ABSTRACT OF PRESENTATION 2020
WHAT IS GOOD NEWS OR BAD NEWS? (click on slides for better resolution)
2020 will be a time to look at the world differently. The top of the economic cycle has passed, and many countries are experiencing a slowdown of their economy. However, it may not imply a global crash or a recession. The world economy is increasingly desynchronized, and many economies are more resilient than expected, such as the US, or more fragile than feared such as in Latin America. New tensions occur at all levels: energy, climate change, currency volatility, low-interest rates, protectionism, and geopolitical instability. In this new environment, what is good news or bad news? How can companies react to new challenges and anticipate change?
THE THREAT TO GLOBALIZATION?
In this context, protectionism is a significant disruption to business confidence. The rhetoric has moved from job protection to national security. The debate is increasingly political and emotional. The risk is to move from a tariff war where price increases are transferred to consumers, to one of denying market access, which cannot be circumvented. Despite these uncertainties, the world economy remains global, and products will continue to be manufactured and assembled in many geographies. However, a stronger regionalization of business (nearshoring) and a reappraisal of partnership and business locations is likely.
THE BRIGHTER SIDE
Despite uncertainties, the world economy appears to be more resilient than expected. Consumers continue to spend, and private household consumption remains buoyant in the US, Europe, and Asia. Such resilience may not occur at every moment of the year but is likely to peak during special event sales events such as Black Fridays, Cyber Mondays, etc. The mood of consumers seems to be surprisingly disconnected from news headlines. How long can it last?
DO WE KNOW WHAT IS GOING ON?
Technology and globalization challenge the conventional way of looking at the economy. GDP, as a measurement of economic success, mainly focusses on added value and underestimates the quality of assets. Moreover, it only records events when there is a financial transaction, which does not account for a significant part of the immaterial economy. Inflation is also challenged by the flexibility of the online economy, where prices can be changed daily as a marketing strategy. As a result, many technology companies are influencing inflation in a way which is difficult to be monitored by central banks. Finally, productivity metrics largely ignore the impact of technological progress. What is the productivity impact of updated software?
Global technology companies now can extend their business reach far beyond their initial industry sector. Amazon is a world leader in cloud technology; Google and Facebook in digital advertising, Tesla in batteries and solar panels, and Amazon now produces more watches than the entire Swiss industry. Size matters. Ant financial, the electronic payment company of Alibaba, is 16 times larger than Paypal. The barriers of entry in many businesses are thus falling and can also affect public institutions, for example, in the case of digital money (Libra). The challenge: who will be my competitors tomorrow, where they will come from?
A PERVASIVE TECHNOLOGICAL REVOLUTION
The new technological revolution affects every sector of the economy, without exception. The disruption extends to management practices and jobs. The “immaterial economy” increases its share of the world economy. However, it is hard to measure and to regulate. What is hype, what is real? At the end of the value chain, there is always a tangible product proposed to consumers. The objective is to align technology with customer’s needs.
NEW BUSINESS MODELS
New business models flourish and surf on new technological platforms. The “free” model offers services as a counterpart to accessing personal data (Facebook), the “subscription” model locks consumers into a long-term relationship (Spotify). The “licensing” model only proposes the use of a product, but not its ownership (Microsoft, Netflix). These business models change the relationship between companies and consumers. One objective is to lock consumers in a proprietary relationship, providing an ecosystem of products and services. In short, “you have the choice, provided that it is mine.”
THE CONSUMERS STRIKE BACK
Consumers are not entirely passive and force their models on companies. The circular economy is one example of how consumers induce companies to introduce sustainability and environmental protection in their value chain and business proposition. It is part of a more significant movement pushing ESG (Environmental, Social, Governance) policies to take into account the priorities of society for broader issues such as climate change, transparency or ethics.
A BLACK HOLE ECONOMY?
A few large companies concentrate technology and financial power. The combined market capitalization of the ten largest global technology companies is over 5 trillion dollars, which is more than the combined value of their equivalent in the banking and pharma sectors. Technological giants do not only innovate, but they have also engaged in a strategy of buying promising start-ups, often above market value. They use about 25% of their financial resources to buy successful innovative young companies all over the world. They are engulfed in a sort of economic black hole managed by a few companies. As a consequence, many nations now run the risk of losing promising young companies which would have had the potential of becoming large national champions.
SHOULD LARGE TECHNOLOGICAL COMPANIES BE DISMANTLED?
The power of technology giants has triggered a political debate in the US and Europe. It is not only about how they should be taxed, but also about how they can be better controlled. In the US, the question of whether they should be dismantled, like the oil and banking industry in the 1930s, is being considered. It could split the technological platform from the services provided. The theory is that systemic risk today stems less from overregulated banks than from overvalued and underregulated technology companies. Some scholars argue that it would not be necessarily detrimental to competitiveness. According to Morgan Stanley, a spin-off from Amazon Web Services, the cloud operations of Amazon, could fetch $438bn and would constitute the largest IT companies in the world.
HOW MUCH REGULATION IS NEEDED?
Consumers and companies are at the center of a flurry of new regulations aimed at protecting the private sphere and at avoiding a systemic economic or financial crisis. Individually, these regulations make sense and are necessary. Collectively, the compliance and management time that they imply increases cost and complexity in organizations. There is a subtle balance to maintain between the legitimate expectation of society toward better governance of companies and the regulatory framework that they imply. Also, a multiplication of individual initiatives by countries or institutions may blur transparency and the implementation of such rules.
THE GLOBAL TAX REVOLUTION
The global tax reform is an example of better international cooperation to solve a global issue. Three basic principles guide the tax reform worldwide: a territorial system, transparency, and equality of treatment. However, divergence will continue regarding tax rates, which will not be harmonized. Governments are also attacking the issue of taxing technological companies with the idea of tax revenues (2-3%) rather than profits, which are hard to assess for a single territory. However, individual initiatives are likely to create political confrontation and retaliation, as it is the case today between the US and France on such an issue.
The arrival of the millennials as consumers and employees force companies to reassess their approach to products and markets. This new generation is driven by "Meism"; a self-centered approach to life, an eagerness for transparency, which means that nothing should be confidential anymore; a willingness to improve the state of the world, especially through sustainable development, and a conviction that "free is cool", which implies a reassessment of profitability models for companies. This new paradigm reinforces Peter Drucker's statement: " Changes in society now have more impact than changes in management." Companies that ignore this new fact will face strong headwinds from consumers, society, and governments.
A MINDSET FOR COMPETITIVENESS AND SUCCESS
This world competitiveness landscape implies new attitudes and new approaches to managing people. 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 degree 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 crucial to success.
Companies need to stimulate a mindset of imagination (why not?), of energy (why not now), and of commitment (why not me). Companies are increasingly questioned, especially by the millennials, about their contribution to society, beyond their financial results. The “legality” of the actions of companies - conforming to the law - is no longer enough in a world where public opinion also demands "legitimacy" - adapting to a higher standard. In such a world, companies will need to answer the broader question: why us?