Columnas de Opinión

Debate the crisis or change focus: a business matter

Proposals to move from the 20th c. debate into the 21st c. matters.

More regulation or less regulation? Japan has devalued its currency. China is getting more expensive. Europe and the United States are discussing the creation of the largest free trade region in the world. The global financial crisis we are trying to overcome shows the lack of regulation and control over the markets. Markets drive development and the creation of wealth, but left on their onw, they can also deploy forces that lead to their destruction. They need to be looked after, especially the financial sector, since they affect the lives of millions of people.

Inflation or expenditure restraint? In some areas of the region, inflation results in greater expenditure to generate wealth; together with long-term regimes supposedly aimed at protecting the wellbeing of the majority. But many of the proposed solutions are more suitable for past situations than for the current crisis. We are experiencing unprecedented levels of global exchange and interconnection: there is greater balance between forces and, at the same time, more sources for instability. We are subjected to two types of fluctuations: those of the international rebalancing, and those orginated in our own markets that try to redefine the distribution of wealth in the region.

We are in need of a paradigm shift. It is necessary to debate the needs of the 21st c. and stop trying to apply the models and solutions of the 20th c. in a different context.

Unprecedented Opportunities

The financial crisis that affected the main economies of the world is redefining global balance and granting new importance to emerging countries. While Europe fights uncertainty, Japan devalues its currency in hope of overcoming the competitive disadvantage that is prolonging its crisis, and the United States struggles to get back to growth; emerging markets offer unprecedented opportunities for development. Seazing them requires a change in the way we think business and replacing the current debate on regulation and intervention with other better suited to generate worth in the new settings. Here lies the opportunity for businessmen.

We could either keep trying to compete in the current markets, or change towards a more innovative focus to access new segments. Tigo, the main phone services provider in Paraguay, trippled its sales only by reducing to a minimum -even to ridicule- the allowed credit charge.

The new rational consumer saw in it the opportunity to save a few cents and have credit in their phones available when needed.

This saving culture lead to the next step: the “electronic purse”, very popular in Africa. Tigo moved from being a phone services provider to becoming a player in the finance market and even exported Paraguayan executives to African markets.

The new middle class of the Latin America emerging markets has two main characteristics:

On the one hand, they are keen on improving their standard of living by acquiring better products and services. On the other hand, they have greater purchasing power, though still with individual limitations, if we multiply the low credit charges by the number of individuals, the result is more than appealing: a real ocean of opportunities.

In the next twenty years, the global market will double in size thanks to the addition of new emerging consumers and, once this happens, the market will double again during the following decades. Asia, lead by China and India, and Latin America, lead by Brazil and Mexico, are accelerating the improvement of its emerging classes and, together with Africa, they represent a market of unprecedented historical size and, thus, place unprecedented challenges.

In order to seize these opportunities, we should take into account two conditions: The emerging offer has to be accesible, combine quality with low costs, and has to be sustainable. Our planet would not be able to bear the impact of doubling the current pollution and massive consumption waste levels.

The first conditon brings us back to last century’s industrialization when, reducing costs gave the developed world’s middle class access to comfort; thus accelerating global economic growth.  Generating quality at low costs requires business models based more on efficiency than on profit margins but, once the required levels of productive efficiency are reached, it is necessary to align production and supply, which results in additional costos

and, above all, greater efficiency in the management of cash flow, which requires less investmet than the operative capital. Profitability will be obtained more through efficiency and a rapid response to the market in large volumens than through generous margins. The shortening of required times and the subsequent reduction of stock help reduce costs and improve capital yields due to greater rotation; as shown by leading companies like Zara, Ikea, Mercadona or WalMart, who allowed developed middle classes access to fashion, interior design and massive consumption products.

Aligning production and supply entails working in collaboration with suppliers in the sense of Japanese auto-industry just-in-time model. But, above all, it requires a more collaborative than competitive approach, seeking to create worth insted of competing for reducing margins due to new products and services. Therefore, collaboration between suppliers and distribution channels, even among competitors, is vital both for new businesses like sparking wines in Argentina, and new markets. Besides, distribution companies are doubling their efforts for improvement. Recently, 400 m. and 70 m. length freight ships were launched; with a crew of only 13 people, they can transport 123,000 tons and be unloaded in less than two hours upon arrival. The new paint used in their construction ease the ships’ sliding, therefore, saving fuel.

These ships can get from China to the United States in five days -almost have the time than other ships currently in use- and they allow for fresh products to be transported through long distances.

It is essential to have the same alignment between production and supply chains so that those initiatives aimed at improving sustainability, such as reducing the carbon print, can have a significant impact and help contain climate change.

The Alternative

In view of these opportunities and challenges, it is imperative to discuss sectorial growth plans to boost industries, instead of discussing the distribution of shortage or trying to guess the direction the administrations -more worried about the distribution than about the generation of welth- will take. Businessmen can change the focus, from a competitive one to a collaborative one, and contribute to replace the 20th c. debate with the 21st c. debate, based on the discussion of the changes and efforts needed to seize this century’s opportunities. This is precisely their main concern: creating a better future with greater wealth. It is either this or keep worrying about proposals centered more in the past than in the future.