By now, it's accepted wisdom that the world is becoming a smaller place. Globalization is drawing the world together with ever-growing flows of trade and capital. Still, it's hard not to be skeptical at times. With so much excitement about China and other developing countries, sometimes it seems like the globalization evangelists have crossed over into hyperbole.
And then, more concrete evidence surfaces that seems to confirm that the transformation in the global economy is very real. Such evidence emerged yesterday as 3M (NYSE:MMM) confirmed its 2005 earnings guidance. The conglomerate's earnings forecast of between $4.15 and $4.25 per share represents a respectable 10.7% increase at the low end of the range compared to last year's $3.75 per share. What may be more interesting than the growth, however, is the source of those future earnings.
The St. Paul, Minn.-based firm indicated that it is seeing slowing growth in the developed world and is getting "mixed signals" from economic indicators. As a result, 3M is counting on the developing world to provide for its future growth. Countries like China, Russia, Brazil, and India will account for almost half of the firm's total growth in coming years, according to company CEO W. James McNerney, Jr. Of course, 3M is no stranger to international sales, as 60.6% of total revenue in 2004 came from overseas.
The emphasis on developing markets, though, presents new opportunities and challenges. 3M has had success in these countries in most of its business units, which include consumer products, communications, and health care. This fact suggests that growth in developing countries is broad-based. Nor is 3M's success the only indicator of developing countries' growing importance -- many of Boeing's (NYSE:BA) recent sales successes have come from India and China, while Monsanto (NYSE:MON) is seeing growing sales in places like Brazil and India.
At the same time, 3M's concentration on developing nations exposes it to new risks. Developing countries are inherently more unstable than mature markets. The economic meltdowns in East Asia and Latin America in the 1990s are a clear indicator of the potential dangers that lurk behind impressive economic growth numbers. 3M's investors should understand that future growth may be on shakier ground.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
