The propose of this article is to present a snapshot about the Ernest & Young perspective of some of the most significant trends we see today in the marketplace. The most influential trends we see in this changing world – some that are driving the change and some that are driven by it.
The accelerating shift of power from West to East
The global economic landscape is changing and the emerging markets are playing increasingly significant role. Economic power is moving from developed to emerging economies. Emerging economies accounted for 44% of global GDP in 2007; while projected GDP growth rates for major developed markets in 2009 were predicted to lie between -0.2% and 0.5%. Emerging markets are expected to grow at 6.1% on average, with China (9.3%) and India (6.9%) performing ever better. While the BRICs (Brazil, Russia, India and China) are clearly the major players, China alone contributing nearly 27% to global growth in 2007. Another group of countries are emerging that have the potential to behave like the BRICs – driving growth and making waves in the global market: South Korea, Mexico and Turkey. Iran and Vietnam has been identified as having the potential and conditions to rival the BRICs and some developed economies in the future.
With that shift is common to observe that emerging market multinationals (MNCs), previously little know outside of their own countries or regions (despite their colossal size) are now challenging the megacorps around the world, specially of the West.Globalization may just have been, in the past, a different word for westernization, but no longer – a new wave of globalization is in place, and emerging market MNCs are now exporting their brand of capitalism to the West. Emerging markets had 70 companies in the Fortune Global 500 in 2007, up from 20 a decade ago and are likely to account for a third of the entire list within 10 years. It has also been impactful, evidenced by some very high-profile activities across numerous sectors. Lenovo, Mittal and Cemex becoming household names for their acquisition activities with IBM, Arcelor and RMC respectively. Embraer challenging Boeing´s and Airbus´ dominance in certain segments. These companies may have a competitive advantage over their western counterparts in reaching each other emerging markets, but they have not been afraid to compete in developed markets.
The changing financial landscape
The global picture of financial power and centricity has fundamentally changed. Capital markets have become increasingly globalized and interdependent, with the world’s foreign direct investment (FDI) flows running at over US$ 1.8T in 2007 (over 3 times the level in 2003) and foreign investors owning over 25% of global equities. As a result of their spectacular economic growth, emerging markets are now net providers of capital flows, financing a large current account deficits of the developed countries, and in particular that of the US.
The new power brokers….As well a being more interconnected a financial landscape had been redrawn by the emergence of four new power brokers. Asian sovereign investors and petro-dollar investors (often using sovereign wealth funds (SWFs) as investment vehicles) have moved the power base further to the East, while private equity (PE) and hedge funds have re-defined financing and leverage.…and their uncertain future…While Hedge funds have not proven so far to be the systemic threat that many feared, they have not been able to deliver good returns during the crisis. Institutional investors, hit by the fall of the equity and credit markets, are being forced to withdraw their funds from hedge funds in significant ways to maintain asset allocation rations; other investors are dissatisfied with recent weak returns and high fees charged by the funds. PE firms also face a number of significant challenges: with credit markets likely to remain tight well into 2009 there will be limited debt to finance large acquisitions. Many of the smaller ledge funds and PE firms will operate with a lower profile and may disappear (through acquisition as well as failure) and both industries are likely to be more consolidated, institutionalized and regulated.
The rising economic importance of energy and commodities
Energy supply and demand is likely to represent the biggest challenge of the 21st century. More than any other issue, it is at the mercy of global economics, geopolitics, was, fiscal policy, and the battle between growth and sustainability. Beyond finance services, energy is a probably the most global of industries and the industry with the broadest impact on others. All of these factors result in a uncertain an changeable future.
As the global population continues to grow, demand for natural capital resources will also become more important,economically and geopolitically. Meeting the world’s fresh water demands will be just as challenging: by 2025, the combined population of the countries likely to face the water stress or scarcity will be nearing 3 billion.
In the short term, it is oil that has the most wide-reaching implications. Demand for oil is likely remain strong with the emerging economies leading the growth. If fact, if governments around the world stick with their current policies, the world’s energy needs are likely to be over 50% higher in 2030 than today, with oil making up to 32% of total demand. Freeing the world from its dependency on traditional energy sources would help counter many of these issues – as well as solve some environmental ones – but this will not be an instant solution. The current contribution of renewable energy source is relatively low (representing 3.4% of global power generation), and the speed of a transition from a global economy based on fossil fuels to one based on alternative energy is likely to be slow in the absence of a major technological breakthrough. However, the future remains promising, global investment in renewable energy surged to US$ 148 billion in 2007, and there are some significant success stories: wind power for instance is growing 30% per annum globally, already provided 20% of Denmark’s electricity needs and is likely to provide up to 15% of the US electricity needs by 2020.
The next wave of technological innovation
Technology developments in the past few decades have significantly transformed the way people live and communicate, and the way business operate across the globe. Digitalization and technology go far beyond the consumer. Business has adopted digital technologies to improve their productivity, to develop new products and services and, in some cases, to create new business models that have transformed major industries. (e.g., Google’s search technology revolutionized online advertising and had a huge knock on effect on old media). Technology also drives convergence across industries: the computing entertainment and telecommunication industries have converged with the launch of the Apple iPhone, and healthcare and energy (among others) find a common ground in nanotechnology. Business knows that technology will drive profitability (in fact 68% of global executives in a McKinsey study believed a faster pace of technological innovation would have a positive or a very positive impact on profitability).Most experts believe we are only at the early stage of the digital technology revolution. As technology gets more open-sourced and emerging countries contribute to innovation to a greater extent, the scale of innovation will increase.
The impacts of uses of software as a service are only just beginning to be understood. Cloud computing and virtualization – broadly technologies enabling users to obtain their computer resources virtually, and pay for what they use – are likely to transform the IT agenda, reduce the need for packaged software and allow start-ups and others to right-size their service capacity almost instantly without great infrastructure investment, facilitating success of many innovative new ideas and business. The route to the market may be easier for new entrants in an era of impressive and often cheap technology, but with so many players, it takes something truly innovative and sustainable to win.
The increasing challenges of managing and developing talent
Managing talent today on a marketplace is increasingly difficulty, businesses are struggling at all stages of the talent cycle – recruiting, managing, retaining and dealing with retiring. Aging population are just one well-documented factor: in Japan, for instance, 42% of the population is predicted to be +60 in 2050. The overall aging the population is leading to a brain drain of a critical skills and institutional knowledge in the workplace. Certain sectors are being particularly affected; near 60% of the US aerospace industry is aged over 45, and more than a quarter are eligible to retire in 2008. Even where dependency ratios are good, and there are seemingly high levels of education, challenges persist. The knowledge economy is growing, with a consequent increase in demand for qualified workers. However, while emerging market universities may be turning out enormous numbers of graduates, quantity does not mean quality. Only 3 of the world’s top 100 MBAs are in the emerging markets.
The certainty of a solid job and a pension is not enough to attract Gen Y – the generation of workers born after 1980, widely considered to have different expectations and beliefs than the generation of workers before them (baby boomers, Gen.X). An increased desire for work/life balance, more inclusive work environments, greater mobility and the rise of new technology mean worker preferences and needs are undergoing a transformation.
Managing the workforce once they are in is proving challenging too. Very few businesses have undertaken adequate succession planning. And the redundancies and cost-cutting measures taken in the 1990s are now being felt as business find there are insufficient people ready to move up to the top management positions. A fluid and rapidly changing business market means that employees need regular training: soft skills like adaptability, communication and emotional intelligence are becoming more important, particularly when working across culture. Globalization drives greater interaction between cultures, within and between business, which in turn are trying to understand how best to institutionalize inclusiveness and capitalize on diversity.
Rafaela Pinheiro, Regional Marketing Manager America Latina - Verizon Business. Possui MBA em Gestão Empresarial na FGV e Pos MBA no BI em colaboração com a Columbia University. Membro do HSM Knowledge Circle, executivos de marketing.