A desynchronized recovery
Although the economic recovery is quite brisk in emerging economies such as China and India, most advanced economies are experiencing a less buoyant turn-of-fate. The expected U shape recession did not turn out exactly as expected since the economy is exiting from the crisis at a lower level of activity than it went in (hence an inverse J recession). The years 2001 – 2008 were exceptional in terms of growth, with a formidable expansion of exports. It is highly probable – and worrying – that some excess capacities may have been created during these years of exuberance. In 2012 the world economy will be highly desynchronized. Some nations will remain on the verge of recession, other will be overheating, some shall confront deflation, others inflation. In such an environment, companies will have to implement a very flexible and adaptive business model .
Confronting debt and austerity
In 2012 the cumulative budget deficits of governments in the OECD region will reach a staggering $2,700bn while debt will surpass $29,000bn. It is estimated that these governments will need to find some $10,500bn to operate. Such a level of public borrowing requirement will impose some pressure on financial markets which are confronted with their own financing problems, for example in increasing their first tier capital. In the end, consumer and enterprises may be confronted to a credit crunch. Austerity plans will also hinder the possibility of a much needed dynamic economic recovery, especially in Europe.
Two types of economies
One of the reasons to fear a slower growth rate is that advanced economies are now “Replacement Economies” where each purchase generally replaces an existing product. For example, there are some one billion old mobile phones stored in drawers in the US. As a result, households – many of them plagued by debt – realize that they can wait longer before buying additional non essential goods without experiencing a fall in their standard of living. On the other hand, emerging markets thrive on a "First-Buy" economy where a purchase introduces a new products. Consumers do not want to wait and demand remains buoyant.
A new South-South block in the making...
Emerging economies’ enthusiasm to consume has, on the other hand, remained intact. In such economies, households which have long suffered the hardships and privation of adverse political systems don’t want to wait! In China, for example, household consumption expenditures are only 37% of GDP compared to 71% in the US (and 48% in Russia). A new South South block is in the making. Beyond a line from Mexico to Moscow, emerging economies can now rely on growing markets, huge reserve of raw materials, technology, money and new global brands. These economies are increasingly self sufficient. Last year almost 60% of Chinese exports were directed to other emerging economies and not anymore to the US or Europe. Their priority will be to affect their huge foreign currency reserves to build infrastructure, to buy industrial assets abroad but especially to finance the globalization of their domestic enterprise. A new state capitalism is born. It will also generates many new global brands from emerging economies. .
A new consumer class emerges
A key driver for future economic growth will be the emerging middle class in the so-called BRIC countries. However a new class of consumers is now joining the world economy: the "emerging less poor". They generally earn between $2 and $10 a day and need product of their own, such as cheap electronics, micro-finance or mobile money. Companies will also need to develop a separate business model to serve considerable opportunities in new markets. For example, Africa will double its population by 2050 and will reach 2 billion people.
Re-industrialization
In this context, competitiveness seems to rediscover the importance of manufacturing and the re-industrialization of the economy. Today, the US share in world manufacturing has dropped to 20% and has been matched by China. During the past two decades, the US, Europe and Japan have all suffered a drastic drop in their manufacturing base. In addition, many companies are now reviewing the pros and cons of extreme outsourcing of their activities: how much cost have been saved, how much complexity in the business model has it created, how many more competitors has it generated?. Finally a "return to basics" approach will imply a critical increase in productivity in advanced economy. This will be achieved through innovative policies, more flexibility in labor relations, a new partnership with trade unions and probably some social turmoil... ;
The impact of society
The most significant challenges that are imposed today on companies stem from new priorities in society. Sustainable development, ethical behaviors, corporate governance or aging and wellness are affecting traditional business models but also offering new business opportunities. For example, social networks induce companies to be more transparent and responsive to consumer demands. They also opens the way to new marketing techniques or hiring possibilities.
In 2012, competitiveness is also a question of mindset
A new world competitiveness landscape implies new attitudes and new approaches to managing people. Crises are periods that reveal strength of character. It is not only being good at "what you do" that counts, but also being good at "what you are". Winners will need to deal with more uncertainty and a higher sense of discomfort. They should nurture a healthy sense of ambition for their organization and themselves. Resilience and the ability to quickly re-invent oneself are key objectives.
The "why not" mindset for success
Despite destabilizing factors in the world economy, the mindset of competitiveness is one of being positive and forward looking. It is best encapsulated in a “Why not” attitude well expressed by Robert Kennedy who said: “some people see things as they are and ask “why?” - others dream of things that never were and ask “why not?” The future of competitiveness in 2012 is to escape from old ideas and to dare to invent new ideas and new strategies for a new brave world!