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A New World Emerges Published: Sunday, July 25, 2010 8:00 am By: Ramón L. Rivera, President & CEO

The Institute for Management Development of Switzerland (IMD) publishes the world’s most renowned and comprehensive reports on the competitiveness of nations, ranking and analyzing how a nation’s environment creates and sustains the competitiveness of enterprises. On its 2010 edition of the World Competitiveness Yearbook issued recently, the IMD presents a comprehensive summary of trends and facts that are shaping the global competitiveness roadmap. As countries like ours struggle to pull through the economic crisis and many have entered a period of economic recovery, here is a summary of the main issues that will have an impact on the competitiveness landscape in the years to come:

The South develops its own economy - Coming out the crisis with its banking system almost intact, the “South” can now rely on an unprecedented conjunction of resources: raw materials, money from sovereign funds, technology, a growing middle class (expanded market size), and competitive local companies.

  • Global debt explodes – the average G20 debt increases to 106% of GDP and beyond. The USA national debt now surpasses 12.2 trillion dollars. However, the “implicit debt” which comprises all unfunded liabilities (e.g. social security, Medicare, etc.) reaches $ 106 trillion.
  • New regulations for world financial markets – A fundamental overhaul of the regulatory environment takes place with the objective of laying down new rules for the supervision of systemic risk. Globally, the Basel Committee on Banking Supervision and the Financial Stability Forum are responsible for defining new standards and practices.   
  • Access as strategy – Industrialized countries are characterized by a “replacement economy” where purchases replace existing products while emerging countries are in a “first-buy economy” stage where purchases introduce new products into households.  In other words, an economy defined by “I want it” versus “I need it”.  Growth opportunities will come from the emerging economies and will increasingly depend on the accessibility of products and services.
  • A new business model for the poor – Products are manufactured and sold at a fraction of the price charged elsewhere and with minimal functionalities.
  • State capitalism is back – Governments are moving from being stakeholders to being shareholders of their economies. State interventions increase and national leaders consider themselves as local champions to develop the competitiveness of their countries.
  • Budget deficits reach abysmal proportions – The US budget deficit in 2010 is expected to attain a staggering $1,379bn. This represents 11% of the Gross Domestic Product (GDP). Britain is likely to post a deficit of -14%, the Euro area -7.5%, and Japan -8.7%. Governments embark on spending cuts.
  • Unemployment becomes massive – 25 million people lose their jobs in the OEDC region and the average jobless rate hits 10%in the US and Europe. Youth unemployment reaches record highs, around 20% in Europe and the US, 42% in Spain.
  • Emergence of a new middle class – The emergence of a middle class in Asia, Central Europe, and Latin America changes the nature of the world economy. The middle class has exploded from 1,428 million in 1990 to 2,644. 
  • Emerging powers raise their voices in international institutions – Emerging powers significantly increase pressures to gain access to decision-making in international institutions by emphasizing their predominant economic weight and their financial capabilities to fund such institutions.
  • Knowledge workers needed everywhere – More managers are required in emerging powers. India, China, Russia, Brazil and the Gulf region are increasingly focus on management and the creation of business schools, in addition to science and engineering education. Strategy, finance, and marketing skills are now priorities for ensuring the continuous expansion of local enterprises in a global environment.
  • The dollar loses its leading role – More than 60% of the world currency reserves are in dollars and 32% are in Euros. However, emerging economies increasingly worry about their dependency on the dollar and the policies of the US Fed. Several governments turn to a basket of currencies for their reserves and even for pricing their exports.
  • New global brands – Companies from emerging markets, that were unknown a decade ago, are now becoming global players with distinctive brands.
  • Labor costs differences shrink – The differences in labor cost is drastically reduced as nations develop. A range of 1 to 20 is reduced to 1 to 5 as purchasing power around the world converges.
  • Corporate taxes converge – Nations are developing an international consensus that establishes common and agreed-upon practices for the taxation of companies, no matter where they operate.

 As growth in developed markets flattens, the developing economies emerge as the potential markets for growth. The new challenge for global companies become how to come up with new business models for creating and selling a profitable product at a drastically reduced price structure to capitalize in the new emerging opportunities. Such models require new supply systems operating with super efficient cost structures. All of which is changing the competitiveness landscape forever.     

Copyright 2010 QBS, Inc.
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