What should we do now and how should you plan for the rest of the decade
A step Change in Global Trends- Pandemic driven 4
So what will the recovery look like? (will there be a recovery and when will it come?) 4
HOW WILL MAJOR REGIONS EMERGE FROM THE CRISIS? 5
A CONSCIOUS & CONNECTED CONSUMER 12
INNOVATION KEY BUT FEW SUCCEED 13
Why Now?
As China quietly opened its economy to the West in the 1980s, the stage was set for a wave of globalization that swept the world and that continues unabated until recently.Today. Indeed China has now become one of the world's largest economies, but the winds of change are blowing again.
In Africa, ten years after we coined the phrase “Ke Nakom,” meaning “It’s Time”. Africa now represents the last meaningful frontier for new market development as the continent positions itself for serious growth.
Global Economic slowdown
The slowdown in global trade and industrial activity that began in early 2018 has continued. It came on the back of slower capital expenditure in Asia and sluggish production in the vehicle and technology sectors. Trade tensions have intensified,
Change
The coronavirus pandemic marked the beginning of a new decade and is set to transform the way we live, work, conduct business.
Meeting up in public spaces, travelling for holidays or small talk in the office kitchen have all been replaced by lockdown, social distancing and remote working.
The economic and social impact of the crisis cannot be overstated. While the short-term challenges are still sinking-in, the mid- to long-term effects will echo for years to come. This change of direction comes with opportunities, in the short medium and long term, for those who can successfully adapt to the new reality.
The South African position
South Africa is a middle-income emerging market with an abundant supply of natural resources; well-developed financial, legal, communications, energy, (Relatively) and transport sectors; and a stock exchange that is Africa’s largest and among the top 20 in the world.
Over the years South Africa has created a robust trade regime with the balance of payments account balancing quite well. In essence we use our exports of industrial raw material to finance our need for machinery and technology.
The GDP is shared between:
household consumption: 59.4% (2017 est.)
government consumption: 20.9% (2017 est.)
investment in fixed capital: 18.7% (2017 est.)
investment in inventories: -0.1% (2017 est.)
exports of goods and services: 29.8% (2017 est.)
imports of goods and services: -28.4% (2017 est.)
CIA World Factbook
Against this background ……………………..
The Business Landscape
The global economic and social systems which have emerged over the last two decades have seen international trade, capital transfer, exchange of information, and movement of goods and people expand.
The pre-coronavirus world saw certain characteristics and changes that were already shaping the business landscape:
- Uncertain global trade –
- as several nations started to drive a protectionist political agenda and the US and China’s trade war escalated. Global trade slowed down.
- Increased wealth and prosperity –
- middle-income countries’ share of the world economy grew from 17% to 35% during the last decade, positioning the demographic as an engine of future economic growth.
Middle-income countries are those with $1,026 to $12,475 in per capita GDP. South Africa GDP per capita according to macrotrends.net was $6001 in 2019
- Increasing global debt –
- partly spurred by favourable borrowing conditions, (even more favourable after Covid) the world held its highest-ever debt-to-GDP ratio at 322%, with a majority coming from developed countries, this could create a risk to the global economy.
- Increasing connectedness –
- the world’s internet usage grew by 8% annually during the last decade and one-third of the world was signed up to Facebook
- 5G is coming on line (in one way or another and fibre connections are increasing our ability to connect and communicate in real time on line in most parts of the world. South Africa is currently experiencing a slow roll out of 5G.
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- China and Asia take on bigger roles –
- China’s share of global GDP grew from 4% in 2000 to 17% in 2020. In 2019 they surpassed the US in the number of patent filings.
- Increased environmental awareness and increased CO2 emissions –
- world leaders signed the Paris Agreement in 2016 and 61% of millennials said they would be willing to spend more for eco-friendly products. However, CO2 emissions continued to increase by 2.7% and 0.9% 2018 and 2019 respectively.
- More and more pressure will be brought to bear on coal based power generation
- Environmentally friendly policies are required at Government and Business levels
The Himalayas can be seen from 200 km away for the 1st time in decades as a result in the drop in pollution (a side effect of Covid lockdowns)
A step Change in Global Trends- Pandemic driven
The Covid pandemic and related lockdown, has caused a major step change in developing global trends.
Directors,managers,entrepreneurs and their related ecosystem should understand what the evolving long-term trends are, and perhaps more importantly- the short- to mid-term recovery scenarios that must initially be monitored and navigated.
The scale and impact of the coronavirus pandemic has no comparison in modern history: There is a potential loss of around 10% of the world’s GDP. This could be far higher in medium and smaller economies which are more at risk than more developed geographic economies. South Africa is a case in point.
Even though the world is still in the middle of the crisis and much remains uncertain, companies need to look ahead and plan for recovery and beyond. A couple of scenarios will have a significant impact on the direction of global trade. Therefore, South African businesses should, in addition to more company specific scenarios, evaluate the following questions and monitor their key determinants in order to be prepared for various outcomes:
THE SHAPE OF THE RECOVERY?
Will the pandemic evolve or will the pandemic be contained toward the start of 2021?
Will the recovery be fast or slow? How long before our international tourists come back?
ARE WE STILL ON THE GLOBALISATION PATH?
A prolonged pandemic, closed borders and increased prioritisation of domestic recovery could lead to further and more long-term protectionist policies impacting global trade.
At the same time South African infrastructure like our ports which should facilitate trade are under pressure at a human and technological (as well as basic infrastructure) level. Our Government leaders need to take cognizance of this as business at the same time must plan for a more challenging logistical environment.
On the other hand, instead, if nations can find a collaborative way to kick-start economies, develop a vaccine and recover from the crisis, the pandemic could also lead to greater global collaboration. The outcome will be dependent on the ability of supranational organisations to spur trade cooperation and the advantages of open markets.
HOW WILL MAJOR REGIONS EMERGE FROM THE CRISIS?
All three of the largest economic regions in the world – the US, China and Europe, will be significantly impacted by the crisis and undergo central developments in the short- to mid-term.
USA
Starting with the US, the continuation of civil unrest, polarisation, and the upcoming election, as well as the Trade War between China and the USA will all play a role in the direction the US will take.
Europe
Europe, already under pressure in the downturn of 2019, has also been severely hit by the pandemic and could either weaken further due to increased division amongst member states (Brexit fever) or, stand united and use the stronger collective voice to speed up recovery. Determinants will be the commitment to the EU framework, the government spending versus debt levels, and the approval process of the new multiannual financial framework budget and fund allocation.
China
China’s global role might be challenged given the division of major trade partners as countries change policies on international supply chains. China however, has the potential for a rapid recovery and a head start economically. Main triggers to consider will be the outcome of the pandemic investigation,(how did it start and why) regional tensions and border disputes, and engagement with international institutions. Additionally, how China manages to keep its role as a global manufacturing hub, grow its FDI and keep investing in the Belt and Road Initiative.
Global Industry trends
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- Shifting the economic points of gravity
- A Higher level of the state involvement in economies
- A reinvention of innovation
- Emerging data borders
- New competitive ecosystems
- Accelerated servitization
- A conscious & connected consumer
- A digital explosion
- Regionalised & automated supply chains
Understanding, adapting to and leveraging new trends will be vital for companies if they want to improve their odds of winning in the new business landscape.
Nations and regions, which are successful during the recovery phase, are likely to emerge as global economic winners.
Within these regions, new hubs of innovation, growth and production will appear which will attract global talent, capital, and tech at a high rate.
The winners that emerge early in the decade will have a head-start in becoming global “standard-setters” and tech-development leaders. At the other end of the spectrum, some emerging markets are likely to fall behind during the next decade with health concerns, loss of FDI, and poverty halting their previous speed of development and status as growth markets.
In this environment with partially connected regions and nations, geopolitical relations will be crucial for business as countries strive for a higher level of self-sufficiency. As a result, foreign direct investment and new market entries will increasingly take place between nations with favourable geopolitical relationships.
South African companies must prepare to leverage the interest that developed countries and their companies will have in new markets as a source for growth.. At the same time, it is important to note that South Africa is still a good place for growing companies around the world to establish a reliable platform from which they can grow in Africa.
Sales, production, and supplier networks will change. New centres of excellence will be established and companies need to ready themselves for increased standards. New markets, trends and standards might arise from new regions in the future. Also as expansion in emerging markets accelerates to meet the need to diversify revenue streams international companies will be looking beyond Silicon Valley and China, to emerging tech and production hubs in Vietnam, Mexico and South Africa.
The 2020- 2030 decade will start with governments playing a crucial role in saving businesses and economies through various policies and measures.
Changing ownership structures, even though implemented quickly for short-term purposes, might remain for the long-term. Some regions will see an increase in state-owned enterprises as governments gain significant ownership of companies through their rescue efforts. In other regions, there will be a decrease of state-owned enterprises as assets are sold off and sectors are privatised in a bid to stimulate and reform the economy in the long term. In 2020, state owned enterprises already hold assets worth close to 50% of the world’s GDP, therefore any structural ownership changes will have a large impact on the business dynamics.
It is also expected that governments will increasingly regulate business activities to ensure societal resilience and mitigate risks. Some regions and sectors will clearly be defined by the government’s agenda, which will be executed through regulations and incentives such as influencing technology development through subsidies, increased nationalisation through tariffs and increased sustainability through setting CO2 emission limits. Additionally, governments will increasingly push their agenda through policies and collaboration with businesses across industries through projects using the public private partnership (PPP) model.
Governments already play a major role in business, a trend that is expected to increase
Industries and firms will have to navigate new regulations and policies mainly related to workforce, financial security, and risk management. Some firms will need to adapt to government intervention in its own sector by building stronger business-to-government (B2G) capabilities, especially within how to influence policy makers, perform B2G sales and for delivering PPPs. Firms will also need to learn how to build the transparency and trust needed for critical sectors, such as infrastructure, technology, and artificial intelligence. By strengthening the relations to key stakeholders and closely monitoring government agendas, incentives and regulations in each market, companies will be able to identify and shape new business opportunities.
The decade started with a leap of digital transformation and expansion. As data emerges as one of the most valuable commodities in the next decade, data protectionism is expected to increase. Nations and regions will expand their local data regulations which will lead to the emergence of “data borders”. These borders will primarily be defined by regulations related to data protection and data transfer. This trend has been on a steady rise with the number of data regulations growing by 74% globally between 2010 and 2020. Nations that can gather, store, and use the most data from the public and private sectors may have the biggest advantages over other nations.
South African companies must understand both the current international data regulations, and what borders exists between nations and regions. In addition, companies must recognize the international digital landscape and the different digital “universes” that exist, and what norms and type of services they hold in order to adapt their digital expansion strategies for each region and market.
Best strategies for growth in an economy under siege
Winning companies named investing and growing outside of core business during and after recession as one of the winning strategies
There are two primary reasons why businesses will experience another kind of competitiveness post-pandemic.
First, the crisis is leading to a wave of consolidations, M&A activities, and insolvencies which will “shakeout” several players causing the remaining players to fiercely compete to fill the emerging whitespaces and secure business opportunities.
Second, the rapidly changing market conditions which are set to follow the crisis will force companies to “adapt or exit”. As companies adapt their business models and offerings to the new reality, and identify new positionings and unique selling points, the competitive landscape will change.
The expected post-crisis disruptions mean adaptability, resilience, speed, and digital capabilities will become the new key competitive advantages.
The type of player that will have the upper hand will differ – in some industries and regions, the largest players will have an advantage, and in others, smaller agile entrants will have the best possibility to adapt.
As a result, ecosystems and company interconnections will change in parallel. In addition, cross-industry and ecosystem activities are likely to increase as companies seek new revenue streams which might deliver higher growth than revenue stemming from core business.
Historically, companies that grow outside of their core business during a financial crisis perform better than their peers. This has already been demonstrated during the crisis by retailers and software providers who have found new ecosystems and sales channels within sectors such as logistics, entertainment platforms, EdTech, and health.
Key stat: 75m people used the microsoft Teams communication app in a single day in April, up from 20m in late 2019.
Daily downloads of the Zoom app have increased 30x year-over-year
In order to be successful in the long term and survive through the Health and related economic crisis companies from well developed countries will build an ecosystem around themselves in LESS DEVELOPED MARKETS.
They will also be identifying potential partners, and establishing strong collaborations with other actors (eco systems) across regions and sectors, with a view to co-creating seamless offerings and learning to define terms and agreements for such partner collaborations.
Companies that are ready to move up and down the supply chain and consider non-traditional collaborations will remain competitive.
Companies can also look at expanding R&D activities to other sectors to identify new business opportunities.
Banks have set a precedent for this, where they have taken a clearer position within ecosystems such as e-commerce, digital payments, and InsurTech. This approach is also expected to happen in more traditional industries like mining,
In turn, startups will be interested in collaborating as they may find it harder to access funding at the beginning of the next decade.
Supply chains developed over the past couple of decades were built to be global, just in time, with optimised cost structures, they were however weak in the ability to withstand crisis.
The past decade’s slowdown of economic growth, trade wars, and protectionist trade reforms caused companies to question this structure. This issue accelerated rapidly when global supply chains faced serious disruptions during the pandemic. Unforeseen logistics issues and the world-wide dependence on China as a provider of intermediate products were highlighted and will undoubtedly cause a redesign and refocus of supply chains in the coming decade.
Global supply chains are expected to diversify from China, localising and regionalising to key markets as well as seeking opportunities in low-cost markets.
Economies such as Vietnam, Taiwan, Thailand, and India might reap the benefits from this shift. South Africa, the Government and Business as well as creative individuals should consider how South Africa should also position itself in light of this shift.
There will be an increased focus on the domestic potential to further build resilience and capabilities to deal with low-probability risk scenarios. Removed complexity, shortened supply chains and vertical integration will be accelerated in order to cut costs, stay agile, and secure speed to market. If protectionism policies continue to be put in place, localisation of supply chains may also be motivated by market access factors as a way of avoiding import tariffs.
Digital collaboration across the whole supply chain will be crucial to ensure accurate supply and demand planning, and real-time network visibility will be essential for providing insights for well informed and quick decisions.
Consolidation of instant supply chain information will be used for scenario analysis and risk mitigation.
To combat increased costs of relocating supply chains and gain cost savings, the development of Industry 4.0 and automation will increase. Manufacturing hubs in low-income markets are likely to develop.
Companies will need to review, transform, and adapt supply chains, while also re-building their portfolio of suppliers and logistic providers. As an integral part of optimising supply chain operations, firms will need to engage in short- to long-term scenario planning and risk assessment tools. Firms might need to focus resources on building smart factories and capabilities in automation, and Internet of Things to gain long-term cost and quality advantages. This will however put some of our job creation initiatives under risk.
VI: ACCELERATED SERVITIZATION
Over the last three decades we have seen a move in business orientation.
Moving from product, to market to service oriented business models.
In general services as a share of world trade has seen steady growth over the last two decades from 9% share of global GDP in 2000 to 13% in 2018.
It is expected that the service oriented economy will accelerate during the next decade as companies will be left with limited liquidity and an increased need for flexibility and cost driver transparency following the crisis.
In addition, the share of revenue generated from services will increase rapidly. For the automotive sector alone, profit generated from services is forecasted to make up 19% (3% 2019) of revenues and 36% (4% 2019) of profit by 2030.
A shift from capital expenditures to operational expenditures is expected for entire industries as companies across sectors and regions will be less willing to finance larger investments in goods. Lower up-front cost due to servitisation will allow even traditional price sensitive markets to see an increase in opportunities for high quality and premium products which local players were not willing to invest in previously
South African companies must speed up the service element of their offerings through building key capabilities, implementing sales performance measuring customer education, service innovation, and customer relationship management.
To be more competitive South African companies must continuously build a network of cross-industry service partners in each market while also creating a process to educate customers.
Companies should identify new business opportunities through turning local market insights into service innovation.
A CONSCIOUS & CONNECTED CONSUMER
Consumers are being severely affected during the pandemic and this will continue through the subsequent recession. This is expected to have long-term consequences on lifestyle, preferences,and spending behaviour over the next decade.
Before the crisis, the increased wealth and prosperity from the growing middle classes was a growth engine for the consumer market. Awareness of sustainability and online shopping was mainly present in some geographical regions and customer segments; however, the crisis is expected to accelerate this across all segments and regions.It is expected that consumer preferences will shift to become increasingly conscious of an offerings’ quality, safety, affordability, and sustainability.
Some consumer behaviours which have emerged in response to the pandemic are likely to stay in the long-term as consumers relationship towards their homes, public space, health and quality of life will have changed. All these factors are set to deliver an upswing for sectors such as health, insurance and finance.
While the digitally native generation will have the highest demands on accessibility, customer experience, and seamlessness between services and
platforms, other generations will also increasingly turn towards digital solutions and online channels.
Companies will need to understand the new micro-markets of consumer
behaviours and preferences, and adapt their offering, marketing and sales channels accordingly.
To stay competitive, companies must build advantages through experiences, digital,and data capabilities. To appeal to the conscious consumer, companies must truly become sustainable and communicate their efforts in a transparent and honest way – consumers are acutely aware of green washing. South African
companies must learn to gain customer loyalty and trust and find a balance between integrity and customisation in a global context.
NEW CONSUMER HABITS
Many consumer habits will change during the next decade
- Product innovation fail
- Success extremely dependent on innovation
- Business model at risk of being disrupted
- Struggle linking innovation & business strategy
- Satisfied with innovation performance
INNOVATION KEY BUT FEW SUCCEED
The reinvention of innovation will touch and effect all trends in a variety of ways. The new decade will see innovation get a kick-start due to the fast emergence of new needs and disruption of traditional industries.
At a national level, innovation could become one of the most important tools for building long-term productivity and economic growth. On a global scale pre-pandemic research showed that 84% of managers recognise that their business success was extremely dependent on innovation. Yet only 6% were satisfied with the way their business innovated and performed.
The way firms and industries innovate must be reinvented to ensure their competitiveness. Industries will see more experimentation and implementation of collaborative and open innovation within their ecosystem and across sectors, with an increased focus on obtaining new key capabilities, mainly within digital and services.
On a company level, new ideas and approaches will have to be one of the top priorities for both incumbents and emerging businesses. It has been shown that the 100 most innovative companies globally increase spending on R&D during recession to build long-term profitability. However, companies will increasingly recognise that the traditional organisational structures and development processes are not ideal for the next decade of innovation. This will result in a higher focus on building a creative culture, omniscience, cross-department and cross-generational collaboration, and flexibility and speed. In addition, firms are likely to reconstruct and de-centralise their R&D department to move closer to their end consumer, that is, they will enhance regional and local innovation.
IMPLICATIONS:
Building a structure and capabilities which spurs innovation.
and identify partners for co-innovation across sectors and regions will be key.
It will also be important to build a global network of localised R&D organisations and turn local market insights into innovations and business opportunities.
In the next decade companies will be forced to change the way they innovate
During the next decade, sustainability will play a role in transforming all other trends. Entering 2020, the UN called for a Decade of Action in order to meet the Agenda 2030 goals. but the pandemic served as a sharp wake-up-call for tackling environmental, social and governance (ESG) challenges, and many countries are now aiming for a green recovery. The sense of urgency and the need for concrete action will become increasingly evident over the course of the decade as the CO2 budget for staying within the 1.5° global warming threshold is set to be used up year 2026 if the current rate of emissions continue.
In some regions, the transition will mainly be driven by governments using strict emission and environmental regulations or strong incentives. In other regions, private players will have a key role in taking responsibility for funding and providing solutions to societal and environmental problems. Increasingly, sustainability is expected to be fully integrated into the business as a core competitive advantage as one of the main drivers for the transition is consumer preferences shifting towards more sustainable solutions.
During the pandemic, some companies saw years of digital development happen in only a couple of months. Aspects of digital transformation that were accelerated during the pandemic are expected to continue to rapidly advance and will affect all industries and trends. Gaps in digital infrastructure were identified and will be filled, which will stimulate the global internet population, 5G, AI, and machine learning. This is already in motion in China where USD 1.4 trillion will be spent over the next five years on new digital infrastructure, an investment that also aims to function as stimulus for the economy.
As businesses and consumers continue to mature, other digital developments will continue to fundamentally shape the new business landscape, including the digitalisation of traditional and increasingly complex products and services across industries and markets. The B2B industry is already leading the way as they continue to digitalise their offerings through remote services and systems as well as digitalising their sales and marketing processes.
For a wide spectrum of digitally based industries consumers and markets already have reached maturity, opening the door for emerging industries such as EdTech, e-health, and cloud services to accelerate at a rapid pace. This is already beginning, with Microsoft reporting a 775% increase use of cloud services in locked-down regions in April 2020.
Across sectors there will be an increasingly seamless and mature integration of physical and digital elements through digital systems such as augmented reality (AR) and virtual reality (VR). Data analysis and cyber security will become common in companies of all sizes and across almost all industries. It is estimated that the world’s data will grow with a 28% compound annual growth rate over the next five years, which in itself will enable the digital economy to develop and diversify into a multitude of new business models, industries, and solutions.
These will primarily be engaged in specialised functions in terms of collection, storage, transport, analysis, integration, sales, and dissemination of data.
As the data economy grows it will enable more customised service offerings, however, it will also highlight issues related to consumer privacy and ethics.
HOW COULD YOUR COMPANY GET READY FOR THE FUTURE, NOW?
Companies are recommended to internally map out trends which will have an impact on their business. In a constantly evolving and changing world, companies need to be agile and flexible to adapt to external changes.
MOVE
Be ready to move market focus, manufacturing locations and R&D hubs
ADAPT BUSINESS MODEL
Stay competitive through leveraging emerging and accelerating trends, position against new competitors and become truly sustainable by adapting the business model
BUILD NEW CAPABILITIES
Be fast to build the capabilities to impact and benefit from political agendas, build excellent service offerings and customer experience, and learn to make use of emerging technology
PARTNER-UP
Build a strong partner network in new manufacturing clusters in order to co-create and co-innovate offerings within ecosystems. Be ready to build partnerships across sectors and regions
GO DIGITAL
Digitalise offering and processes while understanding the international digital landscape and protectionism.
Be ready to set and execute one digital strategy per region
In times of crisis, it is easy to get consumed in the day-to-day business challenges and operational hurdles. By identifying and describing trends and transformations which will shape the next decade of business, we hope to support and challenge South African companies to look up, think more long-term, and be ready to adapt to win.
Sources
- Center for Strategic and International Studies,
- World Economic Forum,
- World Bank,
- UN,
- IMF,
- Our world in data,
- World Health Organization,
- Asia Development Bank,
- Kommerskollegium,
- Bloomberg,
- OECD,
- Bain & Company,
- Datastream,
- PwC,
- Nielsen,
- McKinsey,
- Accenture,
- European Commission,
- Mercator
- Research Institute,
- C20,
- Huawei
- https://www.deloitte.com/us/businessecosystems
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