INNOVATION

The Global Potential of Growth Economies

13 March, 2017

Ardavan Mobasheri
Managing Director, Chief Investment Officer at ACIMA Private Wealth

“Organizations in growth economies will need to embrace technology and the transition to a service economy if they hope to be globally competitive.”

Although the economic story of the twenty-first century is still very young, its first two decades can arguably be summarized as a period of transition in global economic leadership. The North-Atlantic-centric economies that have dominated the global economic landscape for the better part of the past century and a half are handing the baton off to the faster-growing or “emerging” economies of Asia, Latin America and Africa. By the end of the third decade of the century, the transition will likely be complete, with the anchors of global economic growth cast across the Pacific and the Southern Hemisphere.

With an ever-larger and increasingly educated middle class, particularly in Asia and Latin America, growth in consumption and business investment in these regions will not only lead the way as the engines of global economic activity but will contribute to a gradual transition toward higher-end consumer goods and business services, such as healthcare, insurance and investments.

Transition in Global Economic Leadership

Since 2008 and the peak of the financial crises, faster growing economies have dominated new economic activities globally. According to estimates from the World Bank, the global economy has added US$10.655 trillion to its GDP during this period, of which roughly US$8.28 trillion — or more than 77 percent — have come from the faster-growing economies.[2] Since the beginning of the century, nearly 65 percent of all new activity has occurred in these economies, which, as of the end of 2015, represent slightly more than 42 percent of the global economy, up from almost 30 percent at the end of 2000 (see Chart 1).

Chart 1: Share of Global GDP

Economic recoveries post financial crises have, in general, proved to be weaker than other recoveries,[3] impacting investments, employment and regulatory environments disproportionately. However, the outperformance of faster-growth economies over the North Atlantic-centric ones (where the financial crises originated) since 2008 has been largely due to significantly stronger fiscal balances, favorable demographics and a growing and consuming middle class increasingly confident about its future income prospects.

Relatively stronger fiscal balances have permitted continued government investment in national and regional housing and transportation infrastructures (especially across Asia, Latin America and the Persian Gulf), contributing to the fast rate of urbanization. Investment in healthcare and educational infrastructures has continued to increase longevity, contributed toward productivity growth, and improved the relative competitiveness of the agriculture, manufacturing and even certain services sectors.

Faster-growing economies are likely to see a slight downtick from their 2000–2015 average as Chinese growth converges to more sustainable levels. But with an average growth of 4.0 percent, we expect the faster-growing economies will surpass their North Atlantic-centric peers and complete the transition in global leadership by 2030 (see Chart 2).


The Rising Middle Class

The North-Atlantic-centric economies have benefited greatly from their consumers’ size and growth over the past half century. As the transition in global leadership progresses over the coming decades, the faster-growing economies of Asia and Latin America, in particular, will begin to experience this stabilizing economic force as their investment in the infrastructure of consumption begins to pay off.

By 2025, 10 of the top 25 cities ranked by GDP will be located in the faster-growing economies. When measured by the number of individuals making more than US$20,000 per year (a figure that could be considered upper middle class even by the higher-cost standards of larger cities by 2025), 14 of the top 25 will likely be cities located in faster-growing economies (see Table 1).[4]



The historical experiences of the North Atlantic-centric economies teach us that, as urbanization evolves and the middle class begins to dominate the landscape of cities and economic activity, growth in demand for services such as healthcare, education, leisure and financial (that is, insurance and investments) accelerates.

But the middle class of Asia, Latin America, the Middle East, Africa and even Eastern Europe will be a different middle class than in the North Atlantic. Cultural, educational, and religious traditions and qualities will need to play a significant role in “new” offerings, particularly in services.

Success for many multinationals in this arena may very well be defined in terms of “innovation differentiation.” Chief among these differentiating factors are:

Investment, financial services and insurance for retirement:
Retirees and savers in these countries will play a significant role in the transfer of capital to companies (as they have done in the advanced economies), but meeting their needs will require different innovations and product offerings. To be successful, companies will need to cater to the specific needs of the market instead of relying on the models of advanced economies.

Transition to a service economy:
Although much of the infrastructure of the growing economies will still be pivoting off of their competitive advantage in manufacturing and agriculture over the coming years, a larger, better-educated and wealthier middle class will demand more and more services. Human capital plans designed around meeting the labor market needs of agriculture and manufacturing will thus be grossly inadequate. The new competitive advantage will be a workforce that is prepared for this transition to services.

The role of technology:
Technology is not all about robotics and the assembly line replacing humans. Over the past three decades, the agricultural and manufacturing sectors have seen significant productivity gains in growth economies thanks to technology. However, investments in analytics, data gathering and management, e commerce/marketing, intelligence and security will be just as important in the years to come. Investing in the technology skills of human capital, including in the services sectors via education and training, will be key to earning a competitive advantage over companies in advanced economies.


Today’s Challenges

With tailwinds come headwinds that can disrupt and delay but not derail this transition story. The relatively anemic economic recoveries from the financial crises of 2008–09 have left most of the North Atlantic-centric economies reeling, with government deficits and ever-larger debt burdens, intensified by prerecession trends like the aging workforce and the decline of the manufacturing sector. The resulting rise of the voices of populism, protectionism and economic nationalism, as exemplified by the results of the Brexit referendum in the UK, elections in the US and constitutional referendum in Italy, are not likely to abate any time soon. The upcoming 2017 elections in the Netherlands, France and Germany will heavily test the staying power of the political movements that support globalization, regional economic unions and looser regulation of the cross-border movement of capital and labor.

How policymakers in Asia, Latin America and elsewhere in the growing economies handle this challenge will be key to their own successes in not only avoiding trade wars but in how the transition in leadership is completed. Meeting the challenges of an ever-growing and consuming middle class in the growing economies — while simultaneously steering themselves through the challenges facing globalization in the coming decade or so — will need to be the priorities for multinationals desiring to be one step ahead of competitors.

1Countries outside the European Union, Switzerland, Norway, Iceland, United States, Canada, Japan, Australia and New Zealand
2
World Bank
3
IMF Working Paper.Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten, 2013.
4
McKinsey Global Institute.Urban world: Cities and the rise of the consuming class, 2012.

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New Legislation Supports the Voice of Mexican Labor Unions
Martha_Cano Martha Cano |26 Mar 2020

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Multinationals Can Take Advantage of China's Growing Culture of Innovation
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"Whole-of-society effort drives technology development in China," Global Times, 25 Jun. 2019, http://www.globaltimes.cn/content/1155732.shtml. 2. Fintech News Hong Kong. "ZhongAn Technology Launches AI-Powered Data Platform for China's Insurance Industry," Fintech News, 14 Aug. 2018, http://fintechnews.hk/6308/insurtech/zhongan-technology-saas-insurance-data/. 3. China Lending Corporation. "China Lending Forges Strategic Partnership with Rui Xin Insurance Technology to Develop Online Financial Services Platform," PR Newswire, 15 Jul. 2019, https://www.prnewswire.com/news-releases/china-lending-forges-strategic-partnership-with-rui-xin-insurance-technology-to-develop-online-financial-services-platform-300884622.html. 4. Greeven, Mark J; Yip, George S. and Wei, Wei. "Understanding China's Next Wave of Innovation," MIT Sloan Management Review, 7 Feb. 2019, https://sloanreview.mit.edu/article/understanding-chinas-next-wave-of-innovation/. 5. Nheu, Christopher. "The Secret Behind How Chinese Startups are Winning," Startup Grind, 1 May 2018, https://medium.com/startup-grind/the-secret-behind-how-chinese-startups-are-winning-44876b196626. 6. Zhu, Hengyuan and Euchner, Jim. "The Evolution of China's Innovation Capability," Research-Technology Management, 10 May 2018, http://china.enrichcentres.eu/sharedResources/users/4807/The%20Evolution%20of%20China%20s%20Innovation%20Capability.pdf. 7. Liao, Rita. "China's startup ecosystem is hitting back at demand-working hours," TechCrunch, Apr. 2019, https://techcrunch.com/2019/04/12/china-996/.

Blockchain Technology Brings Traceability to India's Coffee Producers
Nancy_Mann Nancy Mann Jackson |30 Jan 2020

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In an industry like agriculture, blockchain will have to reshape a decades-old framework, and that won't happen overnight. It's up to leaders everywhere to understand the value of this technology and get their teams on board with implementing it to achieve that value — even if it means starting small. Sources: 1. "Coffee Board Activates Blockchain Based Marketplace in India." Press Information Bureau, 28 Mar. 2019, http://pib.nic.in/newsite/PrintRelease.aspx?relid=189586. 2. Peters, Adele. "In China, You Can Track Your Chicken On–You Guessed It–The Blockchain." Fast Company, 12 Jan. 2018, https://www.fastcompany.com/40515999/in-china-you-can-track-your-chicken-on-you-guessed-it-the-blockchain. 3. "Global Blockchain Technology Market in the Agriculture Sector 2018-2022." Global Banking & Finance Review, 26 Sep. 2018, https://www.globalbankingandfinance.com/global-blockchain-technology-market-in-the-agriculture-sector-2018-2022-market-to-grow-at-a-cagr-of-56-4-with-agriledger-full-profile-ibm-microsoft-ripe-technology-te-food-dominating-rese/.

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HR can work closely with executives, finance leaders and data scientists to explore how to mitigate the productivity and well-being fallout of such scenarios. Promote the remote   For many organizations, the novel coronavirus has been a wakeup call to the possibilities of remote working and its impact on the employee experience. JPMorgan Chase, Twitter and Sony’s European offices are just some of the many companies asking employees to work from home. The challenge has been that only 44% of companies assess every job for its ability to be done flexibly. So what helps? Thriving employees say the most important factors for successful flexible working are: colleagues that are supportive of people with flexible work arrangements, a company culture that encourages flexibility, and managing performance on results not hours worked. Design thinking with pilot teams working remotely are critical to seeing what needs to change to better suit these times. Still, if not done well, remote working can exacerbate challenges with inclusion, accessibility and emotional support. Some simple tips for staying connected in times of social distancing can help: Inclusive teaming when working remotely requires effort. To make sure every team member’s voice is heard, communicate expectations and agendas in advance, encourage people to be visible on the call, ask people to come with comments/questions, and set up discussions by hangouts and chats in between calls. Pre-brief senior people in your team to be vocal and embracing. Create an informal climate up front with small talk. Remote calls require a redesign of the meeting. As a rule of thumb, halve the time you would allocate for a face-to-face meeting for a call where people are dialing in. Leverage pre-reading to ensure those who are more introverted or reflective feel ready to contribute. Small group preparation and post group actions are vital to building team spirit. Establish new rituals.   Take time to address the emotional, not just the practical. Take a few minutes at the start and end of a call to find out how everyone is feeling. Pulse-checking questions people can type responses to in a chat function (e.g. “Use one word on how you feel about what we’ve just shared”) can be a great way to take a temperature check. Communicate that managers are still accessible by phone, even if not in person. Use old and new technology (phones as well as video conferencing services) to stay personal, especially with workers not used to working remotely. Don’t let email (and even chat) be the only way you communicate. The volume can become deafening if not managed. Leverage community sites and project boards to train people in how best to stay connected. In our study, 22% of employees believe that some necessary human interactions have been lost, so finding ways to inject warmth and a bit fun into exchanges is a good idea.   The social distancing required in response to COVID-19 has, rightly, got many companies reexamining their digital work experience. Forty-seven percent of executives are concerned about employees’ digital experience — or the energy-sapping nature of not having it. Nearly half of employees believe there is room to improve on digital transformation: 20% of employees today say HR processes are complex, and a further 29% say they have been simplified but still have a long way to go. In the longer term, it will be valuable to revisit the company’s EVP and interrogate how technology-enabled HR processes are today and how capable working tools are with coping with mass remote services. Intermediaries such as ServiceNow, Mercer’s Mobility Management Platform and digital outplacement solutions can help. How we care is how we win   Employees are understandably concerned about the health of their families and communities and organizations are quite rightly putting the health of their people first (their #1 workforce concern this year). But financial market volatility, and the impact on individuals’ jobs is a mounting concern that is weighing on people’s minds. Meanwhile, businesses are examining whether their practices are agile enough to withstand unpredictable events such as COVID-19, if they are resilient enough to sustain themselves through this period of hardship, and innovative enough to stimulate demand afterwards. We’re being challenged to do things differently — in companies big and small, on new platforms and with new technology, and we see emerging new ways of caring for one another. And in their wake we will not go back to how we operated before. Necessity breeds innovation. We are on the cusp of new ways of working and living that, if executed well, will build a bright future.

A Way Forward Towards Purposeful Job Titling
Dr._Sebastian Dr. Sebastian Fuchs |26 Mar 2020

Everyone’s job has, in some form or another, a job title. Be it a Brick-layer, Accountant or CEO. The common understanding is that the job title depicts the respective job and its roles and responsibilities. Our work with different clients of different sizes, with different structures, maturity levels, and in different economic and cultural environments, however, suggests that there is much more heterogeneity in job titles than one would suspect. In one organization, for example, an Accountant is called ‘Financial Advisor’ whereas in another organization, s/he is called ‘Finance Officer’. In Mercer’s 2019 Global Total Remuneration Survey, on a sample of 182 organizations based in the United Arab Emirates, as an example, the Mercer Job Library position ‘Accountant–Experienced Professional’ is tagged against more than 180 different job titles. This suggest that more than 99% of organizations included in the data set label this type of job in a unique, idiosyncratic manner. In a similar vein, Mercer’s 2019 data from Australia shows more than 360 different job titles across 313 organizations. A similar report for India from 2019 shows over 520 different job titles across 360 organizations for this type of job. In Brazil, Russia and the UK, the same analyses produced very similar results. This means, to be specific, that similar jobs even in the same organization are often labeled in a heterogeneous, unconcerted way. Problems associated with purposeless job titling   While the Accountant example provides some insight into the actual responsibilities of the role, we often see organizations labelling jobs in less meaningful, purposeless ways. For instance, we find job titles such as ‘Senior Supervisor Financial Accountant’, ‘Business Analyst’, ‘Finance Executive’ or, more recently, creative titles such as ‘Accounting Guru’, ‘Accounting Ninja’ or ‘Accounting Rockstar’ in this area of organizational life. In our view, this creates five key issues: 1.   In markets that are suffering from employee disengagement, the rise of passive job seekers and a growing appeal of self-employment and entrepreneurship[1], a job opening with an inaccurate job title faces two key problems. Firstly, the job applicants may be over or under qualified for the position at hand and, secondly, potentially suitable applicants may not apply as they believe the job is not a good match. 2.   Breaches of the psychological contract between employees and their employer may occur. To be precise, “the psychological contract encompasses the actions employees believe are 1.      expected of them and what response they expect in return from the employer”[1]. To this end, a purposeless job title may provide an inaccurate view on the actual roles and responsibilities to be performed by the new joiner. For instance, a ‘Financial Advisor’ may execute on the classical accounting tasks, such as processing accounts receivable and payable, but the job title, however, indicates that the job holder would spend some time interacting with stakeholders and provide advice on financial matters. The lack of defined possibilities to engage in such activities may constitute a psychological contract breach, leading to cynicism towards the organization, turnover, job dissatisfaction, reduced commitment and an overall decrease in performance. 3.   Another important issue to consider is an employees’ propensity to boost their current job title. This is linked to two mechanisms. Firstly, boosting one’s job title ultimately serves to enhance one’s status and self-identity[1]. Secondly, an enhanced job title is likely to attract attention on the external job market. 4.   Perceptions of fairness may decrease due to inconsistently labelled jobs. For instance, a job may be called ‘Finance Lead’ that is, in terms of roles and responsibilities as well as qualifications required, very similar to a ‘Head of Finance’. For most people, a ‘Head of Finance’ is classified as a higher ranked job despite both jobs being very similar in nature and potentially having the same job grade. This can create perceptions of injustice leading to employee turnover, lower levels of extra-role behavior and greater levels of withdrawal, deviant and retaliatory behaviors[2]. 5.   Purposeless job titles may also be detrimental for internal and external communications. Internally, there might be a certain degree of ambiguity to what the hierarchy level of a an incumbent is and consequently how messages should be phrased. Externally, purposeless job titles may further lead to misunderstandings in terms of authority levels and responsibilities an employee holds. Reasons for purposeless job titling   The reasons for these five issues are manifold. First and foremost, only few organizations seem to have adhered to a coherent, up-to-date and intuitive job titling framework. In fact, in many organizations job titling is either left to the line manager or, in some cases, left to the job incumbent. This, by definition, is likely to create a certain degree of heterogeneity among job titles. In addition to that, even in leading organization, there is often no clear, well-defined organizational process in place to govern this element of organizational life. We advocate, and outline in greater detail below, that there should be a process in place including clear roles and responsibilities in terms of who sets and ultimately approves the titles of jobs. We also see that organizations often seek to develop job titles that adhere to the specific cultural contexts in which they operate. This, as a consequence, also adds to a certain degree of incoherence in job titling. Lastly, the high degree of change to which many organizations across the globe are exposed to, also contributes to incoherent job titles. To be specific, when organizations adopt new structures and amend roles and responsibilities of their jobs, job titling should also be considered. However, for many organizations this is an issue of limited importance of the time of restructuring so this tends to get neglected. As a consequence, especially with numerous rounds of re-structuring, a heterogeneous, incoherent landscape of job titles is likely to emerge. Conducting purposeful job titling   The above-mentioned observations raise the question of how organizations can move forward to actually create purposeful job titles. Meaningful or purposeful job titles usually consists of two key elements. Firstly, purposeful job titling should indicate the actual function and with this associated roles and responsibilities the job incumbent is tasked with. If an employee in Finance is responsible for maintaining the Finance IT systems, then the job title should indicate that this employee looks after IT for Finance, as opposed to more generic IT activities. Secondly, a purposeful job title also indicates the hierarchical level, or, to be more specific, should hold reference to the actual job grade the job has been mapped onto. In our work across the globe, we see a certain degree of inconsistency and incoherence in this respect. Frequently, strict hierarchical levels are used to create job titles, even though the job evaluation may not indicate such job titling. For instance, the responsible job incumbent for managing financials in a country managing set-up of a small to medium sized enterprise owned by a multinational corporation may be called ‘Chief Finance Officer’. This job title indicates a fairly senior position. In reality, however, such a job more closely resembles the activities of a ‘Financial Accountant’ or a ‘Finance Manager’. Such discrepancies between the actual roles and responsibilities of a job and its titling typically become clear when job evaluations are performed. As such, we advocate a certain adherence to job grades when it comes to job titling in order to derive purposeful job titles. In Figure 1, we outline how an approach to purposeful job titling could look like. It indicates the main components of a job title, i.e. (a) what the job’s hierarchical level in the organization is, (b) its function or area of expertise, (c) to what organizational unit the job belongs, and (d) what the actual scope of responsibility of the job is. For instance, a ‘Senior Vice President Finance EMEIA’ uses the elements A, B and D of the framework. Element C, the organizational unit, in this case is not required. For professional jobs, as another example, an ‘Advisor Finance Downstream Abu Dhabi’ would have all elements in her or his job title. This way, the same protocol and nomenclature for different job titles is applied universally across the organization, and thereby meets the requirements of purposeful job titling set out above.                           Figure 1: Mercer’s Purposeful Job Titling Framework In addition to adopting such a framework, organizations should consider who owns and governs job titling. The governing department should make sure that there are employees who have ownership of this process, and that no job requisition and its related activities as well as any internal re-structuring fails to comply with the framework. This way, purposeful job titling gets embedded and institutionalized in the organization. Sources: 1. 2017, ‘The talent delusion: why data, not intuition, is the key to unlocking human potential’, Tomas Chamorro-Premuzic, Piatkus. <a href="#"> 2. 1994, ‘Human resource practices: administrative contract makers’, Denise M. Rousseau and Martin M. Greller, Human Resource Management, 33-3, page 386. <a href="#"> 3. 2005, ‘Understanding psychological contracts at work: a critical evaluation of theory and research, Neil Conway and Rob B. Briner, Oxford University Press.<a href="#"> 4. Ibid. <a href="#"> 5. For an interesting review see: 2019, ‘The five pillars of self-enhancement and self-protection’, in the Oxford handbook of human motivation, Constantine Sedikides and Mark D. Alicke. <a href="#"> 6. For a good overview please refer to: 2001, ‘The role of justice in organizations: a meta-analysis’, Yochi Cohen-Charash and Paul E. Spector, Organizational Behavior and Human Decision Processes, 86-2.