‘Energy is lead indicator on what is happening on the global stage’7 min read . Updated: 10 Dec 2007, 11:35 AM IST
‘Energy is lead indicator on what is happening on the global stage’
‘Energy is lead indicator on what is happening on the global stage’
Mark Spelmanis head of global strategy practice at global consultantAccenture Ltd. He and his team provide the larger context to consulting and technology practice that Accenture is famed for and which accounts for nearly $20 billion (Rs78,800 crore) in annual revenues. In India for the World Economic Forum’s India Economic Summit, he spoke to Mint last week about the challenges that lie ahead for businesses as the global economic balance tilts towards emerging markets, the importance of the environment as a factor affecting economic activity and the opportunities for India in the evolving framework. Edited excerpts:
What are the top three global trends in business and what do these mean for companies?
The first one is that energy is a lead indicator on what is happening on the global stage: The supply is getting more constrained just when demand is expanding. Now, that’s a recipe for increased volatility and uncertainty. That is a lead indicator on what is happening in the global economy in terms of power shift.
If you extrapolate that, everybody gets concerned about the US economy. But actually, when you counterbalance that with (other global trends such as) the boom in exports of capital goods from Germany, with what’s happening in India, China, Mexico…people forget Mexico is as large as Brazil in terms of GDP, people underestimate South Korea, even some countries such as Vietnam (are) growing 7%, Uzbekistan (is) growing at 7%...what you are actually getting is small guys getting bigger, more resilient and what’s actually happening is that the shock absorbers in the global economy have been better in resisting some of the downturn in the US economy. That doesn’t mean if we get a big downturn in the US economy, that’s not going to be a major problem, because you can’t take off 25% of the global GDP and not have problems.
One of the big issues for the management in the global world is that in the last three-four years, when things have been pretty good, the global GDP has been growing at 4-5% on a fairly straight-line basis. The trouble is that people get into a mindset that that’s going to keep going—that’s the rear-view mirror problem.
Volatility is something one can understand, but what are the new risks?
There is obviously an economic risk associated with the US economy. The fact that you got large dollar balances sitting in Asia, it is very clear that over time, what’s happening is people are saying I don’t want US treasury bonds any longer, I want to move them into assets because I am actually doing a classic management diversification. But actually, what I do is increase volatility because all of that money comes back into the system.
Clearly, there is political risk, because basically what’s happened in the global economy is that the small guys become more powerful—Iran, Bolivia, Venezuela…. You obviously also got uncertainty in places such as Middle East and that is not just driven by some of the issues around what’s happening in Iraq and Iran. You only, for example, have something to happen to the Saudi royal family and that could generate quite significant political instability.
The technological risk and the environmental risk are all clearly linked to climate change. I see Bali (where the United Nations climate change talks are currently happening) as a huge issue. I would argue that probably Bali is the most important event (in 2007). The reason why is because it’s a strategic context for the post-Kyoto (Protocol) regime. Why is that important? Well, because the fundamental problem with Kyoto is that it was all about aspirational targets (for emission reduction for developed countries). And aspirational targets haven’t worked. The thing from the business leaders’ point of view is that if you sit there and do nothing, and carbon becomes mainstream... carbon becomes a cost, just like employing people is a cost.
Some of these risks have been there for ages. What has changed?
Well I think partly, (this) is the ‘flatline growth’ point which is that I think people have been lulled into a sense of false security because of the underlying growth in the last three-five years. Yet, you just need to recognize if oil is $150 (a barrel), what does that mean? Or, look at the political legitimacies... Just when you got economic power shift (from the West), look at the political leadership situation in those countries. (George) Bush goes 2008, (Gordon) Brown is very weak at the moment in UK, (Angela) Merkel is very limited (in terms of powers) because of the ground coalition (in Germany), (Nicholas) Sarkozy doesn’t know what he stands for (in France), Italy is also pretty weak at the moment (as is) Spain. All these Western economies are at the moment actually characterized by quite weak leaderships.
Will the importance of carbon in the new scheme of things change the world supply chain? Will there be new sources that will emerge?
Companies are beginning to sort of look at what I call three dimensions. The first is the classic of how you optimize your supply chain network. The second one is how to manage any change in the configuration and (third) how to overlay environment factors into that. And carbon becomes hugely important when you look at the carbon footprint of your supply chain. While we are not there yet, I think what will happen is when people look at their business models and look at their supply chain, they will increasingly want to look at what is their carbon footprint.
I am not sure yet that there are enough business leaders who understand exactly what that means and how it’s going to change the business going forward. Because I would actually argue that would be one of the new major discontinuities for businesses.
Is China ready to meet the challenges that come along with carbon getting in as a cost? Are there opportunities for countries such as India to position themselves as clean supply destinations?
From the Indian point of view, I would say there are a lot of other opportunities to invest but clearly there are one or two areas where India could be on front foot in terms of intellectual property. And it is very clear, obviously from a supply-chain point of view, being a counterbalance to China. I am not sure it’s not always an ‘either or’, I think it’s an ‘and’ view. And from an India point of view, you need to look at how you can do some sort of differentiation and how you can position yourself in similar areas where you go the differential advantage.
Are the challenges for Indian businesses different from global ones?
Let me start with the Western multinationals. If you take the?one?billion?extra?consumers that are going to come into the global market in the next 10 years, you talk about the 250 million extra people that come into global labour market over the next 10-15 years, and you say to yourself, who is best suited to target the new consumers and access that talent?
The big issue with lots of Western multinationals is (that) actually they have well-defined structures and systems which are geared to the US, Europe and Japan. And one of the great things that emerging multinationals have got is actually more flexibility, more drive... One of things the companies based in places such as India are very good at is actually targeting that new consumer base particularly the emerging middle classes. So, if I were to merge the middle classes in China and India, there are a 120 million people—that’s the same number of (middle class) people as in the US. So, if you are good and are able to target that group of people, what you are able to do is take their skills and capabilities and actually target markets in Vietnam, markets in Indonesia, markets in Uzbekistan and actually you are in a better position than many multinationals. If you look at the top 500 companies in the world, 70 are from emerging markets; it was 20 about 10 years ago. The next five years it is going to go up.
That leads us to what I call the “E to E" phenomenon: emerging markets to emerging markets. I think people will start talking more about E to E as what that demonstrates is the distinctive advantage that those sort of businesses have got... One of things I love the way they do business in India is the fact that companies are able to go out to communities and villages, and they are able to build consumer loyalty. Then they replicate that elsewhere. Most established Western multinationals don’t have that capability.