The world is going through a high period of turbulence and uncertainty – factors from the financial crisis to the shift in the centre of gravity to Asia, from resource constraints and associated price volatility to ever greater connectivity are changing how and where growth occurs.
Below we select a few of the drivers of change that we highlight in the Growth Champions book. For a deeper exploration of the World in 2020 and the drivers of change look at the Future Agenda programme.
Small Companies Acting Bigger / Big Companies Getting Smaller
There used to be clear blue water between what could be achieved by these large multinationals and by smaller organizations. Today that gap is rapidly closing. In Western economies small- and medium-sized enterprises (SMEs) have played a crucial role in job creation in the early part of the 21st century, and maintaining this momentum is central to many national growth plans today. In the United States, for example, small businesses (with fewer than 500 employees) now account for around half the nation’s GDP and more than half its total employment. In addition small businesses account for around a third of all exports. This is double what was achieved a couple of decades ago. As more accessible technologies (e.g., cloud computing) are enabling small companies to act like big ones, the productivity gap between large and small firms has narrowed. Small companies can now have global reach, serve customers in many countries, and use a plethora of internet-enabled platforms to provide support anywhere in the world.
Simultaneously, many large companies are becoming smaller. With offshoring and outsourcing still growing in impact, many back-office roles such as HR, procurement and logistics have shifted outside the organization. We can also see more strategic roles like R&D moving externally, with increasing use of flexible contract or freelance talent. Many large companies today directly employ around 50% of the people they did a few years ago. Microsoft’s HQ in Seattle has around 120,000 people working on site but only half are employees – the rest are contractors or consultants. Companies are still growing and increasing revenues, but with less people ‘within the tent.’
Emerging Markets Country-to-Country Expansion
To pursue growth, several emerging market companies have been making strong acquisitions of both brands and capabilities by buying some or all of established operations in other companies. In 2010 the Economist Intelligence Unit made special note of the purchase of a stake in the African business of Portugal’s Banco Espírito Santo by two Brazilian institutions – Banco do Brasil and Bradesco. According to the banks, only around 15% of Africans currently have a bank account against 45% in Latin America. Having dominated their domestic markets and created effective new services that reach the ‘unbanked,’ these institutions see great potential in such emerging market country-to-country expansion. Indian telecommunications company, Bharti Airtel, has recently added significant presence in Africa through its acquisition of Zain and is now distinctively exploiting its home-market experience with customers who generate low revenues. In several sectors, emerging market companies are also expanding steadily into developed markets. With Lenovo and Tata seen as the pioneers, many are lining up to look at global not just local and regional opportunities
Yet another driving force is the changing shape of markets – as we become more connected we are arguably becoming more fragmented and distributed. Likeminded consumers may not be geographically bounded – city dwellers in China may have more in common with those in Paris and New York than with their countrymen in rural areas. We need to be careful when looking at growth opportunities at the country level. Whilst the growth potential in countries like India and China is very high there are significant variances within those countries.