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What are the most important global trends that will drive the future of business? How will these affect Vietnam?

Business leaders in Vietnam face many uncertainties, in particular about the timing of global economic recovery. However, there are many major trends that we can be sure about, which will transform the future of Vietnam and the wider world.

Each of these trends is related to the wider picture, and will continue to generate huge business opportunities in Vietnam in innovative products and services. Examples include demographics, urbanization, growth of wealthy domestic consumers, mobile digital devices, mobile payments and banking, social media and marketing, health care, further shifts of manufacturing to low cost economies, and the $40 trillion green tech revolution.

Demographics will be a powerful predictor of economic growth of each nation and region over the next three decades.  For example, in many EU nations, much of Russia, China and Japan, on current trends you will need 8 great grandparents to produce a single great grandchild. Nations either have to make babies to balance those getting old, or allow large-scale immigration, or risk gradual decline in population and economic power.

In contrast, India and Vietnam are very young and dynamic societies. One in four of the population of Vietnam is under 14, median age of only 27, with a literacy rate of 94%. Labour costs in many parts of the country are only half those of China and Thailand.

Wage inflation in China’s coastal cities is averaging around 12% a year, which will encourage more factories to relocate. Chinese wage inflation for most experienced managers can be as much as 100% a year. Vietnam will therefore continue to attract major manufacturing investment, and has a great future.

Urbanisation will be a major driver of demand for Vietnamese industry. Expect the national urban population to grow from 29-50% by the early 2040s, supplying many of the growing labor needs of manufacturing.

In China, we can expect over 300 million more people to migrate to cities in the next decade. As a direct result, China is committed to $4 trillion in spending on new infrastructure in the next 5 years alone.  That means more railways, power stations, water treatment plants and many thousands of growth opportunities for Vietnamese companies.

Expect major infrastructure investments in other nations such as India and Brazil, Nigeria, Indonesia, Cambodia – and of course in Vietnam, with new investment in water, transport (including new huge deep water port) and electricity.

Across Africa we will see over 450 million move to cities in the same period.  Urbanisation and rise in incomes will of course continue to place pressure on commodity prices.

Growth of wealthy consumers across Asia, stimulating rapid local demand for a wide range of products and services. Expect major opportunities from growth of Vietnam’s domestic market, by up to 20% a year.  Just look at what has happened with car ownership in China, which has grown 20 times from 2000 to 2010 to become the world’s largest market for new cars.

Expect 25 million more households in China with incomes of $30,000-50,000 a year income over the next decade, up from 1.6 million in 2010. In India, expect 50 million more households with an income of $5,000-15,000 a year.

Mobile digital devices will transform every aspect of retailing, marketing, communication and entertainment over the next decade.  At the same time, expect huge growth in so-called cloud computing, where software and data is held on remote servers rather than on local devices.

Some estimate that there are now over 6 billion mobile handsets in the world – there are probably more SIM cards in Vietnam than human beings, with 30 million able to access the web using mobile devices.  The lives of the poorest are being transformed the most.

Retail banking is about to be transformed by a wide range of new mobile payment methods.  Look at the impact of mPesa payments in Kenya – 33% of the nation’s GDP is already traded on phones using this network, with $9bn a year transferred by 17 million customers.

Expect radical changes in banking, with many non-traditional banking competitors, growth of insurance, savings and pensions in emerging markets. Most people in Asia are unbanked, with no access to safe deposits, or loans, or other banking services – one of the greatest opportunities in financial services for the next two decades.

Social media will continue to drive very rapid changes in lifestyle decisions, cultural attitudes and beliefs. In many parts of the world, people trust the opinions or recommendations of complete strangers more than leaders of corporations or governments.

Social media can have a positive or negative impact on each community and nation, and will be increasingly regulated. Expect huge changes in how corporations relate to their customers across the world over the next decade.

Health care spending will continue to grow across the world, driven not only by ageing societies, but also by economic growth in emerging nations.  Expect opportunities for manufacturers of medical devices and equipment in Vietnam, for generic pharmaceuticals and a wide range of related products.

Manufacturing shift to lower cost economies will continue, despite re-location back to developed nations of some jobs, as companies look for increasing agility and to reduce supply chain risks.
Vietnam will become even more recognized as a low cost, highly efficient, Factory to the world – textiles, shoes, seafood products, oil, rubber, steel and a wide range of high-tech.

The country has received more than $200bn of inward investment over the last 25 years ($71bn FDI in 2008 alone), into more than 14,000 projects including Canon, Samsung smart phones and Intel’s $1bn chip plant.

As a percentage of GDP, Vietnam has been attracting more than five times the Foreign Direct Investment seen in China or India over the last 5 years. Expect huge investment in the next decade in next-generation manufacturing across a wide range of industries. Many of these exports will be components to supply Chinese factories.

Low carbon energy investment will grow rapidly over the next decade, as part of the $40 trillion green tech boom.  The energy landscape has been transformed in the US by shale gas, which has increased proven gas reserves from 60 to 200 years in the last 5 years.  We have seen massive falls in costs of solar cells, as companies have increased scale.

Vietnamese companies will find many opportunities to develop hundreds of green products and services, feeding demand for a more sustainable global future.

Green tech will be driven by a powerful combination of oil prices remaining above $100 a barrel, regulation and by growing concerns about environment.

According to the IMF and World Bank, the global economic outlook is rather gloomy this and next year. When do you think the global economy will recover?

It depends on how you look at things. Economics is about more than numbers.  One of the greatest issues is confidence, emotion, how ordinary people feel, and that can change very rapidly.

From the perspective of Europe, countries like Vietnam with average growth of 7% over more than 20 years are astonishing success stories, which are likely to continue.  Of course, it can be disappointing if your business forecasts have been based on China growing at over 10% a year, instead of around 7%.

The truth is that we have not seen a global recession.  While there continue to be major macro-economic adjustments which are very painful, Asian economies will continue to see growth rates which are astonishing to those living in developed nations. This growth will be driven by their huge populations of people on low incomes, compared to developed nations. 

As a result, Asia will become increasingly dominant as a regional economic force, representing over 40% of global economic output by 2015, in Purchasing Power Parity terms.

Which industries and sectors are the ones to watch for signs of global recovery?

An early predictor of economic recovery in the US and the UK will be growth in mortgage lending approvals, and in corporate lending.  Watch Fortune 1000 corporate cash balances.  Multinationals have been hoarding over $2 trillion because of lack of confidence.  As confidence starts to rise, we will see these cash mountains turned into capital investment, which will provide a major impetus to further growth.

Watch also the actual numbers in work, rather than numbers out of work.  Migration can mean labour forces are growing faster than jobs, hiding the fact that numbers in work are growing.

An important indicator of early changes in economic activity in a country like China can be electricity consumption, or tons of freight carried by rail.  However, such figures may not always be accurate.  Watch out for real estate price changes – in many areas the skylines are full of half-built mini-cities, with silent cranes.

Both the US and EU are talking about or have launched economic relaxation programs. What is the future of the EU, and what will the impact be of economic stimulation on countries such as Vietnam?

The UK has already printed enough sterling to buy a third of $1.6 trillion national debt. The Federal Reserve has committed to printing $40bn every month indefinitely, in addition to huge previous stimulus, until US unemployment falls significantly and the economy is growing rapidly. 

The EU has been held back until now from similar large-scale stimulus by deep-rooted fears of inflation.  We must remember that the EU was formed to prevent a Third World War. Germany remembers hyperinflation in the 1920s, which led to the rise of Hitler, destruction of the nation and half the nation locked behind the iron curtain during the Cold War.

As the largest EU economy, Germany is a very powerful influence on Eurozone economic policy decisions. However, the rise once again of the economic and political power of a united Germany is feared and resented by significant numbers of people in nations such as Greece.

Fear of inflation is changing, as more Eurozone leaders come to realize that the likely alternative to massive stimulus will be breakup. The EU will find a way through, but not without very difficult structural adjustments, with further major cuts in government spending, risking social unrest.

It will be impossible for the Eurozone to survive in current form without countries agreeing to submit their economies to strict control by European beaurocrats.  This is a very sensitive issue politically.

The longer term future of the EU itself as a trading bloc is not in doubt, even though the number of countries using the Euro may fall. 

Europe’s ageing population is a deep underlying challenge, with rising social care costs. Expect measures to encourage people to have larger families, and to relax immigration.  In the UK the population is growing and we have a baby boom – largely linked to immigration.  At the same time, the numbers in work are rising and unemployment is falling.

On October 25th 2012, Ernst & Young released their report describing Vietnam as "a rising star economy", with forecasts of annual average economic growth at 6% over the next 25 years, thanks to growing domestic demand. What is your view?

Yes I agree. For reasons we have discussed, I think Vietnam has a great future, and we can expect economic growth to continue at average levels over the next 30 years which are fairly similar to those in the last 20 years (average 7.1% from 1991 to 2012). Of course, we will see variations in economic cycles, but the long term trend is very encouraging.

Maintaining such growth rates assumes that rural migration from low paid agricultural jobs to city factories will continue, and that manufacturing productivity rises with technology innovation and investment.

Both IMF and World Bank have revised down their forecasts for GDP growth of Vietnam. However the Asia Development Bank (ADB) is more optimistic, pointing to doubling of foreign currency reserves and rapid increases in exports. Any comment?

Vietnam has rightly focussed on reducing inflation and encouraging business growth. But these are difficult times – as in other parts of the world, credit growth is slower than many would like, and the number of dissolved companies is still increasing.

What are the advantages and shortcomings of Vietnam in terms of economic growth compared with other nations in the region and the world?

Economic growth will be strongly linked to inward investment, especially in higher-value manufacturing.  Vietnam is in a global race to attract investment.  The competition is strong.

Countries are ranked by investors according so such things as political and economic stability, strength of legal process, corporation tax rates, government incentives for investors, deregulation of major industries allowing majority foreign ownership, protection of intellectual property and so on.  In many of these areas, Vietnam scores highly.

Which industry or businesses will add most value in the coming decade?

High tech manufacturing in Vietnam.  Total manufacturing exports growing at around 25-30% a year.

Which are the most important issues that these nations and Vietnam need to address to sustain business growth.

Firstly, take urgent steps to encourage bank lending, especially to small and medium sized enterprises, which in most emerging economies are mainly family-owned businesses employing less than 20 people, and responsible for most job creation.  Enterprise loans have been a very successful way to encourage start-ups, and are likely to be an important part of Vietnam’s future.

Secondly, in times of great economic uncertainty in important markets, it is vital not to control inflation too tightly by setting interest rates too high.

How will the future of banking affect developing nations? What should Vietnam implement and avoid?

Encouraging banks to lend is going to be a number one priority for many governments, with a wide range of initiatives to support their balance sheets, recapitalizing them so that they can provide low cost finance, enable them to absorb the impact of large non-performing loans and so on.

Many developing nations have issues with large, relatively inneficient state-owned enterprises which have big debts. At some point these need dealing with, but there can be a risk to the wider economy if steps are taken too rapidly.

How should future leaders cope with unprecedented crises and unexpected events?

Strategies of many of the world’s largest corporations are being overtaken by events.  The world can change faster than you can hold a board meeting so we need to lead in a different kind of way. 

We need to encourage Future-thinking, having more than one plan or strategy.  Future-thinking means staying ahead of change, anticipating risks, seizing opportunities that threaten those who are less prepared.

When crisis hits an industry, those with cash reserves often do very well, if they are able to move fast, and buy up competitors or assets at low prices. 

It is easy to feel paralysed by uncertainty, but all successful business leaders are focused on the big trends that will drive longer term success – the kind of things we have looked at above.  Above all, keep focused on your most important customers, especially those in other nations who may be changing rapidly in ways you do not fully understand.

Keep close to your customers. Listen to them. Delight and amaze them with your attention to detail, the quality of all you do, delivering on your promises every time.

Remember the 80:20 rule: in most business activity, 80% of the impact comes from 20% of the effort. Make sure you do more of the things that have the greatest impact.

Finally, all innovation is about motivation and divergence: doing things differently from everyone else to serve customers better, making a real difference to their lives.  Encourage your teams to try things out, test ideas. Provoke fresh thinking, bring in new talent, and reward success in your mission to create a better world.

* Patrick Dixon is Chairman of Global Change Ltd, author of 16 books on global trends, and has been ranked one of the 50 most influential business thinkers alive today (Thinkers50 2005).  He is an advisor on trends, risks, opportunities and strategy to many of the world’s largest corporations. His website (which you are looking at now) has 15.5 millionunique users with 6 million video views and 43,000 Twitter followers. 

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Thanks for promoting with Facebook LIKE or Tweet. Really interested to read your views. Post below.

Patrick Dixon
November 07, 2012 - 17:37

Looking forward to your thoughts about emerging economies, the rise of Asia, Vietnam's future and other issues. Do you live in the region? Do you agree or disagree with some of what I have written.

Join the Debate! What are your own views?



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