The NY Times today has a front page article that discusses what the economy may look like going forward, after the recession ends (whenever it ends). This quote in particular caught my eye:
“These jobs aren’t coming back,” said John E. Silvia, chief economist at Wachovia in Charlotte, N.C. “A lot of production either isn’t going to happen at all, or it’s going to happen somewhere other than the United States. There are going to be fewer stores, fewer factories, fewer financial services operations. Firms are making strategic decisions that they don’t want to be in their businesses.”
It’s clear that financial services will not come back in the same form or size, and also seems very likely that retail will be significantly reshaped by the current changes in Americans’ consumption patterns. But it seems less obvious that American companies will continue to increase their business overseas: China’s economy saw a huge decline in exports last quarter, growth in India’s outsourcing industry has dropped off dramatically, and President Obama continues to ask for legal changes to discourage American companies from “shipping jobs overseas.” So I think that Silvia’s comment points to a longer view of our global economy, to a fundamental reshifting of how American businesses work.
Back in August 2008, the Economist published a section talking about globalization and the strengths of emerging market companies. We all know about lower labor costs, but the Economist pointed out a number of other factors: greater understanding of the consumers in these fast-growing economies, ability to design and produce goods at lower cost points, lower cost burdens from pensions and healthcare, sometimes lower regulatory compliance costs or cost-effective business models that can be used beyond their home country. The articles also discussed the “legacy costs” in US and EU-based companies:
multinational companies in developed countries must grapple with legacy costs of various kinds—financial (pensions, health-care liabilities), organisational (headquarters far away from new markets) and cultural (old ways of thinking)
Coming out of this recession will require not just adjustments in the financial services and retail industries, but a fundamental re-evaluation of business strategy in the global economy. To be successful, American businesses will increasingly need to understand how to work in emerging markets, and adopt some lessons of frugality, resilience and agility from these new economic players.
Filed under: global strategy
