GB examines Asia’s business psyche and the state of business talent the world over with McKinsey global head Dominic Barton

GB: What is the major difference today between the business world in the East and in the West?

DB: Let me speak to the top three differences. The first one is the very strong sense of optimism in the East – particularly in the business world – about the future. People generally think that tomorrow will be better than today. The fundamentals, all of the drivers, and the gravitational forces are all strong. Asia has somewhere in the neighbourhood of a billion middle class consumers. It has ever-intensifying urbanization, and also generally good demographics. So the tail winds are strong. The second major difference is that the Asians and Asian companies have long-term perspectives. They think in 10- year to 20-year time frames – at least – and some even as far as 50 years ahead. This is not just because Asia has many more big family-owned businesses; it is a mindset. Asian governments are also generally thinking in this way. For instance, when I worked with former South Korean President Lee Myung-bak at the start of his term, he wanted to do a 60-year plan for the country. I initially thought that he meant six years. I recall asking, “Why would you do that?” He evidently wanted to leave a legacy. The Chinese, of course, also operate in this way, as do the Japanese.

I feel a little nervous generalizing about this long-termist disposition in Asia, because there are clearly some Western companies that are also long-termist in their thinking and strategies. But this is arguably the exception in the West and the rule in the East. And it puts Western companies, in my view, at a distinct competitive disadvantage.

Third and last, Asian business and government are today doubling down – that is, they are investing, very pragmatically, and very ambitiously. There is a more aggressive approach to building behind opportunities. If one compares Western multinationals with the emerging Asian multinationals, some 179 of today’s Fortune 500 companies are Asian companies. This ratio is bound to grow. And these Asian companies are investing roughly double the amount of their Western counterparts – in sectors ranging from consumer goods to airlines, and indeed in third markets like Africa. Take Nigeria as a case study: what one sees there is Asian companies investing double the amounts of their Western analogues, and also hiring at least twice the amount of local (African) talent and labour in support of these investments.

GB: What is the psyche of today’s leading Asian businessmen and business women, as compared with their Western counterparts? What are their assumptions? What is their worldview? How serious are they?

DB: Asia’s business champions are highly talented, very successful people who are, frankly, to some extent, surprised to suddenly find themselves as major players. They are still getting their minds around this new reality – girding themselves psychologically, as it were, to really lead. Until now, they were used to following Western companies. They would go to Oxford and Harvard to learn the methods of the West, and to network with Western business leaders. Now they are being expected to lead – in some cases by the West, but in many cases by other parts of the world, including Africa.

Of course, there are country-specific variations among Asian businesses and business people. The Koreans, for instance, are just very aggressive. I love that. I lived and worked in Seoul for six years. There is nothing that the Koreans will not do or go for. I have a picture of Park Chung-hee – former president and dictator of South Korea – in my office in London. The picture is from 1969, and shows a dark pit, which was the pit for what would become POSCO – today one of the world’s giant steel-making companies. I keep the picture as an inspiration because the South Koreans built POSCO against the stern advice and protestations of the World Bank. The World Bank told them, in no uncertain terms, not to do this, because South Korea has no natural resources, and no energy. Why, then, would the Koreans try to build a steel company? I am certain that if McKinsey were advising at the time, we would have agreed with the World Bank brief. But the Koreans went ahead anyway, building what is today the world’s most efficient steel company. POSCO has done very well.

The POSCO case is emblematic of Korean behaviour. Once they decide – take the auto industry (remember how Korean cars were once perceived?), or even electronics (Samsung was a joke in 1998) – they power ahead. There is just this drive and cohesion among Korean business leaders and among the Koreans more generally. Other Asian leaders recognize this drive and cohesion also. This is why I would say that a perfect Asian merger would involve a Singaporean bank and a Korean bank. With the Singaporean bank, you would get all of the i’s dotted and t’s crossed. Everything would be done extremely well from a transparency or regulatory point of view. However, the Koreans would bring real ambition and daring to the table.

If one looks at Japan, the country has some incredible companies that have simply not gone global. People are wondering when the country is going to open up more, because Japanese companies are underrepresented in the booming economic and commercial dynamic in the region.

In China, private sector leaders are an underappreciated leadership source. They are building massive businesses. We always hear about Jeff Bezos at Amazon, or Jamie Dimon at JPMorgan Chase. Those guys are phenomenal, amazing people. But we do not hear enough about some of the remarkable private sector leaders in the Middle Kingdom – all of whom are playing a very long game.

In Indonesia, there are some very good entrepreneurs – again, all long-term players. Agus Martowardojo, the current minister of finance in Jakarta, used to run Bank Mandiri. He is a very impressive leader, in my view. The same goes for some of the people running the infrastructure businesses, and even some of the food businesses. Of course, Indonesia is a place that is still perceived as it was in the 1990s – as having incredible corruption. The reality on the ground today, however, is much better than the perception.

GB: What are some of the key emerging industries and companies to watch in Asia at large, or in specific Asian countries?

DB: Food is going to be a very big business. As I mentioned, there are now over a billion middle class consumers to feed. We are going to need more food globally, and a big chunk of that is going to come from Asia. More than 70 new Procter & Gamble-size companies are going to have to be created over the next 15 years just to feed the world. If one looks at China, there is, for instance, COFCO. There is the Salim Group in Indonesia. Electronics is probably a no-brainer: there is Samsung, as well as LG Electronics. Among the Chinese players, of course, Lenovo is the giant.

Some of these companies are currently Asian multinationals, although not yet global multinationals. But if one looks at what they are doing on research and development, one will see that it is off the charts – pointing to significant global ambitions and prospects in the coming years.

Shenzhen is a place that does not get the profile that it deserves. To be sure, it started the whole programme of Deng Xiaoping – with the creation of high-tech companies. Think about things like big data. There are going to be countless businesses built off of the data that is being made available from being able to digitize. We have only seen the beginning of this trend. China is going to be a major centre in this area – in Shenzhen or in some other part of the country (and probably in several parts of China) – simply because of the sheer amount of data that it has as compared with smaller countries, including the US.

GB: What about the quality and prospects of today’s Indian business class?

DB: India has a highly impressive group of global business leaders – top talent, really. Look at Tata, or Bharti Airtel. There is a long list. I recall a discussion that we had at McKinsey about a decade ago: we were doing a strategy for our India practice. We invested in India well ahead of time. We had a lot of people building relationships on the ground before India was popular. And we had quite a sizeable office. There was a bit of debate about the target size of the office, as there were not that many large Indian companies at the time. There was fear that we might not grow. So it is staggering to see, in 2013, the number and the size of the institutions from that country, as well as the calibre of their leadership.

The Indians, out of all the countries in Asia, have done mergers and acquisitions very constructively – whether it be Mahindra, Strata, Land Rover, or other companies. Of course, people need to understand the cultural challenges and issues. The Indians, for their part, are very good at this: language obviously helps – they speak the natural global business language, but there has also been a longer established record of people being at the right schools together. There are many groups of very strong Indian business leaders in almost every sector – telecommunications, banking, food, healthcare, auto. The Indians are probably a little more service-oriented than other people.

GB: Do you see any great vulnerabilities – generally, or by country – for Asia’s business classes over the next five to 10 years?

DB: The secular trends are clear to the effect that Asia is going to be a significant growth area no matter what. This growth is evidently not going to be linear. There will be bubbles, and Asian economies will be up and down. There will be asset bubbles. I personally think that this is going to happen in China. And it will happen, to some extent, in India. There will be extremes. And so one has to be careful to know when there is excess, because it is very difficult, given the size of these economies, to manage them in a very surgical way.

There are some longer-term challenges to be dealt with, such as the ageing demographics in North Asia in particular. Japan, South Korea and China are all going to have some big challenges on that front. That is going to have severe consequences for government deficits and debts, and on the future social contracts in these countries. I remain, however, generally optimistic about these countries.

India is a place that grows in spite of itself. Some of the businesses in that country would argue that they grow in spite of what government does. It is quite amazing that, with all of the mayhem in India, and even with governmental stasis, they still had nearly six percent growth last year.

Korea is a place on which I would always bet. As I said, the Koreans are just determined; there is a national will to survive. Most of the challenges for that country are external. The political tensions on the Korean Peninsula could blow up. (North Korea is still a renegade state.) The same thing goes for the China-Japan tension, and the tensions in the South China Sea. What I worry about most is mistakes, rather than anything deliberate – that is, something that flares up and might spin out of control. That is why we need deeper relationships at the political, business and societal levels – in order have circuit breakers in the event of such mistakes or miscalculations.

We should also be concerned about health pandemics. SARS was a decade ago, but there are still millions of people in Asia living in abject poverty – living with pigs and chickens. We have not fully addressed or even mapped the health risks associated with this reality.

Finally, there is the growing problem of income inequality. That is going to be critical for the future of Asia. We are seeing more unequal societies in many Asian countries. In South America, Brazil has actually begun to decrease its income inequality. But in Asia, the trendline may be going the other way. China is one country that is acutely aware of this, and is beginning to deal with this challenge in its periodic national plans.

GB: What do you foresee for Japan?

DB: At the government level, I just get very depressed with Japan. It is somewhat like India in this regard: business is able to operate in spite of government. How can one have any sense of continuity in policy settings when a country is changing prime ministers so often? I hope that this will begin to change. The demographics, of course, are a big issue: who is going to take care of all of those elderly people? You are going to see a declining population, as well as significant productivity challenges. That said, there is a very underestimated and vibrant business base in Japan. And let me say that Japan has the best hardware technology in the world. In miniaturization, in attention to detail, and in pure quality, the Japanese are in a league of their own. When one considers the remarkable calibre of companies like Komatsu, Nippon Steel, and the ship-building companies, and sees the high cost of Japanese labour, coupled with an unbelievably high yen, one wonders how these business concerns could ever be competitive. Answer: Japanese technology. The technology is just unbelievable. I am therefore a big fan of a lot of the Japanese companies, from Komatsu to Shiseido to Kirin. Many of these companies have been around for hundreds of years.

In short, on the business side of the ledger, the Japanese should never be underestimated, for they have some real titans. (The sense of collective responsibility among the Japanese, too, is very strong, as with the Koreans. Look at what happened with the 2011 earthquake and tsunami – how the Japanese stood together.) Still, I am always a little surprised that Japanese business leaders are not more aggressive globally. The latent potential, globally, is huge. On the other hand, there are fewer people in Japan that have gone to Western business schools today than was the case some 10 years ago. When you compare this with what is happening in Korea, India and China, a less global national business class may be suggested for Japan in the coming years.

GB: What about America? Are you optimistic about American business?

DB: I am quite bullish on US companies. They actually adapt quickly; their metabolic rate is very high. American companies are very aggressive in the growing parts of the world: in Asia, in Africa, in Brazil, and so forth. There is an exceptional entrepreneurialism and dynamism at the heart of American society and in America’s business classes. Look at the way in which boards work. Look at the capital markets. Then there is Silicon Valley, which is like a totally different country. The optimism that I always feel when in Silicon Valley is diametrically opposite to some of the pessimism or cynicism that one feels in Washington DC today. (I do, of course, worry about the government side in America.) In the American Midwest, there are some phenomenal food companies, phenomenal electronics companies, and phenomenal retailers. We underestimate the adaptability of these and other American companies at our peril.

More broadly, if one considers where the best talent in the world goes to study and also work, then the US can obviously not be written off. Just look at the universities: by any measure of the top 100 universities in the world, the Americans dominate, with huge endowments and incomparable investment in, and seriousness about, research and development.

GB: Outside of Asia and the West, is there one country in the ‘transitional world’ – say, in Africa, the Middle East, the former Soviet space or the Americas – that has a rising and hungry business class that could make big news in the coming years?

DB: I would put Nigeria at the top of the list. GB readers may think me crazy for doing this. But there are some remarkable business leaders in that country – in banking, in retail, in oil and gas, in cement, and in many other sectors. These leaders are mostly Western-trained – in the US and the UK. Note that there will be more babies born in Nigeria this year than in all of Europe combined. So we underestimate the scale of that place, even though we often see and talk about the immense socioeconomic problems of the country.

Another place not to be underestimated is Saudi Arabia. There are some very good companies there. Some of them are government-run or dominated. Look at Ma’aden, the Saudi mining concern. There is Saudi Aramco, of course. These are all very well-run institutions. You talk about governance – they could teach governance. That may seem counterintuitive, but it is a fact that is underappreciated in conventional analyses of business talent around the world. Evidently, I do worry about political stability in Saudi Arabia and in the Middle East. From a company point of view, however, there are some exceptional business leaders in Saudi Arabia.

GB: Why do you think that the Saudis could teach governance well?

DB: Because they study it so much. Consider Aramco: Aramco was created from four of the major oil companies in Saudi Arabia. The company is, in many ways, the entire country’s future – so the Saudis are incredibly focussed on how to run things properly, and how to acquire the best practices. There is an extraordinary amount of attention and time spent on these challenges. I have seen this first hand.

We know about oil, but we forget about the other mineral resources that Saudi Arabia has. These reserves, including gold and aluminum, are not insignificant. So you will see some very important and serious players in the materials sector – including Ma’aden, which I mentioned.

GB: What about Brazil?

DB: Brazil has some terrific leaders, and some excellent companies – in food, private equity, retail, and in countless other sectors. The country is just so big. I would also mention Chile, which has a very, very good set of business leaders. The people running LAN, the airline, are remarkable. Chile also has world-class retailers and bankers – in the aggregate, a very talented business class. Let me also mention – perhaps surprisingly – Angola. It does not have the scale, but it has excellent business talent.

Dominic Barton is global managing director (chief executive) of McKinsey & Company.

(Photograph: Courtesy of Chinafotopress / Getty Images)