A deadly global pandemic (Covid-19) is a self-evidently world-changing event. With increased connectivity, no doubt the spread will be “nonlinear” an output disproportionate to known inputs. But world-changing how? We sense that things will never be the same, and thoughtful speculation about the future helps us cope with the present and, among other things, suss out economic perils and opportunities.
But that’s why, when someone makes a sweeping declaration, the best response is to start asking questions. Every prediction is just a point on a spectrum of possibilities to consider, and that will be influenced by developments no one has thought of yet. Predictions look like declarations that end the conversation, but it’s much more productive to think of them as exactly the opposite. After all, if this pandemic has taught us anything, it’s that the future is always more unpredictable than it seems.
These were the years when most manufacturing companies were converting to “just-in-time” production, which involved integrating and synchronizing supply-chains, and forgoing stockpiles of necessary components in favour of acquiring them on an as-needed basis, often relying on single, authorized suppliers and that to thousands of miles away. The idea was that lowering inventory would reduce costs. Similarly, in service industries, off souring the support services or even the development of new products or services(R&D) was considered ideal to reduce cost.
But Taleb, extrapolating from trading risks, believed that “managing without buffers was irresponsible,” because “fat-tail events” can never be completely avoided. The great danger has always been too much connectivity.” Proliferating global networks, both physical and virtual, inevitably incorporate more fat-tail risks into a more interdependent and “fragile” system: not only risks such as pathogens but also computer viruses, or the hacking of information networks, or reckless budgetary management by financial institutions or state governments, or spectacular acts of terror. Any negative event along these lines can create a rolling, widening collapse in the same way that the failure of a single transformer can collapse an electricity grid. It is one of the potentially fatal “fat tails”—events that seem “statistically remote” but “contribute most to outcomes,” by precipitating chain reactions.
Any disruption in the form of disturbed consumption cycles and depleted supply chains would exert a definite negative impact on the world economy and in turn the country’s economy. So, what may or may not happen is listed below.
What may change?
Technology innovation and adaptation will become norms for all businesses. Focus on business, technology, and data science skills which are central to productivity in the age of automation and artificial intelligence will be key for survival and growth. Companies and governments increasingly will need workers skilled in technology and data science to create innovations that will drive productivity and growth, and workers skilled in business to operationalize and lead organizations through changes. Surveillance technology is developing at breakneck speed, and what seemed science-fiction 10 years ago is today old news.
It seems the massive work-from-home experiment will be here to stay. It will have lasting impact on how team will work, how offices will be organised, how meetings will be held etc.
Many jobs will be automated. The pace of technological change is rendering many job activities — and the skills they require — obsolete. Research by McKinsey suggests that globally, more than 50% of the workforce is at risk of losing their jobs to automation, and a survey by the World Economic Forum suggests that 42% of the core job skills required today will change substantially by 2022. In this landscape of constant disruption, individuals, companies, and governments are fighting to ensure they have the skills to remain competitive.
Goods and people will move less often and less freely across national and regional borders. The success of the unregulated monopoly has hit its peak. They operate in the real world where politics, special interests and plain common sense will, post-Covid, put sand in the gears. Boeing was close to an unregulated monopoly for decades. It was a duopoly, just like online advertising is a duopoly (Google/Facebook). Boeing isn’t doing so great right now. Not a foolproof strategy on its own.
What may not change?
But it’s so seductively easy to double down on sweeping pronouncements:
- E-sports will replace football and basketball.
- Movie theatres will never return.
- People working from big offices will never return.
- Telemedicine will become the new normal.
- Malls will close and size of new malls will be drastically different.
- Hotels will have to change business models drastically.
- Travel industry including airlines business will have long term negative impact
Even the worst crisis creates opportunities.
While the rest of the economy is tanking from the crippling impact of coronavirus, business at the biggest technology companies is holding steady — even thriving. With people told to work from home and stay away from others, the pandemic has deepened reliance on services from the technology industry’s most prominent companies while accelerating trends that were already benefiting them.
Increase in demand for cloud computing platforms
For companies managing their internet infrastructures, adjusting computing needs on the fly is expensive and complicated. Cloud computing makes it easier. Companies were already dumping their own data centres to rent computing from Amazon, Microsoft, and Google. That shift is likely to speed up as millions of employees are forced to work from home, putting a strain on corporate technology infrastructures.
Increasing usage of remote and collaboration tools
Microsoft has aggressively pushed its new business messaging and collaboration tool, Microsoft Teams, which competes with the independent company Slack. Last week, Microsoft said the number of users on Teams had grown 37 per cent in a week to more than 44 million daily users. There have been at least 900 million meetings and call minutes on Teams every day.
Grocery delivery apps are in demand
Amazon has muscled in on brick-and-mortar retailers for years, but shoppers now reluctant to go to the store, are turning to the e-commerce giant for a wider variety of goods, like groceries and over-the-counter drugs. Amazon said it was hiring 100,000 warehouse workers to meet surging demand. While Amazon has changed shopping habits for items like books, getting customers to trust it with groceries has been challenging. That’s now changing.
Other grocery delivery apps including Instacart, Walmart Grocery, and Shipt, have begun to see record numbers of daily downloads. Instacart plans to hire 300,000 gig workers over the next three months, more than doubling its current base.
Increase in traffic to video streaming sites and social media platforms
Voice calling over Facebook’s WhatsApp messaging service has doubled in volume. Facebook’s Messenger app has had similar growth. Analysts are bullish about Facebook’s prospects because many people turn to it for news in times of crisis and to distract themselves while working from home. Video game usage and live streaming have spiked.
Downloads of Netflix’s app — a proxy for traffic from the streaming site — jumped 66 percent in Italy. In Spain, they rose 35 percent. In the United States, where Netflix was already popular, there was a 9 percent bump.
Urbanisation will lose its importance
Due to Cloud-19 computing, increased usage of apps, work from home, etc will change how businesses work and employ people. It is likely to lead to reverse exodus of people from mega cities to smaller cities, towns or villages. People will emigrate from mega cities to smaller towns.
What is next?
Macro – View
Globalization is here to stay, though there will be moderation. To have benefits of optimum cost of production and ease of getting things done practice of supplier located in single geography/country will be given a go buy if not in all but at least in crucial industries. Modification of JIT and lean manufacturing practices to adequately protect the company from long tail event is most likely to be implemented by each big company. Corporate executives need to accept, what may seem like too-small gains from their investment dollars, large investments in supply change health care of its employees to protect their business from catastrophic loss. And the country after an initial retreat from globalization, countries might come to recognize that technological and viral threats are existential, and therefore require international cooperation. Political structures built are such that societies will be better able to cope with mounting, random events. Just to Quote Taleb “We should discourage the concentration of power in big corporations, “including a severe restriction of lobbying. “When one per cent of the people have fifty per cent of the income, that is a fat tail.” Companies shouldn’t be able to make money from monopoly power, “from rent-seeking”—using that power not to build something but to extract an ever-larger part of the surplus. There should be an expansion of the powers of state and even county governments, where there is “bottom-up” control and accountability. This could incubate new businesses and foster new education methods that emphasize “action learning and apprenticeship” over purely academic certification.
For countries, Taleb envisions political and economic principles that amount to an analogue of his investment strategy: government officials should make large investments in health care and critical supply spares and equipment accepting what may seem like too-small gains from their investment dollars while protecting themselves from catastrophic loss. An anti-fragile country would encourage the distribution of power among smaller, more local, experimental, and self-sufficient entities—in short, build a system that could survive random stresses, rather than break under any particular one.
Behaviour of customers, manufacturers, suppliers and employees will also change. Customers’ needs and requirements change. They look for new and better products but most likely more conscious about the place of origin.
New technologies become established. Drivers can be AI and IoT or something else. These encourage new firms to enter the industry with better products and cheaper ways of doing things.
Employees’ skills need revising to take advantage of new technologies. The industry ceases to be able to attract new, high calibre recruits and needs to find new ways of attracting key employees.
New labour laws are passed that require changes in how businesses operate e.g. change in working hours/flexible working hours and tougher health and safety requirements. Pressure groups start to take a greater interest in the industry’s activities.
Tax laws are amended to give substantial advantage and concessions to local manufacturers.
Traditional sources of supplies of raw materials and components begin to look less reliable. New supply sources emerge.
Banks and other investors start to lose interest in financing the industry. Mobility of capital also substantially reduces. Governments become provider of capital at concessional rates.
There can be reverse immigration towards smaller towns from mega cities.
Ninth wave of Mergers and Acquisitions
Through several years of persistent political uncertainty and market volatility, the M&A market have remained resilient. Today, however, dealmakers must come to terms with the fact that the global economy is most likely in the later stages of the cycle. Trade wars, Brexit, weakness in China’s economy, forecasts of slower growth, and ominous leading economic indicators are among the issues weighing down sentiment in capital markets. With storm clouds building, what can forward-looking dealmakers do to get ready for a recession?
Corporate divestitures and spinoffs, as well as private equity exits, support supply. High cash levels drive demand. Industry convergence and the rise of ecosystems encourage unconventional deals.
All the above will lead to the new wave of M&A. Now at the beginning of the ninth wave, due to secretive and dominating policies of China, the world leaders have recognised needs to effectively counter Chinese expansive polices and seriously started looking at options how to reduce dominance of China as super power not only in the world trade but also its dominance in defence and technology.
The five elements in the business environment are the economic and legal environment, the technological environment, the competitive environment, the social environment, and the global business environment.
Managers must understand how the environment is changing and the impact of those changes on the business. The global business environment is faced with tremendous change. The drivers of change, namely globalisation in fact reversal of the same, information technology, geo-political scenario and social environment will determine future global business environment and affect M&A activity in years to come.
It’s time for full-throated, unapologetic, uncompromised political aggressive investment in new products, in new industries, in new factories, in new science, in big leaps forward to make one own country self-reliant in some critical areas, though in pure economic analysis such approach cannot be justified.
Companies that surge often do so because they have developed an uncommon sense of what customers’ value and avoid common nonsense. A big rich company, a company that dominates the market for its product, and a company that dominates the broader tech industry are three quite different things. Market cap isn’t power. Regulations of the World Trade Organisation, United Nation and other legal structures which control behaviour of nations inter-se may need to be completely revamped.
Drivers for M&A
As mentioned above, The New Wave will be based on technology and change in strategy and not for having cost or tax optimisation. The concept of world as global village may no longer work due to dramatic cultural differences. Huge liquidity and almost nil interest rate, Capital and cost of capital may not be driving factors in future M&A. Identifying and preparing world for future problems will be the driving force and value drivers for future M&A. Patents, technology rights, intellectual property, etc needs to be respected but those giving huge cash flow for a long period of time may get questioned and requires recalibration.
Instead of giant size manufacturing facilities and support services facilities, there will be comparatively midsize operations in different geographical locations. This will be through joint ventures and strategic alliances. Manufacturing operations evolve based on competitive landscape emerging in the environment. It does not happen overnight. It combines and permutates a set of important choices about such factors as capacity, vertical integration, human resource efficacy, technology adoption, automation levels and the many more. Smart Manufacturing, a data-driven analytics approach, brings tighter integration of product design and process capabilities leading to increased flexibility, as well as to faster deliveries (through shorter production cycle times). Smart Manufacturing deals with your competitiveness in a larger perspective and helps you to be competitive in this VUCA (Volatile, Uncertain, Complex, Ambiguous) world. Corporations need to change the ways in which they compete for business and expand in their target markets. The only solution is a complete change in the way we look at reality, work, money, etc. The technology will not disappear. Not a chance. It will become a tool of control.
A company that dominates the broader tech industry must break with or without compulsion under the antitrust law. Most critical technology is given through government-owned corporations like say telecommunication, railways, etc or free and universal and open access.
Platform companies need to break to create more competitive environment.
Data, Platform highways and cloud and other technologies are new oil for future growth for all corporations irrespective of business or industry which they operate.
Yet every crisis is also an opportunity. We must hope that the current epidemic will help humankind realise the acute danger posed by global disunity. It may also lead to a more diversified supply chain even at the cost of higher cost of production. Each country will encourage health care other critical industries to have policies to make it self-sufficient in products and services which it considers critical. The largest tech companies could emerge much stronger. Companies that traffic in digital services and e-commerce will make immediate and lasting gains. Applicability criteria for antitrust law will change in all countries. Business models for real estate companies will change. We are at the verge of something big. Whether it is an opportunity or the new dark ages? Hard to say. We never know what we will know” (Taleb).
But the challenge is how to employ millions of young’s and reduce the costs of various specialists’ jobs to have multiple power and growth centres and more equals.
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