Political, Social concerns drive non-Western companies

Triangle.pngLast week’s New Normal seminar in Houston continued the success of the Singapore and Frankfurt events. It sparked lively debate about the major opportunities for future growth in the New Normal. These include:

• The over-55 age group in the West – already 272m in number
• Those millions emerging from poverty in the East

One key discussion was around the different outlooks of Western companies, versus many of those in the Middle East and China. As the chart shows:

Western companies focus on economics, with some input from politicians eg taxes, employment law. American companies in particular believe the Profit & Loss (P&L) account is the key driver of success
• This is not so true in the Middle East. Companies there have a focus on the P&L, but usually have close linkages to government, and are very mindful of social needs such as providing employment
• Companies in China start from a different perspective. The majors such as Sinopec are largely state-owned, and their prime role is to act as utilities, providing raw materials to the factories to keep people employed

These distinctions are now taking on growing importance. In 1980, almost all the major companies were Western in orientation, and focused on the P&L. But today, half of the Top 10 companies are from the Middle East and China. So their views matter.

This is another example of the power of the Shared Value concept. As Harvard’s Prof Michael Porter has argued, it creates the potential for “the next wave of innovation and productivity growth”. It enables companies to focus on long-term opportunities and not just short-term financial metrics.

There is no going back to the post-1980 Supercycle world. Companies who now adopt the Shared Value approach will position themselves for success in the New Normal.

The next New Normal courses are later this month in Singapore, and in London in December. Please click here for more details of how to join.

Politics, beliefs return to dominate economics

The triangle.pngThe 10000 readers who downloaded the blog’s first Budget White Paper in December 2009, ‘Budgeting for a New Normal’, will remember the issues highlighted in the triangle above.

At the time, they were being widely ignored, as policymakers assumed that the economy would soon return to its previous SuperCycle.

Today, this optimism has been revealed as wishful thinking.

Instead, much as the White Paper feared, we have learnt that “Extended downturns are difficult times. We would all like the certainties of future growth to return. And I believe they will in time, but probably not as quickly as the financial community currently expects. Disappointment is part of the experience of extended downturns.”

The lack of attention has meant these issues have since become worse. And they highlight how the world is now moving away from the economic certainties that dominated the BabyBoomer SuperCycle:

• Then, steady economic growth led companies to focus on financial targets. The Shareholder Value concept was widely adopted
• Now, we are relearning that businesses cannot ignore the impact of politics and belief factors, when they come to make decisions
• Politics has led to the current impasse over the Eurozone crisis, and to lack of US progress on debt market issues
• Beliefs have driven geo-political issues such as the Arab Spring to the top of the agenda

All this means that the world is becoming ever more complex. New concepts such as Shared Value seem likely to become the main driver for future economic growth.

Equally, forecasting the future now requires robust scenarios to be developed, rather than simple straight line forecasts. As the White Paper also noted:

“Harold Macmillan, the former UK prime minister, summed up this dilemma when asked once about “his greatest worries”. He famously replied, “Events, dear boy, events”. This might be a good watchword for all of us, as we progress through the uncertainties of the current downturn towards the ‘New Normal’.”

The blog will discuss these issues in more detail in its annual Budget Outlook, to be published on 22 October. On Saturday, as usual, it will review the performance of its October 2010 Outlook, ‘Budgeting for Uncertainty’.