Davos 2011 - Martin Wittig, CEO, Roland Berger Strategy Consultants
Martin Wittig, CEO, Roland Berger Strategy Consultants, shares his insights on the issues at the top of the Davos 2011 agenda
1. What is your outlook for the global economy in 2011?
Global recovery has been underway for some time now. 2010 was a good year with global GDP growing by 4.8 percent. This was in line with the V-shape development that we at Roland Berger predicted in 2008.
For 2011, I expect global recovery to continue, as major regions settle into their growth paths. However, global growth in 2011 will be slightly slower than in 2010, mainly due to eroding recovery effects in advanced economies. Growth in the United States will slow by almost 1.5 percentage points – from 2.6 percent in 2010 to 1.2 percent in 2011. Slower consumer and business spending and a decline in government spending will drive this.
The original 15 EU member states will stay at a modest 1.5 percent growth in 2011, but this will vary widely by country. Germany, the Nordic countries and Benelux will perform at the higher end, above 2 percent. The United Kingdom and France will be in the middle range, 1.5-2 percent, due to budget cuts, slower domestic growth and less help from exports. Most of Southern Europe and Ireland will see growth of less than 1 percent, or they may even contract.
China's strong growth will taper off only slightly going into 2011 as its economy settles into a pattern of gradually slowing growth, assuming there are no major negative impacts from inflation or overvalued assets. As a result of the global crisis and very divergent growth rates, China may have a larger GDP (adjusted for differences in relative price levels using purchasing power parities) than the United States by 2012.
India will add almost a full percentage point to its 2010 growth rate in 2011, as its economy continues to benefit from accelerating domestic growth, a relatively strong currency and a non-expansionary macroeconomic policy.
So, on the whole I am still quite optimistic, although the recovery has been experiencing setbacks since the middle of 2010. Growth prospects remain quite uncertain because of the situation in Europe. Still, developing countries are expected to lead the recovery with growth rates of around 6 percent.
2. The world in 2011 is exceedingly complex, interconnected and unpredictable. How can organizations develop resilience in this new world of risk?
It is difficult to make an accurate prediction about the world economy in facts and figures, and that's true for the outlook I've just given for 2011.
What we do know is that the complex, quantitative forecast models have failed. They were not able to predict the economic slump and why should they now be able to precisely predict the recovery? After all we have experienced, I consider it dangerous to make forecasts based on correlations with the past.
At the corporate level, strategies today have to take macroeconomic and political considerations into account more so than in past years. Today's trends change quickly, developments occur in leaps and bounds and putting your faith in numbers alone doesn't get you anywhere.
As we learned in the financial and economic crisis, traditional forecast models have failed, since they are too volatile, too imprecise or sometimes just plain wrong. That's why we recommend our clients to think more in terms of scenarios. By that I don't mean the usual "Best Case/Worst Case" scenarios, which differ only in their assumptions regarding the same figures, but rather truly different pictures of the future. These "drafts of the future" help us anticipate unexpected developments and prepare ourselves for them.
Companies need to ask the right questions when developing their strategies. They should be asking: "What abilities do we need?" or "What sort of structure do we need?" But on a more basic level, they should also be asking "Who are we?" and "What is our starting point?" Evaluating these strategic options means focusing on the corporate DNA.
In the political arena, the overall challenge will be to successfully transition from a policy-driven recovery to self-sustained growth. We need a credible medium-term framework, especially for the financial sector, to stabilize expectations and build up confidence. To do this, international collaboration, notably within the G20 process, will be essential.
3. As global growth shifts to the developing world, what should the role of business be in developing countries?
To participate in the growth, European companies should strengthen their position in the developing countries as well as in the emerging markets, especially the BRIC countries. Exports alone won't be enough; instead, companies should enter the markets with joint ventures, own factories and sales structures. This means taking the time to analyze and understand the markets – after all, "fast in" often means "fast out".
Internationalization takes patience. And it needs a strong home base, so companies should also keep or build up a strong position in their European home market.
4. What would you consider the most important norms that an increasingly interdependent yet diverse world needs to share?
First and foremost: We must fight any form of protectionism and must not turn back the wheel of globalization. There have already been some moves in this direction – for example, the protective duties on Chinese products entering the US.
A new wave of protectionism would threaten all the positive progress we have made in globalization. So for me, the most important norm globally is a clear commitment to a free market.
5. How can companies turn sustainability into a competitive advantage?
Sustainability is more than just a business megatrend, and it is not just a buzzword for business to find new ways of selling old products. We are experiencing a revolution, perhaps as profound as the industrial revolution, which altered every facet of life as it was known and understood.
In recent years, the global growth of environmental technologies surpassed experts' expectations. Green technology is already a multibillion-euro business with enormous growth potential. We estimate the volume of this sector will reach EUR 1.6 trillion by the end of 2010, and forecast that its compound annual growth rate will be around 6.5 percent up through 2020.
Environmental technology is the twenty-first century's lead industry. The keyword for companies in this sector is "innovation", as it allows them to realize competitive and pioneer advantages on the global markets.
Opportunities exist outside of Europe, especially in the US with their tremendous catch-up potential, but also in Japan – and of course in the BRIC countries. Their rapid economic development is being accompanied by long-term energy consumption along with rising greenhouse gas emissions. Companies specializing in green technologies can seize major market opportunities in these countries in particular.
German green tech companies recognized this opportunity early on. Over 35 percent of all German companies in this industry are active mainly abroad – and it's obvious that these companies enjoy superior growth compared to their competitors that have focused on Germany.
Of course, worldwide competition in green tech markets is also heating up. More and more competent providers are emerging from Eastern Europe and China. Already today, Asian companies are technology market leaders in areas such as photovoltaics. And China has given the development of wind power top priority. German green tech companies have understood that their survival on the global market depends on innovation, and thus their industry has one of the highest shares of R&D.