Global Business Futures
One decade out, prepare for unexpected winners and losers
In both the science of chaos theory and the science-fiction of psycho-history, the notion that seemingly predictable trends can be thrown significantly off-course by small changes is a central theme. Still, four apparently predictable mega-trends may tell us something about this early new century’s ‘winners’ in business.
First, global growth will come primarily from the BRIC (Brazil, Russia, India, China) economies. As far as China and India are concerned, this is, in many ways, ‘back to the future.’ Until the Industrial Revolution in the West, Asia had consistently accounted for over 70 percent of the world’s GDP. During the Industrial Revolution, the West took centre stage, and by 1975 accounted for about 80 percent of global GDP. Now, according to McKinsey & Co., Asia will account for 40 percent of global GDP in 2010, and for over 50 percent by 2025.
But is BRIC growth the pertinent trend? In any forecasting, business strategies should not be ‘BRIC-centred,’ but rather, more broadly, ‘emerging economy-centred.’ The BRIC societies have non-negligible political, social and economic challenges – poor infrastructure, political and regional pressures – that may slow or change their economic growth, thus making rapid growth of the BRICs neither automatic nor linear. At the same time, there are hopeful signs for growth in Asian countries like Indonesia, Malaysia, Singapore, Taiwan, Thailand and Vietnam; in Central Asia – Kazakhstan and the Caucasus; in Turkey; in countries of the Middle East, like Egypt, Israel, Jordan, Saudi Arabia and the UAE; in Eastern Europe – Romania; in Africa – South Africa; and in the Americas – Argentina, Chile, Colombia and Mexico. The point is that, to understand the world’s potential, much as the G8 morphed into the G20, so too in our thinking about global trends, BRIC thinking must morph into emerging market thinking.
The second mega-trend is that the world’s commerce will continue to be driven by the current global corporations. North American, European, Japanese and Korean organizations seeking growth will engage more fully in these emerging markets. Western consumers will learn new names as emerging market businesses go global: names like Alibaba, Baidu, Baisha, Bank of China, China Life Insurance, China Mobile, Dongfeng Motor, Haier, Industrial & Commercial Bank, Shanghai Auto and Sinopec from China; Aditya Birla, Indian Oil, Infosys, Mahindra, Reliance, Tata and Wipro from India; Gazprom, Rosneftoil and Sberbank from Russia; Ambev, Banco do Brazil, Bunge, Embraer, Petrobras, Vale and Votorantin from Brazil; Teva from Israel; America Movil, Grupo Modelo, FEMSA and Pemex from Mexico; Petronas from Malaysia; CP and PTT from Thailand; Koc Holding, Sabanci Holding and Vestel from Turkey; Sabic from Saudi Arabia; Caltex, Flextronics, Singapore Airlines and Wilmar from Singapore; and Etisalat from the UAE. Many of the major Western brands, of course, will endure, but watch for the new reality in consumer choice and in business competition from the emerging organizations.
Third, conventional wisdom holds that youth drives demand. In developed economies, around 65 percent of GDP growth is driven by domestic consumer demand, whereas in developing economies it is most often export-led growth that drives GDP. As these economies develop, consumer-led growth assumes greater importance. The assumption has been that this will be led by youth. But, by 2050, according to UN data, the over-60 population percentage will grow to 26 percent in South America, and 23 percent in Asia! As such, the picture will be much more variable: growth may come from youth in India, given its youthful demographic profile, but in other countries the demand base will be much broader. Business opportunities will be sought across the full demographic spectrum.
Fourth, it is often said that global brands will increasingly dominate international markets. Given the profile of global brands like Coca-Cola, IBM, Microsoft, General Electric, Nokia, McDonalds, Google and Toyota, we tend to assume that the state of all markets is domination by these brands. But, in fact, it is in relatively few markets like automotive and consumer electronics where global brands are the dominant players. Most markets in both developed and developing economies exhibit growth in both global and local brands. Global brand advantages tend to be in markets where there are economies of scale in production and promotion, and where there is little culturally-based emotional attachment to products or services. Local brand strength lies in specifically targeted appeals to local segments. This is what drives their growth. Contrary to what many believe, the world is becoming neither more nor less homogeneous. In its heterogeneity, success will be available for both local and global brands.
In the net, what will the future be like for business? More diverse than before; more challenging; and more complex, with traps for those wed to linear projections of the next few decades. In other words, it will be a world that will still surprise with unexpected opportunities.
Alan Middleton is Executive Director, Executive Education Centre, and Assistant Professor of Marketing at the Schulich School of Business, York University, in Toronto.