Monday, October 18, 2010

Trends that are shaping the World - part 1

As we enter the 4th Quarter, it is normally a time of reflection on the year gone by and also a chance to look ahead at what could await us in 2011. However, this time, we have decided to take a slightly different approach and take a longer-term view to think about some of the major global trends that are and will continue to shape the world over the next 10 to 15 years. You’ll see that these trends vary in their nature; some are economic, some are more political whilst other relate to the changing demographics and social make-up in both the developed and emerging markets.

The purpose of this blog is simply to provide ‘food for thought’. We will provide an overview of each trend every week. More detail on these trends and their impacts will be discussed in a whitepaper that will also be available on the website (

The seven trends we will be discussing are:
1.       The rebalancing of economic power
2.       Increasing prosperity
3.       Urbanisation
4.       Ageing population
5.       Connectivity
6.       Sustainability
7.       Global markets, national governments

Part 1 – The rebalancing of economic power

In the next 10 to 15 years we will experience a continuing rebalancing in the global economic power, led by Brazil, Russia, India and China (the ‘BRIC’ countries – a term first used in 2001). According the GDP forecasts, China will have the world’s largest economy by 2020, roughly 1.25 times that of the US (whilst it only accounted 12% of the US in 2000) and India the 3rd largest economy, with its economy accounting for just under half that of the US in 2020. This shift will bring greater balance to the world stage both economically and politically and a more global platform for decision-making – the G8 became the G20 to reflect these changes.

For companies, this means that the ‘emerging’ markets will continue to be the avenue for growth, away from the traditional markets of the US and Europe. However, capturing this growth will require the right strategies to be developed and successfully executed.

The vast population numbers suggest a huge demand for products and services but it is worth considering that spending power in ‘emerging’ economies is less than one fifth of ‘developed’ economies. This suggests that affordability and therefore product pricing remain critical in gaining market share. This is reflected when analysing market share data by revenue and then by volume. In some industrial sectors, the market leader by revenue does not feature in the top 10 by volume. This should be worrying as unit share in emerging economies will likely drive revenue share as the economy and spend increases.

But it’s not all about price. Successful companies will be the ones who understand the markets and the customers’ needs and develop products to meet those, rather than focus on low cost products. An example of this is in the Wealth Management industry. There is significant disparity to the risk-profile of customers across different geographies. Part of these differences can be explained from how wealth was acquired by the individual. First generation millionaires versus second or third generation (emerging vs. developed) have very different risk-appetites and reward expectations and banks serving these clients need to enhance their offerings to make sure these differences are addressed.

The final point relates to the evolving competitive landscapes. The next 10-15 years will see the continued rise of companies from emerging economies. How many of those will be truly global players by 2025? This is challenging to determine as there are many factors that will shape the debate. In China for example, local companies tend to do well in slow-moving industries, where product and design changes are less frequent, there is a reliance of extensive distribution and where production cost accounts for a high percentage of the product price. On the other hand, multinational corporations (MNCs) tend to do well in fast-moving industries, where product changes and redesigns are frequent, the customers’ needs are changing, and where R&D and advertising is important.

However, this situation may also be evolving. Last year, the Chinese manufacturer Huawei, led the world in patent applications. No US Company was in the top ten. It will be interested to see how competition develops and what risks may arise from emerging players making inroads into the US and Europe markets.

What we can take from all this is that the rebalancing in the global economic power is and will continue to have a profound impact on global companies. There are new avenues for growth, and, as always, the winners will be those who can develop the right strategies and execute them successfully. In doing so, companies need to recognise the differences and subtleties in the market, customer and competitor landscapes and adapt appropriately. This will mean developing the ability to operate different business models across different markets in meeting the customer needs profitably.

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