Saturday, March 24, 2018

BWorld 198, Three levels of global disruption

* This is my contribution for BusinessWorld Top 1,000 Corporations 2016. I forgot to post this earlier.

3 levels of disruption

Bienvenido S. Oplas, Jr.

Disruption in business and the macro economy is mainly a result of innovation by the new leaders and partly complacency by the previous ones. What used to be great and famous global brands have been overtaken by new and upstarts which introduce unceasing innovation. This disruption has occurred at three levels.

# 1: Global economic leadership has shifted to the developing world

Over the past two decades, or from 1995 to 2015, these changes have happened:

First, the top four biggest economies in the planet in terms of gross domestic product (GDP) were the US, Japan, China and Germany, in that order, in 1995. By 2015, the top four economies were China, US, India and Japan. Germany retreated while India advanced significantly.

Second, these four developing and high population countries have experienced GDP size expansion by five times or more in just two decades: China, India, Nigeria and Vietnam.

The creation of the World Trade Organization (WTO) in 1995 has significantly contributed to faster economic expansion of many developing countries. Their previously highly-repressed economies – a consequence of decades of economic protectionism and political dictatorships – have liberalized their  trade and investments.

Third, in terms of GDP size, these five countries were major “advancers”,  mostly from Asia: (a) Brazil from #9 in 1995 to #7 in 2015, (b) Indonesia from #12 to #8, (c) Korea from #16 to #13, (d) Nigeria from #33 to #22, and (e) Vietnam from #38 to #35.

Fourth, these five countries, mainly from Europe, dropped in the ranking in terms of  GDP size: (a) Japan from #2 in 1995 to #4 in 2015; (b) Italy, from #7 to #12, (c) France, from #8 to #10,(d) Spain, from #13 to #16, and (e) S. Africa, from #24 to #30.

This disruption in global ranking does not mean that the “retreaters” have stopped growing economically or were growing too slow, but rather some countries were growing much faster than them and have overtaken them.

# 2: Global inequality has declined.

The conventional or orthodox belief is that globalization has worsened the degree of inequality between the developed west and the less developed or developing east. This is false. Check the columns on GDP-PPP (purchasing power parity) per capita in the above table, which show the following:

One, while the average multiple or expansion of GDP-PPP per person in the G7 countries (US, Canada, Japan, Germany, UK, France, Italy) over the past two decades was only 1.9 times, those by many developing countries including the Philippines was 2.5 to 7.7 times.

Two, the degree of per capita income inequality in particular between the US and China in 1995 was 15.6 times, but declined to only four times by 2015. Between Japan and India, the per capita income inequality has declined from 15 times in 1995 to only 6.2 times in 2015. And between Germany and Indonesia, per capita income inequality declined from 5.7 times in 1995 to only 4.2 times.

# 3: New global corporate brands have spurred up in the last six to 12 years.

Some 15-18 years ago, my first mobile phone was a Nokia and my first social media account was Friendster. Starting five years ago until today, a bigger number of people who took to mobiles and social media hardly knew those brands.

Today, new brands have surfaced fast, creating disruption in the communications and information technologies, and commanding hundreds of millions or even a billion plus followers and subscribers. Among these very successful brands and their years of creation were: Facebook (February 2004),  YouTube (February 2005), Twitter (March 2006), Dropbox (June 2007), Airbnb (August 2008), Uber (March 2009), WhatsApp (January 2010), pinterest (March 2010), and instagram (October 2010).

While it is their innovation that brought them to the front fast, it will also be innovation by newer and upcoming brands that can topple them from the top.

The market economy and its inherently disruptive, innovative nature is the most subversive economic system in the planet. Corporate expansion and bankruptcy, boom and bust, are 100% part of its DNA. And this makes the system pro-consumers, gifting them with newer, more useful, more price-competitive products and services.

China leapfrogged to become the world’s fastest growing economy because of two things: its communist government allowed private property ownership and free trade to flourish, and it has a billion-plus producers and consumers.

So two important lessons for the Philippine economy to join the band of disrupters in the planet are (a) have more market competition and innovation, less government regulations and taxation, and (b) take advantage of its “population dividend”, a generally young and big population – a big army of producers and consumers, entrepreneurs and workers, scattered within the archipelago and across the world.

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