MTI global competitiveness study in 2007 reality in 2011

At the end of 2007, MTI Consulting, based on extensive research and thought leadership work, predicted seven strategic business challenges – as part of their 2008 Global Competitiveness Study. Four years on, at the end 2011, MTI has revisited the seven strategic business challenges and compared it to the study findings in 2007

. We reproduce below the MTI 2008 Global Competitiveness Study (most of which still makes interesting reading), but more importantly give you an upfront summary of the seven challenges predicted at the end of 2007 and the reality today

BRIC power, cross-border opportunities and rising inflation

Economic might and dynamics as we know them historically will never be the same again. Come 2008, financial power and drive will lie in places outside of the traditional geographies such as North America, Germany and Japan. Rather, the growth engines of the world economy will centre round these four BRIC nations: Brazil, Russia, India and China, all of whom will continue to see healthy GDP growth.

Feeding this appetite for growth means unprecedented demand for commodities to feed and house the millions of consumers that are moving away from the poverty line and towards a better life. In many developing countries, food purchases account for as much as 70 per cent of family income.

Cyclical as the effect is, this upwardly mobile movement is leading to signs of inflation, that is, increased consumer prices of basic day-to-day commodities, which is now attracting government intervention in their pursuit to keep the cost of living down.

If costs of basic commodities become steeper and dearer to the masses, we can also expect to see price controls introduced. The current addition of 60 million urban citizens a year is the equivalent of adding another Paris, Beijing, or Cairo every other month.

As a result, from an opportunity stand point, companies (stocks) and mutual funds in basic commodities and agro produce will stand to benefit. Likewise, the Middle Class of the BRIC economies will continue to offer attractive opportunities for the healthcare, education, housing/real estate and retailing industries.

Meanwhile, countries like China and India will continue to develop their commodities supply chain in the emerging markets of Africa and Latin America, in some cases via state-level or aid-based initiatives (think Indian Government in Sudan); and through acquisitions in other cases (Mittal for instance). The re-emergence of commodities and energy based business tycoons on top of the world’s richest list (replacing some of the New World knowledge-based businesses) clearly underscores the hypotheses stated above.

“Feeding the explosive growth in the BRIC countries will see a surge in demand for basic commodities and agro produce. Consequences, the likes of the Mittals will challenge the might of the Microsofts as the world’s wealthiest.”

The BRIC economies comprise nearly half of the global population with an exploding youth population leading to attendant employment issues. This may potentially lead to a rapid widening of disparity between the rich and poor if not checked at the early stages.

Game plan for $ 100 oil and greener alternatives

Currently, there are no imminent signs of energy prices easing up for the Average Joe. If the political controversies surrounding Iran, Iraq, Turkey, Sudan and Venezuela continue, energy prices will continue their upward incline.

Irrespective of this however, investments in alternate energy sources will represent an attractive investment opportunity - especially to feed the growing appetite for energy in the developing continents. World energy production rose 42 per cent between 1980 and 2000 and will grow 150-230 per cent by 2050. Renewable resources like solar and wind account for only 11.5 per cent of current consumption.

The debate over the environment will intensify, as countries such as the USA (which consumes 25% of the world’s energy) will exert pressure on global CO2 emissions, however countries such as China and India will not curtail their growth plan, as it is their rightful turn for their own industrial and economic revolution.

“Looming prospects of further energy-based wars and the profitability of alternative energy.”

Wall Street pains to hit Main Street

The sub-prime loans crisis will continue to take its toll on the bottom-line of the leading financial services institutions, as well the jobs of CEOs of power-brokering banks and FSIs.

The last quarter of 2007 has seen mild signs of the sub-prime crisis hitting the Asian Markets, however if the crisis in North America and Europe intensifies it will certainly serve as a blow to the currently sensitised Asian Markets.

It is also anticipated that the pains of Wall Street will hit Main Street, which of course means curtailed demand for the goods of Asian Countries that act as the ‘Production Floor’ of developed markets.

Poverty and Environment – The dilemma and the dollar

The richer nations will continue to be pre-occupied with the environment (“planetary emergencies” as per Al Gore) and the poorer nations cannot but take their eye off poverty. Tropical diseases such as malaria and dengue fever are expected to spread northwards as the ecologies of these countries change with global warming, causing major health scares in addition to the twin challenges of poverty and environment.

Both of these challenges represent ‘blue ocean’ style opportunities for businesses, ranging from green factories to micro finance. The tectonic shift in economic power regionally as well as globally will dry up funds for the mature economies (owing to higher risk) as investment funds flow to the new economic power houses.

“Greater global attention and funding will flow towards poverty and environment – in the form of sustainable businesses and not as conventional donors.”

The rise of value brands

The increasing shares of value brands, private labels and the inability of businesses to pass on cost increases to the consumer is a clear indication of the Value-based Marketing (VFM) concept, which is clearly evident in both mature retail markets (like USA) and emerging giants like India.

Consumers will seek real, demonstrable value - challenging the premiums charged by ‘hollow’ brands and private labels and value brands will see high growth as a result. Brands will make it to the balance sheet and brand custodians will need to act as consumer value and shareholder value creators.

With greater consumer awareness and the involvement of conscience in purchase, consumers will now demand higher value with less impact on the environment as consumption increases globally, which may lead to eventualities such as the taxing of water and other natural resources. Over the past century, world water withdrawals increased almost as fast as population growth. Currently, 70 per cent of freshwater withdrawals are for agriculture.

“Consumers will seek real, demonstrable value – challenging the premiums charged by ‘hollow’ brands. Private labels and value brands will see high growth. brands will make it to the balance sheet and brand custodians will need to act as consumer value and shareholder value creators.”

Governance beyond ‘corporate fashion’

Consequent to alarming levels of corporate irresponsibility, there will be increasing levels of compliances that will be slapped on non-compliant businesses, as governments and legislators are forced to protect the interests of consumers and shareholders alike.

Therefore, corporate governance will be the new mantra, as businesses will focus their energies to ensure compliance to ensure sales in a vicious cycle. The profit potential of good governance in dealing with the developed markets should not be ignored here.

Consumers will hold corporates accountable - products that are socially compliant, generate employment and increase greater social awareness and the expectation to contribute to socially sustainable businesses will create ‘new space’ for businesses, who will be required with or without will to keep pace with changing demands.

“Corporate governance will be the new mantra, as businesses will focus their energies to ensure compliance. The profit potential of good governance in dealing with the developed markets should not be ignored.”

Supply chain efficiencies – Way to profit

Moving along, as companies encounter price capping, they will turn to supply chain efficiencies – taking a more scientific approach to managing the entire supply chain end-to-end.

Gaining in importance, supply chain will be elevated to a board level focus as companies will engage in strategic initiatives to seamlessly and cost-effectively manage their entire supply chain – providing opportunities for value-added services in logistics, warehousing, transportation and other related areas.

“Price-capped markets will turn to supply chain efficiencies – as the way to improve bottom-line performance, while providing greater consumer value.”

All in all, a power shift, even in smaller measures to the BRIC economies means a resurgence of competition of a new order. One that competes for not only the consumer dollar, but for sustained endorsement by the buyers that the business adds value to their lives in ways other than lower pricing and economy-sized packaging.

For businesses to survive in 2008, strategic arsenal is required. The playing field may not be level – but competition is fair game nonetheless. Having said this, 2008 will likely be the measure of those businesses to see who has truly arrived and who is here to stay.