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your organisation After five years of gloom, 2014 will mark the beginning of a clear global economic recovery.
all change reshaping the talent map
The fruits of this will not be evenly spread: US, China and the UK are looking particularly sprightly, while much of the eurozone will see only modest improvements and some large emerging market economies, like Brazil, are facing big challenges. But we should, nonetheless, be in for a better year than for some time. This economic recovery will interact with two major trends for business during 2014: wage competitiveness and the operating environment. In both areas, we expect businesses to find their staffing strategies and compensation schemes pressured by divergent trends across developed and emerging economies. We expect wage growth to outstrip inflation in most countries during 2014, with the notable exception of the eurozone economies, those emerging markets undergoing an economic crisis (Venezuela, Argentina and Egypt) and those countries where inflation has got out of hand (India and Pakistan). One key
This economic recovery will interact with two major trends for business during 2014: wage competitiveness and the operating environment.
implication of this will be the need for firms to review their offshoring policies — hiring in the eurozone is starting to look much better value than a few years ago.
Chinese wages are rising quickly compared to western markets (we expect wages to rise 8% faster than inflation in 2014). Another important wage trend is the way compensation is outpacing productivity improvements in some important markets. A leading example is China: Chinese wages are rising quickly compared to western markets (we expect wages to rise 8% faster than inflation in 2014). But firms have traditionally found that they could squeeze efficiency improvements from their workers sufficient to offset that price premium. But that has changed — every year, China is becoming slightly less competitive for labour intensive industries, along with other markets as diverse as Singapore and Russia. Instead, firms are starting to look at new potential operating locations such as Indonesia, Nigeria and the Baltic States. In these places, wage growth is rapid, but efficiency gains more than compensate. The footprint of multinational firms will start to change as a result. Of course, wages are not the only thing companies consider when deciding where to operate. In recent years firms have become increasingly concerned at the burden of regulation they face when managing their businesses. Indeed, regulatory overreach is one of the reasons some formally fast-
growing emerging market economies, such as Brazil, are struggling at the moment. In 2014, after a period of inaction and complacency, many emerging market governments are realising they have to take active measures to improve the investment climate. Pressure is especially acute in India, Indonesia, Mexico and Turkey. Some of these reforms will directly impact on labour markets, particularly in countries which are driven by a divide between the typically older workers in secure employment with good conditions, and a mass of youth unemployment and workers on temporary contracts. This problem is particularly marked in the rich world, especially Japan, Italy and Spain, where addressing the issue is critical for future growth prospects. So far only Spain seems to be making progress. Those countries which do make headway will be far more attractive places to hire than those which remain trapped in an ossified set of labour laws. Overall, The Economist Intelligence Unit expects 2014 to be a brighter year for the world economy, although we are not forecasting a boom or anything close to it — and for some countries conditions will remain difficult. But the advent of recovery, and the changing balance between emerging and developed economies, will push wages, productivity and reforms in new directions.
Multinational firms will need to take note and respond. Robin Bew, Managing Director & Simon Baptist, Chief Economist, Economist Intelligence Unit @RobinBew | @baptist_simon www.eiu.com back to contents