Crisis Changes Economic Paradigm
Co-Head of BCG Seoul Office
We are currently witnessing many attempts to look ahead and characterize the years to follow the recent crisis. Some talk about a "slow growth decade," a "period of two speed economies" and/or a "period of prolonged uncertainty."
Others want to see it as a "new beginning" and/or a "period of emerging new champions." We may not know exactly which will best characterize the times to come, but there is a rapidly growing consensus that regardless of which scenario plays out there will be significant changes as to how global and local industries and businesses need to think about their operating environment.
Research conducted by the Boston Consulting Group suggests that there will be hardships imposed on many of the existing business competition models, but at the same time there will be unique opportunities for those who understand the new environment and act accordingly.
For many economies, industries and businesses, it will therefore be important to revisit the shift in the rules of the game and reset its strategies. The following underlying themes may provide a good starting point.
First, the global economy will see an increase in the competitive intensity of business. Lower GDP growth in developed economies will mean that many global companies will have to fight for their market share to meet growth targets.
The management teams and strategies of the most prominent companies will be placed under stress. This will force the reshaping of the competitive landscape in many industries, as well as the redefining of fundamental business dynamics.
Second, governments have become more activists. An increase in protectionism should be expected across trade, employment, reindustrialization and finance. There will be greater regulation, and some governments will further tinker with fiscal and monetary policy, whereas others will take on greater ownership of private enterprises.
Third, the nature of consumption is undergoing a major change. Consumers in emerging markets may well increase their spending, but not by enough to offset the weak growth in consumption in the United States and Western Europe, where consumers will save more in the face of greater job insecurity and reduced retirement provisions.
Fourth, the deleveraging process is being triggered. This occurs as individuals and companies (and eventually governments), weighed down by huge and unsustainable levels of debt, recognize that it is payback time. This will act as a further drag on global economic growth.
Finally, industry restructuring has gained momentum. Tough economic times tend to expose structural weaknesses. Poorly grounded business models and excess capacity, among other problems, will force companies - especially those in mature industries - to adjust to or exit the market
As established participants in the global economy, Korean industries and businesses should expect to feel the full impact of the new environment and wisely navigate through it. When trade frictions have potential to increase, a well tuned government-business alliance may be key to maximize Korean industries potential in the various export markets.
In times of limited consumer spending in developed economies and increased spending in emerging economies, Korean businesses may discover opportunities to fully leverage their current products position, many sitting in the middle of the price and quality scale. When many global competitors are inclined to be conservative in their spending, there may be rewards for making bold investments.
If navigated well, the coming years could provide Korean industries and businesses a platform to practice and exert leadership. A less obvious point, but perhaps one worth taking into consideration is that committing to further embrace global business cultures, practices and expectations will earn the respect and trust of global partners and consumers, and may further differentiate Korean players from other Asian neighbors.
History shows that shocks in the status quo bring about the emergence of new leaders. The coming years will provide companies with a clearer statement of differentiation, a midterm orientation of performance (i.e. ability to look into the future and place the right bets) and convincing price value proposition opportunities to become such leaders.