Ways to Rebalancing the World

Article by Paddy Padmanabhan, Unilever chaired professor of international management at Insead and Vinika Devasar Rao, Executive director of Insead’s Emerging Markets Institute
http://centres.insead.edu/emerging-markets-institute/news/documents/Waytorebalancingtheworld6Dec2014.pdf

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As growth economies continue their dominance and the global market faces a geo-economic realignment, companies are being forced to rethink every aspect of the way they do business. The future of the global economy will largely be shaped by the countries currently classified as “emerging”. But not all will emerge alike. So, will the key to success be a matter of strategy and execution, long-term coherence or the relentless pursuit ofimmediate market share and top-line growth? Whatever the view, it is clear that multinationals (especially Western organisations), faced with an uncertain future, cannot confine the changes expected of them to a single realm. Recent discussions with business leaders, facilitated by Insead’s new Emerging Markets Institute, give a picture of a global business landscape undergoing tectonic shifts. To keep their footing, business leaders will have to rethink not just one aspect but the preconceptions underlying every step they take into unfamiliar markets. Most experts agree that in the decades to come, the faces at the forefront of the global economy will be much more diverse. The number of North American companies in the Fortune Global 500 dropped by more than one-third between 2001and last year, while the number of Asian firms on the list more than tripled. Previously untapped markets in Asia, Africa and Latin America are about to come into prominence with the emergence of a global middle class of more than one billion people. With this massive shift comes a host of challenges for major multinationals, including finding, grooming and retaining local talent; innovating for a huge and diverse customer base who generally have less cash to spend than their Western counterparts; and managing the risks that follow from unfamiliar social and political tensions. Companies moving into emerging markets will benefit from remembering some important steps.

● Get accustomed to scarcity: “Two words Americans don’t understand are ‘debt’ and ‘scarcity’,” Joergen Moeller, an adjunct professor at Copenhagen Business School and former Danish ambassador to Singapore, said at an Emerging Markets Institute workshop earlier this year. He argued that global consumption would be crimped in the future as many developed economies tried to discharge massive debt burdens. The effect of debt combined with dwindling natural resources will change the focus of the global economy from consumption maximisation to sustainability. Major opportunities will flow to businesses that find ways to eke out something extra from existing assets. The enhancement of productivity, the development of more compact supply chains and moving to the “no-waste” model will lead to the creation of more from less and sustainability. A global shift in consumption patterns from the developed world to the emerging one has begun. In effect, a consumption rebalance in favour of emerging societies that have traditionally survived on less.

● Keep up to date on communication technology: Experts argue that the “I think, therefore I am” adage has been replaced by “I communicate, therefore I am”, As growth economies continue their dominance and the global market faces a geo-economic realignment, companies are being forced to rethink every aspect of the way they do business. The future of the global economy will largely be shaped by the countries currently classified as “emerging”. But not all will emerge alike. So, will the key to success be a matter of strategy and execution, long-term coherence or the relentless pursuit of immediate market share and top-line growth? Whatever the view, it is clear that multinationals (especially Western organisations), faced with an uncertain future, cannot confine the changes expected of them to a single realm. Recent discussions with business leaders, facilitated by Insead’s new Emerging Markets Institute, give a picture of a global business landscape undergoing tectonic shifts. To keep their footing, business leaders will have to rethink not just one aspect but the preconceptions underlying every step they take into unfamiliar markets. Most experts agree that in the decades to come, the faces at the forefront of the global economy with specific reference to the ever-increasing importance of social networks. Barack Obama’s presidential election campaign set the trend for politicians by masterfully leveraging social media in 2008. India’s elections earlier this year showed how such a plugged-in political strategy could also work in the emerging world. Unlike in the US in 2008, only a small minority of India’s population have access to the internet. Prime Minister Narendra Modi’s social media strategy was successful at balancing practical merits (connecting with young voters as perhaps no political candidate had before) with symbolic resonance (acquiring a reputation for transparency and responsiveness). Modi’s historic victory and continuing popularity since is a lesson in the power of communication to create valuable social capital. This power may begin with technology, but ultimately wins by putting people first. In their new book, The Risk-Driven Business Model, Insead professors Serguei Netessine and Karan Girotra look at the way companies like Netafim and Xiaomi were able to disrupt ossified industries by creating business model innovations. In the frantically innovating technology space, Xiaomi was able to cash in on two-way communication with users by incorporating weekly upgrades that take consumer feedback into consideration. Netafirm introduced contracting based on crop yields to transfer risk from the farmer to the suppliers and became “the best irrigation equipment company in the world”. These business model innovations require fewer resources and more creative thinking, which is no longer the domain of the Western innovator.

● Develop new leadership competencies and understand your employees: To leverage the opportunities of a rebalanced world, leaders need more competence in cross-functional leadership, managing transformation and risk. At the individual level, this will require managers to be more communicative and empathetic, as well as adept at networking in order to build and lead teams of increasing diversity. Most importantly, managers will need to understand the motivators and preferences of the people they seek to attract and retain in their workforce. In less than 10 years, the global workforce will be dominated by the much talked-about “millennials”. The Emerging Markets Institute’s latest global survey of over 16,000 millennials debunks many of the commonly prevalent beliefs about this group, showing them up as over-simplified generalisations that can prove hazardous to the companies which believe them.

● Seek a collaborative solution: Businesses increasingly branching out into unfamiliar territories are finding themselves more dependent on partnerships both within and outside their organisations to help them adapt. Rather than seeing non-governmental organisations and the public sector as potential antagonists, multinationals may need to work more closely with them to manage the risks that arise from attempting to tap opportunities at the base of the pyramid. Supplying the neediest segment of the population with beneficial goods and services becomes less challenging when companies draw on local expertise and credibility of non-profits, foundations and state agencies. A more collaborative solution is also essential to bridging the talent gap. There is no shortage of hard-working and hungry people in Asia, but in order to entice them to your company and keep them engaged, you will need to convince them that they will learn something new every day. Widening the information funnel at the lower and middle management levels can help accomplish this. To improve leadership pipelines, companies are increasingly forming close collaborations with universities and recruiters.

● Let go of certainties: As emerging markets continue their rise to prominence, there will be growing pains and fluctuations. Market supremacy over the long term will belong to companies that are willing to ride out the dips. The developing world is one of rapid change: fortitude and flexibility are essential. The tension between shortterm profits and long-term strategy is likely to increase. As always, it will take the firm hand of a gifted leader to guide the ship to safe harbour.

 

This article was first published on South China Morning Post.

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