Chen Xiang
Word Count- 1730 /PIN-10479
Realize, Respond, Recover and Rise
Chen Xiang
What and when the wave will be The financial tsunami has ended the 10 years economic boom starting from 1997. Comes along are the big changes in the political and economical system. In terms of politics, the influence of the US has been weakened and multilateralism will be further promoted. In terms of economy, the financial system, free marketing economy and even the capitalism have been questioned. The world has headed into the deepest recession since the 1930s. However, the world will definitely recover and rise someday. So, when and what will be the next wave? And what kinds of business strategies should be adopted so that we can survive and thrive in such a changing world?
Existing trends of the past decades Today is the continuation of yesterday. And I echo with this sentiment. Thus, before discussing the trends in the future, I would like to talk about the four important forces in the last decades that have significantly shaped the world.
The first one is globalization. In his book, the world is flat, Thomas L. Friedman points out the world is "flat" in the sense that globalization has leveled the competitive playing fields between industrial and emerging market countries. Ten flatterers are Collapse of Berlin Wall, Netscape, Workflow, software, Open sourcing, Outsourcing, off shoring, Supply chaining, in sourcing, In-forming and The Steroids. These ten forces have made us live in a globalization era in a flat world.
The second one is the free market and free economy. With less control and intervene from the government, enterprises are given more space and freedom to thrive. Also, with the increasing number of members of the World Trade Organization (WTO), trade barriers have been greatly reduced or even gradually eliminated. China has realized this
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trend and follows it by opening its marketing and encouraging entrepreneurship. As a result, it becomes the world factory and enjoys a decimal GDP growth in the last decades.
The third one is regional competition. In such a globalization era, competitions have been fiercer than ever before. And the competitions nowadays are among regions. A single city, a single province and even a single nation is not competitive enough to survive. This trend has encouraged the deeper integration of the cities, states and enables them to face an open, international market. The North American Free Trade Area (NAFTA), European Union (EU), and Asia Pacific European Cooperation) APEC is the most sizable regions in the world. In China, typical examples are like Yangzi River Delta and Pearl River Delta.
The fourth one is the further division and integration of various industries. This trend has allowed the rapid development of each industry. It has also enhanced the efficiency and productivity. Take the Pearl River Delta for example. By adopting the “Hong Kong as the shop and Guangdong as the factory policy", that is, Hong Kong focus on the service industry while Guangdong provinces focus on manufacturing industry. The result is better service qualify in Hong Kong and sharp increase demand for the products.
These forces are interrelated and interacted and all together make the world what it is today. Unquestionably, they have brought tremendous benefits and created massive fortune for more one generations. However, they also lead to or at least, worsen this deepest recession since the 1930s. More importantly, these forces will continue to exert impact on the globe in the new century.
The new trends: Realize and Response As mentioned before, the financial tsunami leads to the reconstruction of the political and economical system. As far as I observe, there are three trends emerge.
New Trend #1: Government as a business partner The first one is the increasing engagement of government in the economy. Many people 2/6 Global Initiatives Symposium in Taiwan 2009
blame that the financial crisis is the result of the lack of control from the government, particularly in the regulation sector. This point makes sense. Adam Smith, in this book, the wealth of a nation, mentioned an economic system should be controlled by both the visible hands (the government) and the invisible hands (market).However, in the past few years or even decades, too much freedom has been given to the market. Without the visible hands (the macro-control of the government), the visible hand (Market) will be out of control. This crisis is triggered by the reckless bankers. However, it is the result of the lack of control and monitor of the government.
Fortunately, the governments have realized its deficiency in policy and start to take actions. US government has proposed trillions bail out package and rescue numerous organizations such as Freddie Mac’s, AIG, Merrill Lynch, CitiBank, etc. And the governments especially the European governments have nationalized a couple of their banks. Apparently, the market requires more participation from the government. One of the most famous journals, Economist, also points out the “Government will become the business partner in the future.”
To accommodate to this change, as governments, they should modify its policies to control the “high leverage, high risk” and ensure the economy grow at a stable and reasonable manner. Nevertheless, they should not go to the other extreme. The main role for government should be macro-management and guidance. And they should not exert too tight control and micro-manage the business which will have a negative impact on them.
As enterprises, they should be aware of the importance of cooperating with the government; take a more active position to form partnership and study, understand, follow or even influence (if possible) the policies. Granted, the stricter policy and tighter control may become restrictions to some extent. However, this is the macro environment you are in. If you can not change the environment, change yourself. And if you can
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understand them better, they will only be the obstacles for your competitors but will be beneficial to you.
New Trend #2: Increasing concerns for energy The second trend I want to mention is the increasing concerns for energy. The demand for energy has been rocketing in the past decades. Oil has become the lifeblood for lots of industries and countries. Unfortunately, the fact is that the demand is unlimited but the recourse is limited. And this gap has and will lead to conflict and crisis .The shortage of energy urges the governments to try every mean to secure it. And from my view, this motivation has results in a number of new agreements, strategies partnerships and wars. As he 44th US president, Obama, in his budget, has put energy as one of its three priorities, the role of energy in the future will become more significant.
The implications for the governments are, on one hand, secure its energy supply. That’s why US has to occupied the Iraq, the second largest oil supply country and why China has agreed to lend Russia billions of RMB in exchange for Russia’s stable oil supply. On the other hand, the government should encourage and participant in inventing and using the renewable and environmentally friendly energy, such as solar power, wind power etc.
As for enterprises, they should follow this trend and allocate more resources in the reduction in energy consumption and the adoption of clean energy. For example, General Motor has reduced its research and development center from six to one to focus on producing energy saving vehicles.
New trend #3: the great shift The third one is the shift of fortune and power from rich countries to the emerging countries, particularly from the USA to China. The USA has become the dominating power since the second war world and its influence is more significant after the disintegration of the Soviet Union. However, in the past decade, the European Union starts to challenge its position as the sole superpower and the emerging countries, especially the BRIK ( Brazil, Russia, India and China) has exert more and more influence
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on the global economy. And in this crisis, US will head for the greatest recession since the 1930s. However, China still aims at a GDP growth rate at 8% in2009. The implication for the decline of US power and the rise of the Chinese power is too obvious to tell in such a “zero sum game�. Before the crisis, it has been predicted that China will rise as a great power as US someday. This crisis just makes the predication comes earlier. From my perspective, there will be turbulence in the political and economical system for around 10 years. Afterwards, the US may recover and China will emerge as a nation with more or less equally economic and political influence.
This mega-trend indicates a huge shift. For the China government, their biggest challenge is the gap between the hard power and soft power. By hard power, I refer to its economical power, political power, military power etc. The world has witnessed its amazingly rapid development in economy in the past decades. And its political influence and international status have increased a lot. However, its soft power, referring to its cultural influence and the ethic of the citizens, seem to be lagging behind. Corruption and bureaucracy are far from being solved. And although it has been sort of economically democratic, it takes the country a long time to become politically democratic. The opportunity is there, the question is: is China ready?
As for the other nations, they should be aware of the trend of multilateralism and the increasing influence of the emerging countries. They should put forming a strong partnership with the Chinese government as one of top priorities in their strategic plans. For enterprises, as most of the multinational organizations reckon, if you want to be the market leader in your industry, you need to be the market leader of China. Indeed, with one forth of the world's population and a rapid growing GDP, China will become the most attractive and profitable place for investment and doing business in the future. They should spend these years to further understand the culture and the social environment of China so that they are well equipped to fight in this most profitable and competitive battle field.
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Recover and Rise The circumstances create hero. When the next wave is coming, both governments and individuals should realize the mega trends and response with sufficient preparation. Only by doing these will we be able to turn the crisis into opportunities and recover, rebuild and emerge stronger than before.
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