Posts Tagged ‘domestic demand’
More and more companies are starting to position their products and services with consumer affordability in mind. Innovating with price as the starting point, more companies are stripping out the undesired frills – sacrificing indiscernible differences in quality, features and standards – for portability, ease of use and most importantly, significantly lower price than the next best substitute. Think of $400 netbooks, $2,500 cars, $40 cellphones, etc.
Known as the theory of disruptive innovation by Clayton Christensen, new entrants often enter at the bottom of the market, where they are ignored by established incumbents. These products then grow by taking away significant market share to the point where they eclipse the old product. MP3 music technology, Internet long distance phone calls all entered their respective markets that way. Offering flexibility, convenience over features and sound/voice quality. Consumers want quick and dirty over slow and polished. Having it here and now is more important than having it perfect. “High-quality” or what we think of as a “better product” has a different meaning in today’s world. Suddenly what seemed perfect is anything but, and products that appear mediocre at first glance are often the perfect fit. Here’s an excellent article in last month’s Wired on The Good Enough Revolution: When Cheap and Simple Is Just Fine.
One common thread among the companies that have profited from “going no frills” and selling to the Good Enough market, is in crafting the perfect concoction of price/quality/feature tradeoffs that appeal to their new customers. Can your firm innovate to the extent that it is five times cheaper and trade down on features whose perceived value is less than five times the price? In a way, it’s simply Blue Ocean strategy with the emphasis on affordability.
Here are some ideas I’ve posted on slideshare. Enjoy!
Found this through our horizon scanning colleagues, a book by ANU on China’s new place in a world lurching from crisis to crisis. Makes me think of the unfinished conversations we are having on a China-centered Asia (ChiAsia) and the different flows and how the hell Singapore should be placed on these new flows. Anyway, here’s a brief grab on what the book is about:
The world and China’s place in it have been transformed over the past year. The pressures for change have come from the most severe global financial crisis ever. The crisis has accelerated China’s emergence as a great power. But China and its global partners have yet to think or work through the consequences of its new position for the governance of world affairs. China’s New Place in a World in Crisis discusses and provides in-depth analysis of the following questions. How have China’s growth prospects been affected by the global crisis? How will the crisis and China’s response to it impact China’s major domestic issues, such as industrialisation, urbanisation and the reform of the state-owned sector of the economy? How will the crisis and the international community’s response to it affect the rapidly emerging new international order? What will be China’s, and other major developing countries’, new role? Can China and the world find a way of breaking the nexus between economic growth and environmental sustainability — especially on the issue of climate change?
You can download the entire book here.
The real constraints to growth in Asia may not be ”excessive’ domestic savings per se, but the weakness in financial systems and the related legal and regulatory structure, which cannot efficiently transform savings into loans for education, housing, and private investment and pool social risks through financial instruments such as insurance covering medical care, pensions, and unemployment.
The growth of competitive domestic private banks should be the most important and efficient solution for China’s switch to a new growth engine. The rebalancing progress away from the export-model, however, will not likely be fast or smooth. There is persistent resistance from many vested interest groups which benefit from the old growth model, thus pushing to preserve the status quo. This will take longer than we like, but faster than we think. Patience is a virtue.
R Florida’s maiden post as an Atlantic Monthly correspondent touches on the remaking of the US’ economic geography post-crisis. Specifically, mega-regions and high-speed rails would function as integrated economic units. We already see this in Japan, Korea and recently Taiwan. China herself is launching many high speed rail projects to link the mega-regions along the coast. India herself is starting MRT systems within their large cities, when we see highways, high speed railways within their mega regions, things will start to get interesting. The large, big gap here is mainland ASEAN. A high speed railway connecting Singapore to KL to Bangkok and maybe beyond to Ho Chih Minh and Hanoi will connect China’s mainland and create a large coastal mega region and the possibility of a unified market in the future. The silence on this is deafening, but we can start small and focus just on Singapore to KL to Bangkok. Recent news from KL on YTL Corporation intending to resurface just such a project bears watching, and supporting, from Singapore and Malaysia.
We’ve just released our latest animation “The Great Reset”. This is our attempt to describe the world as it emerges from the fog of the current crisis. There’s a more complete introduction to the topic found on our page here.
You are welcome to use it, please attribute to futuresgroup.wordpress.com, thanks!
Excellent post from the Atlantic by James Fallow here. There are several distinctions that James highlights in the road China is carving for itself in the face of collapsed global demand. You can read the original article for the details, they are (a) China will not go the way of Soviet Union (implode) or Japan (muddle along) and (b) Disruptive innovation – China will use this time to design high value high profit margin products.
Which brings me to what my colleague JP said. He had mapped an axis of what SGP imported/exported, with what China imported/exported. Besides showing how much of SGP’s trade eventually ended in the G3 markets, it also showed that where we were in direct competition with China lay a lot in (b), those high value high profit margin products that once China gets the ‘China price’, it is very hard for anybody else to occupy that space. Where China bought what Singapore made, it was a thin slice of products and services. We are in a precarious position if we don’t plot out the future of China’s demand and how Singapore can meet it.
Likewise, what can we do for India? And for the GCC? And for the new markets of G3 post-crisis?
I thought I could wrap up the Future of Global Demand project soon, but now I see what we’ve done is the base. More work should still be done on fleshing it out. I am grateful for the work JP has done in the past few months, and inshallah God willing, what I create as the next phase of Singapore and Future of Global Demand will do it justice. Many thoughts on this…
A Global Retreat As Economies Dry Up (Washington Post, 5 Mar 09) full article here.
I wanted to higlight two articles on deglobalisation. The first piece is on trade protectionism. You may remember that in the Future of Global Demand piece we did a little while ago, one of the four uncertainties that will kill Chimerica would be trade protectionism. Here we see incipient protectionism with accompanying trade union protests, ‘Buy America’ provisions etc. So far sense has prevailed, but it bears tracking.
The second piece is closer to home, on Singapore as the shimmering ‘house that globalisation built’. What strikes me most is that markets like China are so self-sufficient that aside from ASEAN’s food resources, high tech (hence Premier Wen’s shopping trip in Europe) and metals/minerals (shopping in Australia and Africa), they don’t need much from the world. We would likely see the reverse as the export machine kicks into gear and China retools to sell to Africa, South Asia etc. For Singapore, IF supply chains feeding G3 don’t kick back into life, I would think the move into strategy three as outlined in our piece, that of becoming a services hub as well as strategy four, doing irreplaceable New ag IP for Asia would be the way to go.
Of the three models, Wounded Beast seems to be succumbing to a mixture of Chasm and Menagerie. How much time do we have to retool? Hmmm…
Some random thoughts on emerging Asia’s middle classes, which under the Chasm model become crucial sources of demand. Adeline dug up the Asian Development Bank’s report on the myth of Asia’s decoupling.
Remember I mentioned that G3 accounted for some 60+% of final demand? Well, China was only 6.4% of final demand, about a tenth. Meaning that while emerging Asia trades much among ourselves, it is because of MNC supply chains and not because we are developing each other’s markets. This crash will probably force us to ‘get religion’. hah hah.
Having said that, the Economist in a recent special talked much about the emerging markets’ middle classes, and I’ve been digging up McKinsey’s reports on China and India‘s middle classes and consumers. There are some surprising points like how India is closer to the USA and Japan in terms of private consumption, and India may be a better consumer play than China is.
From Bates 141, an excellent overview of change in what they call the emerging Asias (plural). A thoughtful snapshot of cultural and consumer changes through a non-monolithic Asia. Useful as signposts for the emerging Menagerie.
But that is only one part of the four sub-economies. There’s the crucial rural market that we don’t really know how to approach. I’m hoping to get some light from that when I fly to New Delhi this weekend for next Monday and Tuesday’s MIT-organized EmTech conference, with a focus on Bottom of the Pyramid models and technologies.
Ultimately, Singapore is not a product play, it is a service play. What are the BOP services we can deliver that India and China cannot deliver to their people? Worth considering.
It’s done. The six week plus project is done. Global demand after the crisis, we call it the 1-4-3-5 step, very Chinese One Chimerica, 4 legacy effects, 3 post-demand models, 5 strategies. And we have a big-ass paper that looks at it in some detail. This is just the start, because more importantly I would like people to start questioning and talking, this is no return to the status quo of export-led Asia. I’ll take a little break here, but after that I’ll put some animation together to try to explain it, maybe try some downloadables and maybe a comic. (update: I’ve put up a scrubbed version on slideshare and scribd).
One of the models is called ‘Chasm’, basically the bottom drops out of Asia as G3 export permanently evaporates. I think we are only getting a taste of it these few months. More to come. But first, the excellent FT article on what the ‘Chasm’ feels like as it hits Asia. h/t to Keith, thanks!
By David Pilling
Published: February 9 2009
…The upshot was that Asia swapped dependence on external financing for dependence on external demand….China (and others) will have to engineer a massive rebalancing of their economies towards domestic-led growth if they are to adjust to a world in which US consumers must rebuild depleted savings…The export-led model has outlived its usefulness….. it signifies the start of a profound – and no doubt painful – transformation as they adjust to a world in which the US consumer is no longer the buyer of last resort.
Towards the final one third of the work in progress of what the world might look like after the crisis, we bring up the idea of a chasm of demand. A frugal American consumer and the new China consumers who don’t yet/or ever consume so much. While we don’t think that is likely yet (meaning we think Chimerica will be resurrected for a while more), the quadrant of Chimerica not working + Chasm of final demand, we’ve labelled it ‘Dire straits’ – a very bad place to be.
Davos yesterday had a panel on such a topic which I’ve pasted below. What are your thoughts on this?
Posted by: Diane Brady on January 29
For all the criticism of Americans and their profligate spending in recent years, it’s clear that their appetite kept a lot of people in business. BusinessWeek editor-in-chief Steve Adler moderated a panel at Davos today on the subject of how the world will cope with a new frugality among U.S. consumers.
The impact of the sharp drop in spending has proven devastating to manufacturers. Adler noted that Americans have accounted for nearly a quarter of global consumption in recent years, about three times the level of spending by consumers in China and India combined. Now, the U.S. consumer engine is slowing at a record pace.
The most dire assessment came from Ian Davis, Worldwide Managing Director of McKinsey & Company (U.K.). He noted that “Americans have no option but to be more frugal over the next 10 to 20 years.” Along with being cut off from credit, the population is aging and “older consumers don’t buy as much.” His advice: Look to the East. Big consumer companies in the coming years will be Asia-focused.
But Zhu Min, Group Executive Vice-President of the Bank of China, predicted that it will take many years for Chinese consumers to make up for the gap created by falling U.S. spending. The Chinese currently spend about $1.5 trillion, vs. the $10 trillion normally spent by Americans. Even with 21% annual growth in spending in China, that won’t be enough to make up for what Zhu projects to be “a sharp drop in American consumption for three years.”
The question is how long Americans will stick to their tighter ways. Will frugality become the “new normal” among Americans, as some people fear?
Richard Haythornthwaite, Chairman of Mastercard Worldwide (U.K.) didn’t appear convinced. While the dollar value of sales has dropped sharply, the actual number of transactions has held up surprisingly well. He concluded that “Americans are shopping smarter.”
Ken Rosen, Professor Emeritus at the University of California, Berkeley, insisted that the spirit of frugality will last. “We spent money we didn’t have on goods we didn’t need,” he said. Now, American consumers can’t refinance their homes or get access to credit—and the situation will only get worse as layoffs escalate. “I’m still worried that the housing market has not stabilized,” he added. “The team we had in place over the last eight years dropped the ball … The free-market fundamentalism we had was a mistake.”
The solution? Government spending, according to Yasser El Mallawany, CEO of Egypt’s EFG-Hermes Holding. Ideally, he said, infrastructure spending will help to spur growth. The big issue is whether governments will fall back into a pattern of protectionism. That, he asserted, “could bring the world 40 to 50 years backwards.”
As for the assertion that Americans have, in fact, become frugal: “I don’t see anything under the current definitions of ‘frugal’ that suggests the U.S. is a frugal country,” said McKinsey’s Davis.