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Globalisation – The East Re-financing the West Some Thoughts for OD

Globalisation – The East Re-financing the West Some Thoughts for OD

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Back when I was consulting it was all about the BRIC economies.   We outsourced like hell to get economies of scale.  Business Process Outsourcing continues to attempt to make things seemingly cheaper.  There has been mixed success with some of these business models.  Where the models flopped the key flaw was the integration of people into the process, and misunderstanding of culture.  To realise the ROI many companies have to tackle this issue. Companies like Nespresso have bucked the trend with manufacturing in Switzerland.  Switzerland is not a cheap place to base manufacturing, but the quality, consistency and productivity has been factored into the business case. Those tiny little capsules of premium coffee lock the customer in, and they are happy to pay £4.80 a pack.  In 2010 they sold 6.5bn capsules according to Bloomberg.  The luxury at home coffee market is estimated to be worth £8bn, and Nespresso is still in double-digit growth but now competition is fierce.

Before we speculate on some implications for OD professional, it is important to note the new trend.  Those countries that the West naively outsourced to do the manufacturing of the whole product (eeek) or components, and non-strategic fulfilment of the processes, are quickly becoming serious technological contenders.  For example, take Tata Steel and Mittal Steel who bought Corus and Arcelor two of the EU’s biggest steel companies.  Our political leaders like David Cameron are going cap in hand to the Chinese for help.  The west is losing dominance of its own markets.  At the same time China and India have the two biggest markets of their own.  China sold a million cars per month in January and February 2010!  There is yet again a seismic shift.

This is a game changer, for those companies and countries that want to continue to be global players.

It is Europe who is dependent on the IMF for funds, as apposed to emerging economies.  It is China who has been the major investor in Africa £7billion in 2006, which is not yet tapped for its natural resources!   Sub –Saharan Africa is growing with a GDP of 5% or more between 1995 and 2005.  The recession cut growth, but the world bank expects it to return to 4.5% in 2010.  The projected GDP for Africa 2020 is 2.6 trillion and 18.6 trillion in 2050!  If China is the backer here then much like Britain built its empire, these are the foundations for the future wealth.

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The political forces are aware of this change.  For example, the US congress blocked the $18.5 billion purchase of Unocal by the 70% state-owned China National Offshore Oil Corporation.  China has liquidity.  Its cash reserves are the equivalent of 40% GDP an estimated £3.3 trillion! Watch this space!

So what does this mean for OD professionals?

  • We need local leaders, and local talent for the game changers in BRIC but with the new countries, Russia and Africa.  Goldman Sachs and economist Jim O’Neil defined the next 11 (N11) emerging countries and CIVETS outlined by Robert Ward: Columbia, Indonesia, Vietnam, Egypt, Turkey and South Africa.  To overcome the cultural issues, understand and innovate in that market.
  • Global leaders may need a different skillset, flexibility and awareness.  Check out a post on learning Chinese.
  • Do not just think about efficiencies of outsourcing to the East, we now need to think in reverse, and in-between.  We need people that can understand and leverage the benefits of Re-financing.  What can Corus gain from Tata and visa versa to be a more effective global player?  Are their parts of the process that are now better suited in the West?

12 Future trends we should consider in Organisation Development.

12 Future trends we should consider in Organisation Development.

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12 factors that will impact business in the future: The Worlds Exploding Middle Class: The largest consolidation of Middle Class live in Europe, but by 2020 40% will reside in Asia.

Food: The total demand for agriculture products increases by 60% in 2030.  This demand is caused by population increase and the desire for more meat and protein, which puts increased pressure on agriculture and the environment, due to reduced production efficiency. The increase in food requirements from 7bn to 9bn mouths to feed by 2050, and its challenges are a consideration for many businesses.

Demographics: population growth is flattening out but it is unlikely to stabilize until 2050, with a population of 9bn. Birth rates fall in almost every region apart from Sub Saharan Africa.

Water:  The term “water is the new oil’ by Peter Brabeck-Letmathe, Nestlé.  The earths water is 97.5% salt with only 2.5% fresh.  Of the 2.5% only 0.07% is accessible.

Africa: The sub Saharan region has boomed in the last decade with an annual growth rate of 5.5% between 1995 and 2005.

China: China’s powerful economy is confirmed, it overtook Japan as the worlds second largest economy with a GDP of 5 trillion compared to the US’s 14.5 trillion.  This position is quite secure with currency stability, 30 years of booming growth has given 2.5 trillion in foreign currency.

Gender: Gender equality has improved, but there is evidence of continued disparity.  In the US there is a disproportionate growth in male unemployment, 51% of the 2010 workforce were female. In developed countries women will be the primary breadwinners in the next 20 to 30 years!

The European Union: The ideal was a good intention!

Health: The highest expenditure in health care is in the US $8,090.60 per person, but shockingly it only ranks 32nd in the worlds life expectancy with 79.2 years.  The average global spend is $666 per person. The world’s fastest growing disease is diabetes, and second Alzheimer’s.  Watch companies like Novo Nordisk.

Urbanization: growth of mega cities and wealth centres, which focus the world’s resources and riches.  In1950 there were 83 cities of more than 1 million, and today 480.  There were 2 Mega cities of more than 10 million people in 1950 and today 26 with 16 of them in Asia.  This is a significant drain on resources in hubs.

Longevity: Life expectancy has doubled in the 20th century.

Migration: migration has increased.  International immigrants have risen to 150 million in 2000 to 214 million today.  In total migrants represent 3% of the world’s population, and 10% of the world’s population says that they would like to immigrate.  This challenges the regulations and restrictions we have, and perhaps the need to appreciate skills earner in different countries so that they are more transferable.

The Source Material was from: Facts That Will Shape the Global Business Environment by ATKearny

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