Opportunties in Turbulent Times

What emerging realities do you see in light of the emerging economies? Which among these new economies do you feel would outpace the others? Quote examples and facts to support your argument.

The world is changing faster than the speed of light. Banks are getting Lehman-ized, global markets are crumbling, vibrant cities are turning gloomy and many dreams turning into nightmares. To be honest, nobody knows what lies ahead of the current influx point.

Perhaps the two most critical changes which will impact the tomorrow more than any other changes are: the implications of the financial crisis and the future of emerging markets. The crisis that began with downturn in US housing sector has led the largest downturn in the global financial markets. North America and Western Europe account for about two-third of the global wealth in 2007. The remaining third is spread across emerging economies. However, the financial sector turmoil is like to propel significantly higher growth rate in emerging economies and eventually will change the world map in more ways than what we can imagine.

The biggest changing reality and opportunities is the vast untapped demand in challenging markets across Asia-Pacific, Latin America, Eastern Europe, and the Middle East. The right product markets, technology, and geography are critical components of long-term economic performance. Companies that ride the currents succeed; those that swim against them usually struggle. Identifying these currents and developing strategies to navigate them are vital to corporate success. Some of the emerging realities which will fundamentally change how we live and work:

Macro Economics Changes

1. As a consequence of capital market developments, economic liberalization, technological advances and demographic shifts, the world has embarked on a massive realignment of economic activity. Centers of economic activity are shifting profoundly- Asia will overtake Europe economically. China and India will continue to outpace the growth of developed nations.

2. Aging populations are creating demand for public services, which in turn will increase taxes. The unprecedented aging of populations across the developed world will call for new levels of efficiency and creativity from the public sector. Public infrastructure will be witness significant amount of investment in many emerging markets

3. Consumer spending power in emerging economies is growing. Almost a billion new consumers will enter the global marketplace in the next decade. Existing business models to serve customers in developed nations will fail and new distribution system, products and promotion strategies will evolve to cater to this new large consumer segment.

4. Disintegration of global markets while keeping an open border policy will change the way financial world functions. More stringent regulations and governing bodies will be formed to check the power of the large institutions.

Social & Cultural Changes

1. Decline in joint family system in many emerging economies will force the governments to improve the level of social services to provide to citizens who increasingly demand state-provided protections such as health care and retirement security. Insurance and healthcare industry will witness considerable untapped opportunities in emerging markets

2. For perhaps the first time in history, geography is not the primary constraint on the limits of social and economic organization. Technological connectivity will transform the way people live and interact. New developments in fields such as biotechnology, laser technology, and nanotechnology are moving well beyond the realm of products and services.

3. As the market and demand shifts to emerging economies, the domination of Europe and US in technology development will decrease and emerging markets are likely to play larger role in evolution of new technology.

4. Chinese languages (Mandarin and Cantonese) might emerge as the most spoken language after English. Every day more than a billion Google searches are evoked, more than half in languages other than English.

5. A global labor market is opening up. The shift to knowledge-intensive industries to emerging markets highlights the importance and scarcity of well-trained talent. Chinese government has proactively started nurturing the talent realizing that China’s progress might get hindered because of talent shortage in next few decades. For many companies, talent retention will became the source of competitive advantage

6. Environment and human right related regulations (Global warming and changing climate) are likely to force many companies to rethink their success strategies. will post threat

7. Water shortages will be the key constraint to growth in many countries. World might witness “war for water” unless corporate and government start tackling this issue now.

The more interesting debate is which economy will emerge as winner by tapping the wealth of opportunities in the current turbulent time.

Developed economies like US and Europe will continue to grow but unlikely to witness any significant growth in next few decades. One of the Indian democrat said recently that one line summary of changing economies and power is “Europe was yesterday, USA was (note “was”) today and Asia will be tomorrow”.

Japan is the wealthiest market in Asia. However, it is highly locally oriented and also highly regulated. In addition, demographics also against Japan as the average age in Japan will be alarming 53 years in few years. Eroding domestic savings and mounting pension needs might cripple Japanese growth.

Chinese economy has been growing at more than 10% in past and is likely to witness similar growth in future. Chinese government has taken appropriate measures to mitigate any risk which can hinder the growth. They have invested significantly in the talent development and education system. In addition, they have utilized the Chinese sovereign funds to buy real asset across the globe. Perhaps, one day we all will wake up to realize that Chinese own the world. The only dark side of the glory story is the tensed social fabric of China. The sex ratio has been highly skewed will can unstablize the social capital quickly. In addition, lack of transparency and freedom has created resentment in many Chinese societies.

India has been growing at a stable rate of 7-8%. Government is focused on economic growth and liberalization while trying to maintain the social fabric. However, India also faces significant challenge in terms of wealth divide and poverty. According to latest report of World Bank, more than 70% of the Indian population is below (or just above) the poverty lines. We are talking about 700 million people (US population is 300 million, entire Europe combined is 450 million).

Latin America will also continue to grow at a steady pace over the next many years. Unfortunately, poverty is a critical issue for them as well. In addition, the society is also very cynical about foreign brands.

It is not easy to predict how the world will look in next few years. But decline is west and rise of east will be the common theme which will emerge in the coming decade. Companies need to understand the implications of these trends alongside customer needs and competitive developments. Reflecting on these trends will be time well spent.