Entering a new phase of growth
The world is entering the fourth phase of growth and development of the modern era. This new phase will be marked by extreme volatility but also immense opportunity. The just-concluded GES Business Summit 2011 in Singapore touched on some of the challenges and opportunities. It is now widely acknowledged that global economic gravity is shifting from West to East.
The ongoing European debt crisis and anemic growth and over-leveraging in the United States has seen the developed world enter one of its most trying periods since the Second World War.
At the same time, emerging Asia provides new opportunities for companies that are able to move quickly and adapt to the new market forces. Doing business in China, India or Indonesia requires a different mindset to doing business in Germany, France or the United States.
Just how big is the opportunity presented by emerging markets? This was the central theme at the GES Business Summit 2011 in Singapore where businessmen, government leaders and entrepreneurs exchanged views and debated the major trends that will impact corporations over the next 10 years.
In his keynote address, Charles Ormiston, chairman, Southeast Asia Bain & Company, painted with a broad brush how the next 10 years will look. He argued that the world is entering its fourth phase of the modern era, one of turbulent rebalancing. This phase will be characterized by slow growth in the OECD economies; intense competition for resources and markets which will clash with sustainability; and disparate growth and increasing convergence.
This rebalancing will force governments to make some tough choices and corporations to change the way they do business. In the new phase, 50% of the world’s gross domestic product (GDP) will come from emerging markets, up from the current 17%. The wage gap between the rich and emerging economies will fall from 33 times to just 10 times over the next 20 years and China will have to slow down its exports and increase its consumption.
The turbulence will arise due to the rebalancing of the economic order. “It will be very difficult for the world to absorb two billion new middle-class consumers,” Ormiston noted.
What needs to happen?
To find the right economic equilibrium, the United States will to learn to live within its means and this includes slashing its defense budget to just 4% of GDP. Europe will have to write off 6% of Greek’s debt while China will have to cool its economy.
“Next year will be very much like this year in that the global economy will remain volatile but, by 2013, the US will start to grow,” he noted.
Indonesia, he told GlobeAsia, is at a very early stage of development and has not fully embraced trade and free capital flows. This has insulated the country from the global economic uncertainty and. as long as the government moves in the right direction, business will remain optimistic.
“Indonesia is on a very sustainable growth path,” he said. “But it has to build three fundamental areas – invest in infrastructure, reform its education system and (apply) consistent rules of law that affect business.” The key competitive advantage for a country in this new phase will be to have good governance. He pointed to the example of Pakistan as a country that had lost its way due to the political elite’s inability to set clear rules and stick to them.
“As long as the rules are clear, business will be optimistic for the next decade or so,” Ormiston said. “In Indonesia, people were pessimistic at the beginning of the decade and although the situation on the ground remains challenging, optimism has returned.” The Great Eight
In a report published recently entitled The Great Eight: Trillion-Dollar Growth Trends to 2020, Bain & Co expands on the themes touched on by Ormiston. The report asserts that behind the headlines and day-to-day frictions of the market place, $8-trillion macro-trends are at work in the global economy.
These trends include the emergence of the next billion consumers; new investments in old infrastructure; militarization following industrialization; growing output of primary products; greater investments in education and skills training; higher healthcare spending; soft innovations in consumer products; and new technologies. The total contribution of these eight trends to global GDP? A cool $27 trillion.