Futures Group

“How, then, can policymakers and corporate chiefs better encourage a vibrant system of enterpreneurial risk taking . . . ? The first step is to recognize and even embrace the uncertainty and ambiguity inherent in a dynamic economy, spilling out beyond the future for entrepreneurs to the economy as a whole. . . Governments that try to protect their people from uncertainty by fiat, like many of the ‘social welfare’-prone governments in western Europe, will, according to Phelps, succeed primarily in slowing down their own economic growth.”

“General knowledge . . . is an important enabler of the virtuous circle of creativity, innovation and growth. In Phelps’s view, knowledgeable managers are better able to evaluate innovation and have the confidence to pursue it. . . This point is consistent with recent empirical evidence linking general management talent (grounded in a liberal arts and science background and with awareness of management techniques) to firm-level productivity growth.”

From Booz & Co’s website, for copyright reasons I cannot distribute it, but you can register for free to  view the article.

Fastcompany ran an article on a rise of niche micro-enterprises.

The ebays of the net are allowing people to buy small quantities of production parts, tinker with them and build rapid prototypes of highly customized products with very niche demand. Social networks enable special interest groups and communities to identify specific needs and match them with like-minded manufacturers.

How is that as a new model for entrepreneurship or organizing productive activities? How widespread could this be?

h/t to Ruimin. Dr Shahid Yusuf, economic adviser at the World Bank, spoke at the LKYSPP last Friday on his recent publication, “Development Economics through the decades” – which reviewed the World Development Report series. The presentation slides, and the transcript of a similar speech he gave in Thailand, are here and here.

Here’s a summary of his most relevant points.

On productivity
- TFP has hovered around 2-3% in many countries. While many have tried, it’s not clear how to raise TFP.
- Focusing on “domestic demand” for growth is a cry of desperation, and cannot be a long-term strategy. Domestic demand tends to be focused on the non-tradables in the economy, which experience lower rates of productivity increase compared to the tradables. Additionally, one should be cautious about getting countries to spend more – according to Yusuf, no country has raised saving rates after they have dropped. [maybe the current US phenomena presents a counter-point].
- Productivity growth is far lower in the Services than in Manufacturing. The only exception is Financial Services, whose contribution to GDP has doubled in recent years in countries like the US and Singapore. However Yusuf thinks that post-crisis, productivity in the financial services is unlikely to continue growing fast. On the flip side, manufacturing isn’t going to be employing lots of people in future.

On industrial policy
- The World Bank has traditionally not promoted active Industrial Policy. The trade off is between government failure (corruption, lack of business expertise) versus market failure (coordination failure ala Rodrik, discovery failure ala Haussman) . Industrial Policy worked in Singapore because government failure < market failure, but this balance may differ across countries. However guidelines on the practical implementation of industrial policy remain absent.
- Every country is asking the same “what to do next” question, and everyone is attempting to do clean tech, but the reality is that not everyone will be a clean tech champion.

On poverty
- Growth remains the best way to get people out of poverty. Interventions, like micro-finance, education, and health, can only reinforce growth. Without growth, and consequently fiscal resources, these interventions cannot occur.

On entrepreneurship
- Lots of countries have business schools that “teach” entrepreneurship, and even take on the role of VCs to share some of the start-up risks. Yet the entrepreneurship rate remains low. Yusuf said he was “not sure of what to say” about entrepreneurship – theoretically the stigma of failure should disappear as countries develop and mature. He related the example of Shanghai’s Microsoft Research centre, which experiences a sizeable (but not excessive) turnover, in spite of rather good salaries. But surprisingly, few of those who left (conceivably these people were in the best position to establish tech start-ups) went on to be entrepreneurs. Instead they pursued “high security” jobs.

Edward Glaeser shares his thoughts on Indian megacities here and here. Prof Glaeser is one of the most brilliant people I’ve had the opportunity to meet. Looking forward to his upcoming book on cities.

I find Prof Glaeser’s observation that entrepreneurship is the single most defining characteristic of Mumbai most interesting. Haven’t been able to delve further into the subject, but wonder if there are insightful parallels to be drawn between Mumbai’s future and the historical development of Wenzhou/Zhejiang which Huang Yasheng discusses in his book, Capitalism with Chinese Characteristics. Any thoughts?

Chris Anderson writes that the era of the big conglomerates is gone. Cash-strapped and debt-laden giants have buckled, their talent fleeing for smaller firms where interesting things get done. In its place, small and nimble startups thrive from infinite opportunities presented by cloud computing and the webification of supply chain. Involuntary entrepreneurship is creating numerous startups and a market for freelance contract talent.

When the ash settles, how will the future enterprise emerge? Giants supported by startups? Radically disaggregated units – small pieces, loosely joined?

A little break from heavy stuff in Chimerica …

In the ‘Venturesome Economy’ by Amar Bhidé, an entrepreneurial population that commercialises research to an existing market’s needs is more important than high level ideas churned out by researchers in Universities. The entire article is below, and reading it I’m struck that’s exactly the strength of Japan, Korea, Taiwan, China’s entrepreneurial classes that take, pirate, borrow, etc ideas from the USA and customise them for the home market and then re-export. What’s new?

Is The World Really Flat?

… Instead, Bhidé concludes that the edge in economic development from the “innovation game” comes from the kind of entrepreneurial behavior that adapts and combines high-level ideas and know-how, adjusts them to the needs of particular markets, and actually sells them to willing buyers. Without these capabilities, high-level ideas, as was the case with the development of transistors, can take decades to develop.

Of course, the development of high-level ideas is critical to this process as well, but if it is less and less possible to hoard such ideas, where they are developed is of less importance than where mid-level and ground-level ideas and know-how are applied. The iPod, for example, was an example of purchased (largely non-U.S.) technological innovations combined with Apple design capability and knowledge of the U.S. market, where the vast majority have been sold.

The latest McKinsey Quarterly carries an interesting article on the true source of China’s economic miracle. In this account, the author argues that “property rights and private entrepreneurship provided the dominant stimulus for high growth and lower levels of poverty” in modern-day China. Gains from early experimentation with private property rights and an initial burst of “rural entrepreneurialism” took place during the 1980s, and exceeded the subsequent benefits brought by high levels of public infrastructure spending and huge FDI inflows in the 1990s.

What we know as China’s growth centres – Beijing, Shanghai and Shenzhen – are, in his opinion, not the true sources of China’s dynamism. Instead, the entrepreneurial, market-led rural areas are where true capitalism, vibrancy and competition occur. As an example, the author compares the growth stories of Shanghai and Wenzhou – and concludes that Wenzhou’s rise has not only led to equivalent household incomes, but also higher returns to capital and entrepreneurship compared to Shanghai (if one looks beyond the traditional GDP per capita measure), while creating a community of indigenous entrepreneurs. (More at the link above.)

The implication? Forget about successful alternative models to capitalism and entrepreneurship – there are none to be found in China’s story.

Like this piece quite a fair bit – challenges many assumptions in the way we conventionally view economic success, particularly that the major Chinese cities are the ones to look out for and learn from.

My maiden post as a “friend-of-FG” blogger !

(And if anyone needs a new party game at Christmas, try out the Economist’s latest board game. Caution: Check for a sense of humour among participating banker-friends.)

Future Sense – The Future of Small Business

One of the oft-cited constraints of the Singapore economy is our small domestic market.  This in turn begs the question, how many truly global companies can Singapore realistically grow?

This may be of less concern in the future as the industry trends suggest that many industries are moving to a “barbell-structure” with a few giant corporations on one end, a narrow middle and a large group of small businesses balancing on the other end.  According to a new study done by the Institute of the Future (IFTF), there will be significant opportunities for small businesses in the future.

The high-res version of the chart is available for download here.

The re-emergence of “artisans”

IFTF’s latest study suggests that the next decade will see a re-emergence of “artisans” as an economic force.  This new generation of “artisans” will be amplified versions of their medieval counterparts.  These merchant-crafts people will produce one of a kind or limited runs of specialty goods for an increasingly large pool customers seeking unique, customized or niche products.  They’ll be equipped with advanced technology, able to access global and local business partners and customers, and will be capable of competing in any industry.  Their firms will be agile, flexible and will often partner with larger firms to accomplish their business goals. Most will be knowledge artisans, relying on human capital to solve complex problems and develop new ideas, products, services and business models.  These artisans will attract and retain highly skilled and creative and creative talent by offering freedom and flexibility and in many cases highly competitive compensation.

The study identified 3 key trends for small businesses -

1. Most industries will move to a barbell-like structure, with a few giant corporations on one end, a narrow middle and a large group of small businesses balancing on the other end.
Niche opportunities for small businesses have drastically increased over the last decade.  Small businesses will be better positioned to provide customers with highly targeted, customised and relevant products and to serve these emerging niche markets.  They will also benefit from outsourced innovations from bigger businesses.

2.  Many business infrastructures will be reduced as smaller, lighter and smarter components and manufacturing systems emerge.
New manufacturing technologies will allow small businesses to fuel small-scale and specialised production and to lead the market in meeting the demands of customisation.  Plug and play infrastructure will enable small businesses to take advantage of large-scale infrastructure and leverage new technologies that were previously only available to big business.  For example, open source hardware and equipment consists of Lego-like modules that can be easily mixed and matched to create new or specialized devices.  This will enable small businesses to build electronic devices like cameras and keyboards without understanding hardware design or solid state electronics.  This shift to variable cost structures for core business operations will reduce risk and increase opportunities for small businesses and make it easier to start a small business.

3.  Cross-border business opportunities, improvement in technology and reductions in the cost of exporting will drive small business globalization.
Taking advantage of new business opportunities, reduced formal and informal trade barriers, improved technology and access to lightweight infrastructures, small businesses will increasingly participate in cross-border trade.  Social networks will fuel borderless commerce and will “mute” small trade barriers (e.g. cultural differences etc).  At the same time, small business (particularly those  established by immigrant entrepreneurs) will diversify and help to increase cross-border trade, unlock new opportunities and amplify economic value.

The study suggests that there will be significant opportunities for small business over the next decade.  How can small businesses in Singapore effectively take advantage of these opportunities by becoming more like “artisans” – producing high-quality, high value-added specialty goods for the discerning consumer?  Is there a role for our agencies to play in enabling small businesses to grow into this role?

Links –
1. Full report:

http://http-download.intuit.com/http.intuit/CMO/intuit/futureofsmallbusiness/SR-1037C_intuit_future_sm_bus.pdf

2. Earlier IFTF studies on the future of small business can also be found here:

http://www.intuit.com/futureofsmallbusiness/