Posts filed under ‘economics’

Growing in a slow-growth marketplace

J Walker Smith writes:

It’s dangerous to take the news of late at face value.  While a Greek deal appears to be in place and the Council of Economic Advisors, headed by Alan Krueger, is opining that the US recovery is stronger and faster than expected, there is some way to go.

To put it bluntly, the developed West is in for a long slog. Slow growth is the new normal for Western developed economies.

The implications of this slow-growth West for brand marketers and business strategists are explored in our latest Future Perspective, Quickening the Pace.  For most business leaders, it’s a new situation. They came of age during the ‘Great Moderation’, a period of relative stability, greater predictability and virtually uninterrupted growth.  What marketers and strategists learned as they began their careers offers little guidance for the marketplace they face today.

The Great Recession has left the marketplace smaller and more polarized than ever.  Consumer confidence has reset at a lower baseline and frustration and anger have boiled over into the street.  Every corner of the world is on edge about the trade implications of weak, stagnant demand in the developed West.

There are still growth opportunities for smart companies. But only the smart companies will grow, for there is no longer a rising tide to lift all boats.  Quickening the Pace reviews seven ways in which brands can revive their value propositions for economically challenged consumers.  Three are worth special mention.

First, consumer reference points have changed from high to low.  Aspiration now seems risky, even out of reach. Worse, the prospect of losing it all seems closer than ever. As a result, consumers no longer compare themselves to those with more; instead, they worry about winding up like those with less.

Surrounded by so many who have hit the bottom, consumers are worried that they might wind up there themselves.  So rather than being attracted by those with more, consumers now live in fear over those with less.  While this is different for brands, it is not impossible for brands able to take the risk out of buying.

Second, debt has become a more important marker of financial well-being than income.  It is a better targeting criterion.  It is a more predictive of spending.  It is more strongly correlated with confidence.  The overhang of debt is keeping consumer spending in check, so contrary to conventional wisdom, growth opportunities are to be found by analyzing what people owe, not what they earn.

Finally, lifestage assumptions are being turned on their head.  The traditional focus of marketers on young people and their lifestage transitions has been undercut.  A suffocating job market has kept younger consumers from even getting started.

But the same economy that has made young people less attractive to marketers has made older consumers more attractive.  Battered by economic losses, many older consumers have changed their retirement plans and are planning now to work longer, which will extend their peak consumption years.  Marketers will have to change, too.

The brands which lrearn these new rules – and adapt to them – could have breakout success.  Not every ship is grounded by an ebbing tide. Some brands will find the enduring pockets of dynamic spending potential.  There is less spending to go around, and not all brands will succeed. The battle for share will go to the savviest, those best able to take advantage of the principles for success in a slow-growth West discussed in Quickening the Pace.

The image at the top of the post is from 123RF.com, and is used with thanks. Quickening the pace, and another economics report, The future of the eurozone, also published this week, can be downloaded from our website.

23 February 2012 at 3:09 pm 1 comment

Beyond the eurozone crisis

Andrew Curry and Matthew Lynn write:

As the Greek financial crisis plays out on the streets and in the council chambers of Europe, it’s hard to look beyond the day-to-day drama to the longer term. But that’s what we’ve tried to do in our new Future Perspectives report, which we have published this week. And the results are surprising. The crisis will end, because ecomnomies don’t continue is a state of permanent crisis. To do that, Germany will have to export less, and the peripheral economies will have to export more – and there’s a lot of opportunity in that economic re-balancing.

The report has developed five scenarios for the future of the eurozone, ranging from its survival in its present form to a return to national currencies. From this it forecasts three big changes, looking out to 2020.

One: New powerhouses will emerge. Italy will be one of the big winners of the pos-euro crisis economy, just as it was in the ‘dolce vita’ economy of post-war Europe. If it leaves the euro, it will renege on its debts, and massively devalue. That will massively boost the economy, enabling it to rapidly catch-up with its more prosperous Northern neighbours. Meanwhile, countries such as Poland – with big populations, low debts, and strong growth – will emerge as the powerhouses of Europe.

Two: Germany will have become a consumer society – and rely less on exports. That will mean boosting retail and leisure spending, property development, and industries such as financial services, where it has not been very innovative. Paradoxically, while the UK is trying to re-balance its economy to become more like Germany, Germany will need to become more like the UK.

Three: There will be huge opportunities for companies that read these trends right. New markets will open up in Germany as retail, leisure and property grow – all areas where domestic German companies are not very strong. In Spain, youth unemployment will come down dramatically, meaning that young people will start spending. In Italy, a growing economy will see a huge rise in female participation in the workforce – changing the shape of consumer demand. We’ve done some analysis of the impact of that change on the Italian economy, and reckon that it’s worth around €48 billion a year – or 3% of Italian GDP.

Four: Europe’s banks will be the big losers. Debt will be written off, sooner or later, and as a result, most will end up in public control.

In short, businesses will have to redraw their mental maps of what the European economies look like, and where the opportunities will be found.

Andrew Curry is a Director of the Futures Company in London, Matthew Lynn runs Strategy Economics. The report, The future of the eurozone, is published as part of The Futures Company’s thought leadership programme, Future Perspectives. We are also publishing this week a report on doing business in slow-growth economies, called Quickening the pace, which will also be available from the website.  The picture at the top of tjhis post is published by Wikimedia Commons.

22 February 2012 at 5:44 pm 2 comments

The case against austerity

J. Walker Smith writes:

We’ve been having something of an economics-themed month at The Futures Company, with client presentations about recession hit consumers in the UK and the US, and Future Perspectives reports on doing business in slow-growth economies and the business opportunities in Europe after the eurozone crisis.

So it was useful when I was in London recently to catch Will Hutton, recently installed as Principal of Hertford College, Oxford, give his take on the economic prospects for the UK in 2012 at an event hosted by the HMRC.

It’s hard to summarize quite a rich talk, but some points shone through:

  • The UK is living through a once-in-80-year economic event, but this isn’t reflected in the scale or urgency of the political or policy response.
  • UK GDP is still 4% below where it was in 2008, and won’t regain that until 2014, on government figures. But this is a problem of demand deficiency, not a systemic market problem. (The importance of this idea is all about political narrative. If demand is the problem, the wisdom of austerity is in doubt.)
  • The level of private debt is enormous (320% of GDP), but debt service levels are low, by any historic standards. But cutting the debt aggressively (the current policy preoccupation) risks creating a Japan-style lost decade and a half.

If that’s the bad news, what should be done?

Hutton has quite a long list of suggestions, but two caught my particular attention. The first is the reinvention of fairness. This involves bringing down the ratio of top pay to median pay, and making sure that bonuses aren’t a one-way bet, as they are present. He’s proposed an ‘earnback’ scheme, under which executives put some of their salary at risk in case of under-performance. Unsurprisingly, not one single FTSE-100 is in favor. Hutton had an earnback clause written into his contract when he joined Hertford College.

The other big story is about innovation. Governments can’t pick winners, but they can create ecologies that help particular sectors to evolve. The catch is that these innovation ecologies need public investment – especially in research institutes and skills development. The German network of Fraunhofer Institutes is the benchmark, and, of course, they’ve spent billions developing them over decades. But that doesn’t mean that it’s too late to start. The wide range of emerging ‘general purpose technologies‘ means that there is quite a lot of competitive space to play for. But it does need some political will.

The Future Perspectives reports on the eurozone and slow-growth economies were published this week. They’re available, free, for download from the website. The picture of Will Hutton is from Wikimedia Commons, and is used with thanks.

21 February 2012 at 7:25 pm Leave a comment

The happiness question

Rebecca Nash writes:

If you’ve been following the ‘happiness debate’, you’ll know that policy makers are increasingly asking if it is potentially a better indicator of social progress than the economic measures represented by GDP. But diving into the happiness sciences you quickly find that it raises as many questions as answers: What is happiness? According to whom? Can it be measured? And if we can measure it, what will the policy response be to unhappiness? What practical steps can be taken to make people happier?

And another question from our end: What does happiness mean to business? Generating happy moods is nothing new to consumer goods manufacturers, where short-term happiness and consumption go hand in hand. But there are a number of potential happiness platforms which business can work from to create more sustainable happiness – building social justice, delivering meaning and value, employee satisfaction on organisational levels, and simply being associated with happiness in its pure form (but beware of ‘happy wash’).

In the research on this which I’m leading for The Futures Company, I’ve become really interested in ‘restoration’ – an approach to happiness which involves making people happy who once were not, and I think it produces challenges that matter to both business and government. When I attended a happiness panel earlier this year at the Institute for Contemporary Arts in London, panellists drew strong links between happiness sciences, psychotherapy, and opportunities to self-repair. Psychotherapist Phillipa Perry advised a laughing audience that, if we want to be happy, we should ‘choose our mothers very, very carefully’. She also gave us tips on how to be happier if early childhood didn’t give us the personal tools we needed for a happy life.

Perry’s take on happiness as something that needs to be re-learned drew some connections for me between what is happening on individual and broader social levels. It reminded me of a recent drivers scan we did for our Government 2020 project, a project on the future of government. One of the most influential drivers of change which emerged – to our surprise – was a trend toward anger, which shaped a few of the future worlds we brought to life. Happiness is more private (although the notion of ‘social wellbeing’ can give it a public face).  Anger is evident and more public, and we’re seeing more of it, more often, in public protest, in generational conflict and in economic frustration.

A key challenge, then, for any organisation taking on happiness, is how to tackle other complex emotions – because as we’re seeing, if happiness goes public, so too can its opposite.

The picture at the top of this post is taken from Stephanie Price’s Borderline Personality blog, and is used with thanks.

25 March 2011 at 12:43 pm 2 comments

The World in 2020

Andrew Curry writes:

I’ve been working on a Futures Company report on The World in 2020 for the last couple of months, and since I’ve end up doing much of the work in the evening I’m delighted to say that we’ve just published the summary edition, and the full version has just gone into production. The summary edition can be downloaded from our website, although registration is required.

The World in 2020 is the first in a series of ‘Futures Perspectives’ reports which we’re publishing over the next few months.

It takes a high level view of the big drivers which are shaping the world, and looks at some of the innovation spaces which may emerge as a result. Here’s are a couple of extracts:

The financial crisis of 2008 represented an ending, but not a beginning. We are in a liminal moment, betwixt and between, when there are more questions than answers, but when, increasingly, our assumptions about how the world works are open to challenge and interrogation. … Liminal moments such as this one can last a decade or more, before opinion coalesces around a new set of operating assumptions about how the world works.

Over the next decade, we’ll see much tougher resource constraints – energy, food and water, and resources will all be under pressure – as well as the continuing long economic shift towards Asia. Issues involving technology and inequality will also be influential. It will be harder to make money in the coming decade. As a result, businesses will have to rethink their approach:

The changing economic environment creates the dilemma of new yet alternative prospects for different types of customers. The emerging middle class across much of Asia and Latin America will be very different from the debt constrained consumers of Europe and the United States. Globally, the
costs of basics such as food and energy are likely to rise over the next decade, so discretionary income will be lower than some project. In the richer countries, the experience of recession will create demands for more social behavior from businesses.

Business critic Umair Haque talks of the “meaning organization” that builds “authentic prosperity.” As he writes in a blog post, “An isolated notion of ’profit’ is obsolete: it’s an arid industrial-age conception of a currency-focused construct that’s built to trivialize everything but what a firm owes its ’owners’.

14 March 2011 at 9:16 am 3 comments

Rising East

Joe Ballantyne writes:

We’re experiencing a fundamental shift in the global economy, as wealth moves from West to East. As Asia and the Middle East assert themselves as the brightest prospects on the global landscape, in some ways we’re witnessing a return to the 16th–19th centuries, when the Chinese and Indian economies dominated world trade.

The scale of the shift is huge. In 1950, America was responsible for 27 per cent of the world’s GDP. China accounted for just 4.5 per cent and India, 4.2 per cent. Fast-forward to 2050 and the picture will look very different: forecasters say China will then be about to become the biggest economy in the world.

This economic shift, and the large implications for European businesses, was the subject of a recent report, Looking East, produced by The Futures Company for HSBC. The report included extensive analysis of the main drivers of change affecting the global economy to 2020, as well as a number of in-depth interviews with experts and businesspeople in a number of European countries.

It can seem as though this story is now a familiar one. But the research uncovered some striking findings, some of which go against the grain of popular conceptions about the rise of Asia. I was most struck, as we wrote the report, by these three:

  • The ‘global financial crisis’ isn’t really global at all – it’s a manifestation of a longer term economic realignment. While Western economies stagnated through 2009-10, Asian economies are increasingly “decoupled” from the US, and have increasingly influential trade partners in other parts of the world – notably Africa and south America. China and India have continued to expand rapidly while Japan and several European economies have slipped into near-depression.
  • Asia is no longer just a source of low cost labour – it’s increasingly a source of high value innovation. The model whereby the West does the research, development and design and the East took care of production is anachronistic. Lines have been blurred – as a result of a huge investment in education, countries like India and China are world leaders in areas such as software design and green technologies, and their multinationals are reshaping industries such as energy, steel and car making.
  • There’s more than one way of running a successful economy. It’s easy to assume that the Washington consensus – open borders, economic liberalization, and free movement of capital, privatization – is the only way to run a successful economy. But these are largely a legacy of the ’80s, and an alternative model of ‘state capitalism’ developing in emerging economies. Companies are encouraged to exploit global capital markets and seek new opportunities abroad but are directed by the state and help to manage the domestic economy. This is most obvious in strategically important national industries: for example, 75% of the globally available crude oil reserves are in government hands. But it is also manifest in other industries: China Mobile, the world’s biggest telecommunications company, is listed on the NYSE, but controlled by a holding company owned by the government. In India, the central government has hundreds of state-run enterprises in diverse industries. Sitting behind the state capitalist model – in Russia and the Middle East as well as Asia – is the sovereign wealth fund, which invests globally for the benefit of the people but is managed and controlled by the state. These funds are increasingly active investors in the West.

The report – Looking East – was widely covered by (among others) the Financial Times, Wall Street Journal and Business Week and can be downloaded online (opens pdf), free of charge.The picture at the top of this post is from the China Digital Times, and is used with thanks.

15 October 2010 at 9:02 am Leave a comment

The future of payments

Andrew Curry writes:

I was invited earlier this month to speak on the future of payments at the Digital Money Forum in London, now in its thirteenth year and as provocative as ever. Of course, it’s a future that’s increasingly bound up with technology. My version is based on the work that’s been done by the historian of economics and technology, Carlota Perez (which I’ve blogged about elsewhere, at length) on long technology cycles.

We’ve seen five long technology surges, each of around 50-60 years, starting with steam, cotton and canals in 1771. The first half of the cycle, the installation phase, is driven by investment and finance capital. The second half, the deployment phase, is driven by production capital. And in between the two is a financial crash, when investment expectations get ahead of themselves.

In the current information and communications technology surge, we’re a few years into the deployment phase, when people start to do “new things in new ways” with technology. The smart phone and the tablet computer are archetypal deployment products, and digital payments will inevitably get caught up in the rush, as new applications emerge.

One of the likely effects is the fragmentation of devices, rather than convergence (we may use a digitally enabled key to get into our house, or a card or fob s a store of value, but we’re unlikely to leave them lying on a table during a meeting). We should expect fragmentation of currencies as well; local currencies such as the Lewes pound work much better when they don’t have to be printed.  There are already viable currencies within every online multi-player game (and one of the things I learnt at the Forum was that Chinese workers employed to dig virtual gold in online games earn more than Chinese gold miners who dig the physical commodity, and in much better conditions). One of the other speakers talked about the emergence of currencies backed by units of energy consumption. This isn’t hypothetical.

This potentially represents that same sort of democratisation of production that we’ve seen in other sectors, ending the monopoly of the banks (mostly the commercial banks) on credit creation. This thought seemed to cause some nervousness in the audience at the Digital Money Forum, and the questions turned quite quickly to fraud and regulation, although potential fraudsters in an energy-backed currency would be doing very well to steal a fraction of the money that Bernie Madoff took from his investors.

What’s standing in the way? The banks, who aren’t trusted, and the mobile operators, who aren’t particularly interested in payments, at least not in the rich world. It seems likely that the market will need its own ‘iTunes’ moment, when an outsider steps in to create a decisive disruptive change.

The image above is courtesy of Flickr user Bohman, and is used under a Creative Commons licence with thanks.

24 March 2010 at 9:15 am Leave a comment

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