Trends that are shaping the World – part 2

The second of the seven megatrends that I will discuss in this blog over the next six weeks or so is the growth in personal wealth, particularly in emerging economies. Over the last decade, there have already been substantial increases in people’s personal wealth, a result of economic development, discussed in last week’s blog. Since 1990, Gross National Income (GNI) in China and India has grown 768% and 275% respectively versus 104% in the US. As a result, there has been a decline in the number of people deemed to be living in poverty as well as the development of middle classes in emerging economies. This looks set to continue over the next 10 to 15 years and at a greater pace.

There are several drivers behind this trend. The first is the increasing workforce and the shift away from Agriculture towards the higher value added Industrial and Service sectors. This has and will continue to drive significant increases in average salaries in emerging economies. The third aspect is the changing demographics and the change in family structures. The average household size is decreasing as is the number of dependant’s per income earner.

These three factors combine to drive higher levels of disposable income. The consequence to this will be an increased demand for goods and services from companies positioned to capture this growth.

Trends that are shaping the World - part 1

As we enter the 4^th 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 (www.point-consulting.com).

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 3^rd 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.

Not all fun and Games in India

India has been in the media spotlight these last few weeks in the build up the 2010 Commonwealth Games in Delhi, scheduled to open on 3 October. Whereas hosting the event should have signaled India’s emergence on the international stage and an opportunity for important infrastructure investment, preparations have been dogged by allegations of corruption and incompetence. Conflicts of interest have come to light between Games organisers and private companies in the way contracts were awarded. Athletes’ accommodation described as filthy, facilities collapsing and the increasing concern over security has been a public relations nightmare for India.

Emerging countries are increasingly eager to host major sports events. In doing so, they have the opportunity to invest in infrastructure and to demonstrate a new and improved image. In recent years, both the 2008 Olympic Games in Beijing and, to a lesser extent, the 2010 FIFA World Cup in South Africa, have enjoyed relative success. Looking ahead, Brazil will play host to the 2014 FIFA World Cup as well as the Olympic Games in Rio two years later. Not to be outdone by the other BRIC countries, Russia will host the 2014 Winter Olympic Games.

India’s experience will no doubt throw into question the confidence of emerging countries to stage major sports events. Hosting such events remains a significant challenge and there is huge downside to getting it wrong. How much should we read into successes and failures at hosting such global events?

Using intelligence to drive competitive advantage

As published in ‘The Retailer 2010’ (http://www.retail.org.sg/Retailer.htm) 

Retailers in the region are continuing to face up to a demanding market environment and an uncertain outlook.

As buying behaviours continue to evolve, customers are making more complex trade-offs and the traditional methods and trends established over the last five years are no longer holding true as customers become harder to predict. Regional strategies in targeting these customers are also being tested as “the one size fits all” approach can no longer capture the intricacies of the differing customer groups in an increasingly competitive environment.

Synonymous with being able to respond effectively to a more sophisticated customer in a demanding market, is the ability to successfully map out the competitive landscape to ensure your business is well positioned to react to potential threats. The ability to understand your competitors is even more relevant in an environment where the onus on delivering a unique service proposition (USP) to the customer is a key priority. The differing characteristics of the Asian region provide yet another level of complexity, as a competitor in Singapore, for example, may well be very different than one in Malaysia as the business infrastructure such as income levels, religion, demographics and cultural values of the country impacts the buying patterns of the consumer.

We often ask our clients of the value of understanding their competitive environment, and the resounding answer is always ‘extremely valuable’. We then ask if they feel that they use competitive intelligence insights effectively. This time, the response more often than not is that they do not.

What does competitive intelligence (CI) mean in relation to your company? The broad based description of CI focuses on answering three main questiongs:

·         Who are my direct competitors and closest rivals?

·         What information is worth gathering and analysing?

·         How are insights translated into practical application?

Who are my competitors?

A competitor is any company that is able to meet the demands of your customers. Many companies are confident that  they know who their immediate competitors are, but let us also remember that in challenging market times, when innovative methods are required to capture market share, the competitor environment, more likely than not, will adapt to these new surroundings. This may indeed come in the form of a threat from a new channel or new product. For example, the emergence of e-books has hit at the very foundation of the high street book retailers such as Borders, who have in turn now launched themselves into this market.

Regional variance also plays a significant role in determining who your competitors are;  A senior retail executive recently told me the differing attributes in China that were forcing his business to think of the country in sixteen separate entities. Online retailers like Amazon battle for market share with high street stores within Singapore where internet penetration is around 75%, however that channel will be a different threat in Vietnam, for instance, where internet penetration is closer to 30%.

What information is worth gathering and analysing?

Gathering the right information will help support business critical decisions. While competitive advantage has a lot to do with leveraging the knowledge base of your own firm, it is also about determining how competitors are likely to leverage theirs.

Competitors can be analysed across all areas of their operations, including sales and marketing, new product development, distribution, logistics and procurement. Data collected may be used in developing growth strategies, in responding to and anticipating competitor moves, in validating rumours about what competitors are doing, in improving your operational performance by understanding what best-in-class companies are doing and how and why they are able to achieve their superior performance.

Translating best-practice from other industries should also be considered when looking to realise market advantage. Why don’t we try to understand IBM, Cisco and DHL in the field of supply chain – surely lessons can be learned for the retail operation? If customer service is defined as the differentiator, let us understand how financial services firms or hotels deliver a parallel experience. By segmenting the retail business in this manner, we have the ability to capture information that will ultimately support the ability to set apart your business in the industry.

Within a demanding market landscape, the so-called ‘recession-proof’ sectors have been significantly impacted and the ability to stand out of the crowd and determine your USP has become even more important. Competitive intelligence is a fundamental driver of creating this USP.

How do we translate CI into practical application?

When discussing within the intelligence community the merits and drawbacks of using CI to drive business decisions, the ability to execute strategies is where this conceived competitive advantage is lost.  Often there is no dedicated resource that focuses on business to business competitor tracking but rather functions that concentrate on general market research and customer insights. Competitive intelligence often falls between the two roles and as a result it becomes consigned to discussions rather than actions.

The ability to formulate strategies and take key business decisions ought to be based on having the best available data on hand. Understanding your competitors is integral to the business decision-making process and so having dedicated competitor profiling in place ought to be integrated into the daily operational requirements of the business.

Taking advantage of the opportunities

In Asia, where there are distinct differences between each country’s buying markets, improved market knowledge through effective CI will only help retailers improve their product offering and ability to match specific market needs. The aim is to ensure your business has the competitive advantage needed to either sustain excellence in your market or enter a new one and a robust basis of information will provide you with the ability to make decisions with greater confidence.

Competitive intelligence is by no means a new discipline, but understanding what competitors will do, rather than what they have done is increasingly important in an environment that does indeed suggest insight is better than hindsight. 

Meetings can add value!

I have often been told stories about Singapore: the cleanest place on earth with strict laws to maintain a high overall security level. The Singaporean government has been investing in this “Singapore brand” for many decades. A clean, safe city for both leisure and business purposes. The latest new innovations in this area are the integrated resorts in Sentosa and the Marina Bay.

This availability of leisure and business facilities appeals to many businesses and international organisations to hold their conferences in Singapore. This year is the third consecutive year that Singapore has won the award of ‘Top International Meeting City’ handed out by the Union of International Associations. Such meetings are very important for the circulation of knowledge and the improvement of networks. In my opinion there is a strong correlation between the level of international meetings held in a country and its business activity. Let’s do the test: For the last 3 years Singapore is the top city for international meetings and Bloomberg estimated Singapore’s growth in 2010 between 13% and 15%, rating the country as the world’s fastest growing economy. Coincidence?

 Next month there will be another important international meeting, namely the Human Capital Summit 2010 in which many industry experts will discuss human capital management in organisations in order to share best practices and improve organisations. I think that it is very important that the summit is held in Singapore out of all the Asian cities. Think for a second about what the future will be for Singapore. There will be a flatter distribution of global power in which emerging economies will gain economic power at the expense of the regions that are now being considered as the global economic powers. Singapore is a relatively small island with a low level of natural resources. This highlights the importance for Singapore to invest in expertise and knowledge in which human capital is very important.  Therefore it can be understood that keeping chewing gum out of the country has more advantages than just keeping the city clean, it also contributes to Singapore being the top international meeting city.

The cloud up ahead

Cloud computing has been looming over the business world for some time now (pardon the pun). The arguments for and against the adoption of cloud computing are well known: cost reduction and increased agility versus potentially decreased security. Can anything new be added to the argument? Actually, there have been several recent developments that, unfortunately, while relevant to the conversation about cloud computing, may not help advance the argument in one way or the other.

On the one hand, the increasing trend towards more mobile and powerful personal devices like the iPad (and ensuing tablets surely to come) and the Kindle point towards a consumer need to access data remotely, a feat most easily accomplished through the cloud. On the other hand, rising concerns about the privacy of information (think Facebook, Wikileaks and Blackberry in the UAE) seem to point in the direction for a desire to maintain proprietary control over data. Understanding that a company is but a collection of the individuals that work there and that, therefore, business decisions are usually reflections of those individual's tendencies, these two developments in the retail realm may help to understand businesses' future acceptance for cloud computing solutions.

The discussed trends, each pulling the argument is opposite directions may actually shed some light on the future of cloud computing. It seems that the most probable result is that rather than being a zero-sum game in which cloud computing solutions can only be adopted at the expense of more traditional in-house solutions, cloud computing will be adopted in those cases in which the need for flexibility and cost-reduction out-weight privacy concerns. Such a future may mean that potential businesses that once failed to get off the ground due to crippling IT costs may now flourish through the help of third-party servers and applications until their need for privacy and security is matched by their ability to afford secure in-house solutions.

A Tale of Two CEOs

Recently, there have been two very good examples of the perceived importance of CEOs: Steve Jobs' dealing of the iPhone 4's antenna issues (not to mention the way he has turned around Apple since he re-joined them over 10 years ago) and Tony Hayward's imminent departure from BP are two examples that seem to suggest that a CEOs actions can make or break a company. While the example of Jobs is clearly that of a CEO having a positive influence and Hayward's is an example of the negative influence of a CEO, they both suggest that a single person, at the top of a company, can have a disproportionate impact. The question that then arises is - is this true or not? Is Apple's success due to Steve Jobs? Is BP's failure Hayward's fault?

The truth is that it is impossible to say how much of a company's situation (positive or negative) can be attributed to factors associated with its CEO. Is a company's success attributable to its CEO or merely a result of circumstances? While, for obvious reasons, it should be impossible to conclude how much of a company's situation is directly the result of a CEO's actions, it seems that everybody has concluded that the role of a CEO is of paramount importance - the public, which has been demanding Hayward's head ever since the spill begun; the boards that decide to pay CEOs vast amounts of money; and shareholders who often make investment decisions based on management teams.

The importance of a good CEO and management team is undeniable but what is often ignored is that successes (or failures) that are sometimes attributed to the company's leader may simply be a result of context rather than personality. Will BP be better able to clean up the Gulf and its image now that Hayworth is no longer there? Are people willing to buy the iPhone 4 in spite of its call-reception problems solely because Jobs says that it is not that big of an issue? I, for one, am not so sure...