebrand them—you hear a variation on this theme.
Stephen Jennings grew up in New Zealand’s Taranaki territory, where the sheep really do outnumber the people. When New Zealand flirted with an antipodean version of the liberal economic reforms being championed by Thatcher and Reagan in the 1980s, Jennings, with his freshly minted degree in economics, was a young member of the team that enacted them. That took him to Credit Suisse First Boston, first in Auckland, then London, and then, as Russia plunged into its own radical reforms, Moscow, in 1992.
Jennings was one of the Westerners who most adeptly surfed the waves of Russia’s revolution. By the beginning of the next century, the investment bank he cofounded, Renaissance Capital, had expanded aggressively into Eastern Europe and Africa and had ambitions of becoming the first global emerging market bank. In April 2009, while most of the world was still in a deep recession set off by the financial crisis, Jennings went home to New Zealand to deliver his country’s most prestigious annual economic lecture. The theme he chose, naturally, was the rise of the emerging markets, and he urged his countrymen to dive in and take part in what he described as the most important and fastest economic transformation in human history.
“Yes, you need to be bold and extremely committed, but you
But to thrive in revolutionary environments, Jennings warned his audience, you need different skills and a different attitude from those who work in slower-growing societies.
“In economies growing at 2 to 3 percent a year, industrial change is relatively gradual,” Jennings explained. “In these countries, explosive change is usually associated with rapid technological change, such as with the information technology industry in the 1980s and ’90s. In fast-growing emerging markets all industries are like IT. Market growth and changes in competitive dynamics are explosive. For Russian retailers or Nigerian banks, 100 percent–plus growth in revenues or profits is totally normal. Small businesses can become multibillion-dollar enterprises in just a few years. Losers rapidly disappear without a trace. Needless to say, with these stakes, the winners tend to be highly organized and extremely aggressive in their business style and strategies.”
This chaotic, messy, high-risk, high-reward world is anathema to many of the managerial aristocrats of the developed world. Jennings recalled how “Credit Suisse First Boston’s elite European bankers had a nickname for our tiny group camped out in borrowed office space in Moscow. We were called the ‘smellies,’ a reference to sanitary conditions in Eastern Europe at the time.”
The “smellies” had the last laugh. “By the beginning of 1999, you could not mention Russian finance in polite company, but you could buy shares in Gazprom for five cents. Six months ago, the stock was trading at US $10.”
This contrast between the Moscow smellies and the elite European bankers of Zurich, Frankfurt, and London isn’t confined to CSFB. Jennings argued it was an example of the wider difference between emerging markets entrepreneurs, whose defining characteristic was their ability to respond to revolution, and the slower-moving corporate princes of Western multinationals.
“Slow or hesitant business leaders are quickly weeded out in high-growth emerging markets. The survivors are typically able to think on a big canvas, to make bold decisions and have the resilience to withstand extreme volatility and market setbacks,” he explained. “It is virtually impossible for multinationals to operate in this manner…. Their advantages in terms of know-how and capital have been neutralized by their inability or reluctance to grow explosively in complex, foreign environments…. Their key decision makers usually live in a distant part of the world; they think they fully understand the risks but cannot grasp the upside.”
One of the rising emerging markets champions that Jennings cites is Mittal Steel. Aditya Mittal, son of Lakshmi, the company’s founder, and his partner in business and heir apparent, describes an embrace of change that dovetails with Jennings’s theory of the case.
“Some people, when the trends are smacking them right in the face, they don’t wake up and realize it,” Mittal told me. “When I was head of M&A [mergers and acquisitions] and focused on expanding in Central and Eastern Europe, where there were a lot of good opportunities, I kept thinking, when is everyone else going to wake up and start competing with the U.S. for these assets, particularly the other European steel companies. But I didn’t have competition for five years. I was like, ‘What is wrong with these guys?’ I’m in their backyards buying steel companies in Poland, the Czech Republic, Romania, and they are nowhere to be seen.”
For Mittal, crisis is always an opportunity: “Historically we’ve found opportunity from a crisis…. A crisis doesn’t change the long-term trajectory that the economies will industrialize, right? And if they are not performing well for a short time, that’s when you go and buy them, and not cloud your judgment of the future. Provided you’re confident in the medium- to long-term investment case and you are confident you can create value for shareholders, then it can be a good thing to do. That’s what we’ve done in the past and it’s what we’d do again in the future if we saw the right opportunities.”
Responding to revolution is how you become a plutocrat. “Change is great,” Mittal told me. “Change is fantastic. That’s how you create value because you participate in the change that you see. Now, it can be wrong, or it can be right—that is your own judgment call. But change is how you create value. If there is no change, how else do you create value?”
It is back to Budapest in 1944. In some environments—like today’s emerging market economies—not acting is the greatest risk. You may not need to be bold to survive, but you certainly must be bold to thrive.
Jennings was selling his countrymen on the rewards of jumping into the emerging markets—his speech was titled “Opportunities of a Lifetime.” But the risks are real, too. Six months before his triumphant hometown lecture, Jennings’s firm was on the brink of bankruptcy. To survive, he had to sell a 50 percent stake at a fire sale price to Russian oligarch Mikhail Prokhorov.
Lai, the Xiamen entrepreneur who gloried in the moneymaking opportunities in 1980s China, spent a decade evading Beijing in Canada, but was finally deported back home in 2002. In 1999 China accused him of smuggling, bribery, and tax evasion in one of its periodic high-profile anticorruption campaigns.
“If Lai Changxing were executed three times over, it would not be too much,” Zhu Rongji, the former premier who led the attack, said after the verdict. Mikhail Khodorkovsky, the biggest winner in the loans-for-shares privatization and in 2003 the richest man in Russia, has been in jail, mostly in a Siberian labor camp, for nearly a decade.
This volatility at the top is a defining characteristic of the new plutocracy and one reason it is less secure and less homogeneous than its bank balances might suggest. The biggest winners in today’s economy are the experts in responding to revolution, but that means that they live in a world in which, as another Hungarian adept famously put it, “only the paranoid survive.”
Yuri Milner is another smart, driven Russian who missed out on the privatization windfall. He suffered from the Bendukidze problem. Like the Georgian industrialist, Milner didn’t think he knew enough to succeed in an advanced capitalist economy. So after graduating from Wharton, where he was the first non-emigre Russian to get an MBA there, instead of returning home, he went to Washington to work for the World Bank. Unfortunately for him,
