Antoine van Agtmael is Chairman and CIO of Emerging Markets Management. He is widely considered a pioneer in emerging markets investing, having coined the term "emerging markets." Mr. van Agtmael has served as division chief in the World Bank's treasury operations, and as deputy director of the capital markets department at the International Finance Corporation (IFC). At the IFC, he created the world's first emerging markets equity index. He is the author of The Emerging Markets Century: How a New Breed of World Class Companies is Overtaking the World. We talked with him about expanding the scope of the emerging markets discussion beyond India and China, and about how businesses can adapt to the new global balance of power.

PwC: What are the major drivers of realignment in the world today?

AVA: Realignment derives from the rise of the rest. Europe, the United States, and Japan came out on top at various points over the last several centuries by essentially out-innovating countries like China and India, which were previously the largest economies in the world. They out-innovated and out-competed them, and came out on top. Now this process is turning back. Countries that were peripheral to the global economy-- poor, not very productive, and lacking good educational systems-have learned in the last couple of decades that if they follow sensible economic policies and create an educated workforce, they can compete on a global scale.

PwC: Much of the discussion about how the world may realign seems to focus on a head-to-head competition between the traditional "west" and the emerging "rest." Is this the right way to frame the discussion about realignment?

AVA: I don't believe that the world is a zero-sum game. Everyone has contributions to make. My notion of the emerging markets century essentially means that a lot more people who didn't have an education, or enough to eat, or any hope or future, suddenly have all these things. We are creating a billion new consumers, investors, and educated people. That's a huge shift in the world.

PwC: A few years ago, the term "BRICs" became synonymous in some circles with emerging markets. Now it seems that most of the attention is directed at India and China. Are we paying too little attention to developments in other markets?

AVA: I think that people pay too much attention to China and India and not enough to Russia, the Middle East, and Brazil.

After 9/11, for example, the Middle East nations decided that their money was not safe in the U.S. and invested their oil wealth at home, creating a tremendous infrastructure boom. Brazil has everything that the rest of the world -- especially new and emerging markets -- needs: iron ore, oil, soybeans, beef, orange juice, and sugar. That is helping Brazil transform itself.

PwC: What future you see for Africa over the next 10-to-15 years?

AVA: Africa, despite its problems, is a great place to invest. And Africa is changing. The commodity revolution of the last two years has been very helpful because Africa has oil, sugar, and all kinds of food that the rest of the world wants. Africa now is being wooed, especially by China, whose growing presence there is quite amazing. Even though this commodity boom won't last, Africa is better off than they were before.

PwC: Will resource shortages, price spikes or market volatility slow down the development of emerging markets? What else might derail them?

AVA: For a time, it looked like the demand for resources created by the growth of emerging markets would create a great deal of resiliency in the global economy. We've since learned that this resilience is somewhat illusory-- the chickens are now coming home to roost. The rising costs of food and oil are affecting inflation. Wages have also been rising. And that, in combination with the aftermath of the credit crisis, is putting a damper on emerging markets.

Unless we do something big-and fast-about the environment, emerging markets will be the first to pay the piper. Finally, as societies change, they lose some of their fiber--their family and societal bonds. That transition is always dangerous.

PwC: What are some of the characteristics that you think the more successful businesses will adopt in response to the emerging market century?

AVA: There are four types of businesses: businesses that are proactive and innovative, businesses that are reactive, businesses that have their head in the sand, and businesses that are protective. Companies that cry out for protection are, in the long run, suicidal, but in the short run can do very well. If you're reactive or stick your head in the sand, you're close to standing still or moving backward. It's only if you are proactive and innovative-- seeking out alliances, moving into emerging markets, innovating, investing in the future-that you have a chance to succeed.

PwC: How will successful companies manage their workforces in emerging countries?

AVA: In the emerging markets century, the Western multinationals' "we know best" attitude gets old quickly. People just don't buy it anymore. We have to listen instead of preach, and really participate. Companies must learn to speak the emerging markets language.

PwC: Are executives in the developed countries fretting too much about the wrong things?

AVA: First, people who don't fret are in trouble. I've never met a good manager who doesn't fret on weekends about how someone can outsmart him or her. So fretting is good, not bad. Still, we probably fret too much that emerging markets will suddenly take over the world. Fretters sometimes think that we're under siege. We're not. We just have to deal with some long-term, serious challenges. On the other hand, we're not worrying nearly enough about the environment. In the very short-term, we fret too little about the risk of inflation.

We also fret too little about our need to innovate. I believe that innovation, rather than protectionism, is our trump card. And when I say "our," I mean the developed world. The era of the unquestioned Superpower and unlimited credit are over. But through innovation, we can hold on to a major position in the global economy.

By PriceWaterhouseCoopers Press