The convergence of the subprime crisis and the ensuing credit crunch, uncertainty about inflation and a slowdown in the US and Europe have given rise to a high degree of uncertainty about the short-term outlook for economic growth. However, as a recent report by the Global Risk Network of the World Economic Forum, Global Growth@Risk, highlights, leaders from all walks of life and particularly those heading growing companies, should also be looking beyond immediate problems. The report finds that the world may seem a very divided place today as some economies experience unprecedented growth while others appear to be drifting into the doldrums.
Behind the figures of the International Monetary Fund forecasting a slowdown in global growth in 2009, lie a myriad success stories. China, India, Russia and several West Asian states will all have very robust growth in 2009. Beyond the current negative headlines, we are witnessing the entry of a new cast of players that are fast emerging as the future drivers of global growth. It is these “new champions” that will increasingly play a greater role in the world economy and who are in a strong position to benefit from new growth opportunities.
At the industry level, and despite the volatility on stock markets from New York to Mumbai, the energy, food, telecommunications and professional services sectors are all still performing strongly. CEOs from many of these industries agree: Yes, the outlook is more uncertain but new markets are opening and there are opportunities to be taken. With the current credit crisis, access to capital may have become more difficult in certain markets, but there is no shortage of capital globally. The West Asian states alone added $215 billion to their stock of foreign assets in 2007, according to the Institute of International Finance. Their total assets, including those of their central banks, sovereign wealth funds and wealthy individuals, are estimated at $1.8 trillion, with some estimates as high as $2.4 trillion. The question is: Who is poised to take advantage of this constellation?
Looking forward, three trends are emerging as influential for future growth prospects at the corporate, national and global levels: The first is the emergence of fast growing economies that have large populations and rising middle classes, with China and India at the fore; the second is the related increase in demand—and competition—for capital, energy, goods and skills to meet demand and sustain growth; and the third is the growing importance being given to technology as a source of solutions for a range of global problems. The intersection of these trends will pose challenges but will also offer opportunities to businesses which have positioned themselves to meet them.
One of the biggest of these challenges—and opportunities—at this intersection will be sustainability. The demographic shifts that are taking place in those emerging economies represent huge opportunities and will place pressures on demand for resources, in particular on energy and water, but also equally on human and financial capital. Clearly those emerging, fast growing “new champion” companies will have to compete strongly for these resources. But their structure and location may in fact work in their favour. Most operate in dynamic economies or market sectors and many are privately held. They are often led by their founders, giving them the impetus that comes with their enthusiasm and growth focus. When it comes to attracting talent, two factors may work in favour of smaller companies: The first is the appeal of fast growing, more entrepreneurial structures; the second is that many are operating in markets experiencing a reverse brain drain.
The last two decades have also seen a new class of entrepreneurs appearing in countries where previously they would have to go abroad to build a business. At least 200,000 Chinese of the 800,000 who went abroad between 1974 and 2004 have returned over the past few years. In India, offers from Indian companies for recent graduates from the respected IT schools are rivalling those of international companies trying to lure them abroad.
Companies expanding from or into some of the world’s fastest growing markets can be in a unique position, but they will need an understanding of global risks to build their strategies.
Tracking and analysing global issues not only helps to ease strategy adjustments for risks and events but also helps leaders to identify emerging business opportunities sooner. More importantly, given the scale and scope of global risks, neither business nor governments can deal with them in isolation. As they grow their business, leaders must actively engage with the wider community and other stakeholder groups at the local and international levels to explore new solutions.
The Global Growth@Risk report concludes: Companies and economies that steer through the present uncertainty should already be looking ahead and exploring where the next wave of growth will come from. If companies can combine their strengths with an understanding of global trends and risks and how they can be mitigated, then they can start preparing for the future rather than waiting for it to happen.
Sheana Tambourgi is director and head of global risks network, World Economic Forum. Comment at email@example.com