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GLOBAL ECONOMY – A NEW NORMAL:
Building Business Resilience and Ingenuity – A Compelling Global Economic Imperative.
Global interest rates are their lowest for 5000 years says Bank of America.
US Federal Reserve interest rate has been closer to zero for quite some time. Central
Banks in Japan, Sweden, Denmark, Switzerland, and Euro Zone have been dabbling
with price of money by venturing in to negative interest rates, as their initial efforts to
boost growth by increasing the quantity of money (through quantitative easing, credit
easing and currency market interventions) have not helped revive global growth.
Monetary policy actions that were unheard of until a few years ago have become part
of a new normal. But even these unorthodox monetary policy stimuli appear to be
totally ineffective to revive global growth and inflation.
The flattening yield curves and negative yields on government bonds in developed
economies essentially reflect the long term expectations on global growth, inflation,
and interest rates.
Welcome onboard. We have entered an era where capital has practically zero cost.
Why is the global growth and inflation not kicking in when cost of capital is zero and
with none other than the central banks having thrown their hat in the ring?
Firstly, very high levels of public and private debts have crippled global investment,
and the associated global debt deleveraging is slow and could take a few years. Not to
mention the latent risk of debt defaults by certain highly leveraged sectors and
countries that, if happens, can be gut wrenching, to say the least. Across America,
Europe, and Asia significant amount of public and private debts with exposure to
energy, commodity and real estate sectors are being classified as bad debts, shaking
investors’ confidence.
Secondly, roil in the commodity markets have left a big hole in the purse of those
countries that are dependent upon commodity exports. Brazil, Venezuela, Argentina,
Colombia, Nigeria, and Russia are battling tumbling currencies, steep inflation and
interest rates. Double digit budget deficits in Brazil and Venezuela are acting as a last
straw. Instability in many parts of Africa and Middle East continue to pose challenge
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for investment and growth. In fact, things are taking a turn for worse in Africa with
drought, famine, sectarian infighting, and prospect of civil war looming over several
African countries. Even there is a risk of sovereign defaults in some of the African
countries.
Third, falling population growth (birth rates lesser than replacement rates) across
developed economies, along with ageing societies (falling working age population)
across developed and few emerging economies (America, Europe, Japan, South Korea,
China, and Russia) is adversely impacting the labor input to growth, besides causing a
savings glut as the elderly spend less. On the other hand, increasing dependency ratios
are straining the public welfare budgets.
Fourth, the long trail of excess capacities and glut in commodity inventories left behind
by the the boom period is rendering any new capital spending counterproductive,
especially when similar assets are on the block for throw away prices in the market.
And fifth, the rising inequality causes skewed distribution of incomes with
disproportionate amount of income flowing to capital (income from capital/wealth)
and increasingly lesser income flowing to labor (income from labor), which essentially
means people (low and middle income households) who tend to spend higher
proportion of their income earn less, and people (wealthier households/entities) who
tend to save higher proportion of their income earn more, resulting in further savings
glut and thereby depressing overall global consumption.
Under these circumstances (feeble public, private investments and weak consumption),
the monetary stimulus (zero or negative interest rates, quantitative easing, credit
easing, current market interventions etc.) adopted by the central banks have calmed
down the nerves in the financial markets and have helped avoid meltdown of stocks
and asset bubbles. In other words, the cut loose monetary policy actions, with stretched
balance sheets, adopted by central banks of developed economies have given a
temporary solace to the financial markets by providing artificial support to the asset
prices even though the under lying asset quality is a suspect, and when the real
economy has been gasping for breath. In fact, such cut loose gravity defying actions by
the central banks conceal the fault lines and open wounds of the real economy by
continuing to feed / reinforce the behavior of irrational exuberance, and hence to that
extent making it extremely harder for the real economy to heal and regain its
fundamentals. Further, such monetary stimuli if adopted for a sustained duration
(which indeed is the case for few years now), carry the risk of creating further asset
bubbles and unmanageable overheating of the global economy, not to mention the
further income & wealth inequalities created by those actions.
Undeniably the central banks across the globe are doing whatever it takes to avoid
global economy slipping in to deflation and deep recessions, while few governments
are complimenting the efforts of the central banks by increasing their budgets for
public investments even if this warrants a short term spike in, or digression from the

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committed targets for budget deficits. But such interventions are not sustainable
neither can they help revive global growth.
Given this global context, it is imperative to come to terms with the following stark
realities:
1. There are several layers of global issues (debts, defaults, deficits, devaluations,
demographic challenges, redistributions, excess capacities, glut in inventories,
regional conflicts, social backlashes, isolationist tendencies etc.) that are likely to
influence the path to global economic recovery. These issues need a coordinated
response from the governments and institutions, which remains elusive so far.
2. We have not found an answer yet to revive the global growth. So far all the
monetary and fiscal stimuli have not produced traction with real economy, and in
fact have the impact of delaying the recovery and reinstatement of fundamentals,
because there is lack of political will across the globe to go through structural
reforms that would essentially entail short term pain.
3. Honestly, we do not have any credible and realistic way to forecasting when we are
likely to see the light at the end of the tunnel. And even when it occurs we are quite
uncertain about the kinds of experiences and changes we would have gone through
as an individual, society, and nation. And the intensity, impact, and memories of
those events is likely to open up new chapters in behavioral economics. We are
already a mute witness to referendums, and public backlash in many countries
against globalization, privatization, austerity, sovereign bailouts, global trade,
disruptive business models (platforms), technology innovations, currency unions,
open borders, migrations, resettlements, strained public services, labor reforms,
unemployment, marginalization, rising income / wealth inequality, and structural
reforms.
4. There is already a great disbelief on Britain having voted to leave the European
Union, especially when a day before the historic referendum the pound sterling
rallied sharply against the dollar as the opinion polls predicted a verdict to remain
within the European Union. A day later, the “leave campaign” having won by huge
lead. France, Netherlands, and Italy are likely to follow suit. Governments and
political establishments across Europe and America are becoming increasingly
inept at gauging the mood of the public, as witnessed through such surprise
outcomes of primaries, elections, and referendums. Scotland has not minced words
on their intentions to conduct another referendum on leaving UK since they see
their future as part of European Union. As Europe sails in to unchartered territories,
trade and business relationships within Europe and with the rest of the world
would get renegotiated and redefined. And it is anyone’s guess as to how these
events would impact the recovery of global economy.
Clearly we are in a for a long haul. We cannot afford to turn a blind eye to what is
happening around us. Several such unprecedented and defining moments in the

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current global economic, monetary, political and social landscape, are creating strong
headwinds to business growth and profitability.
Hence the need of the hour is to enhance business resilience to volatility, and sharpen
organization ingenuity to ride new waves of opportunities, and succeed in these
uncertain times without getting overwhelmed by external events.
In this regard, there are four key areas that merits immediate attention from the
business leaders:
- Strategy Making & Execution: Revalidate growth strategies by revisiting the
underlying assumptions against geographies, sectors, verticals, segments, and
supply chain. Keenly listen to the feedback and ideas from the frontlines. Exorcise
intellectual arrogance and contempt that stifle free flow of ideas and collaboration.
Build internal capabilities to capture new opportunities. Assign clear ownerships
on strategy execution within the organization along with measurable metrics and
milestones. Inorganic growth opportunities are to be critically analyzed for their
relevance in the overall portfolio and value proposition strategy. There are several
instances of big businesses having grossly failed to leverage the synergies of
inorganic growth due to poor integration of the newly acquired business, resulting
in compartmentalized silos within the organization. Lead cultural change. Break
barriers to performance. Do not hesitate to rock the boat, if that can help infuse
accountability, agility, sense of urgency and bias for action.
- Business Transformation: Revalidate business models and leverage technology
deployment as a competitive differentiator. Be open to let go some of the legacy
processes, practices and business models that are not in sync with current trends,
and do not hesitate to embark upon bold internal business transformation
programs to reanchor the organization, and to reorient organization footprint to
capture new growth opportunities. Consolidation of real estate footprints, common
support functions along with business process blue printing to identify and
eliminate redundant processes are worth looking at.
- Technology Assimilation: Technology can ignite the spirit of innovation and help
reimagine business models. Drive internal productivity and efficiency across all
functions by leveraging technology deployment and digitization initiatives.
Business analytics supported by technology deployment, if designed thoughtfully,
can provide fresh insights and can be a great enabler in evolving pertinent growth
strategies and business models. Business can create new channels of effective
marketing communication, market penetration and customer experience by
harnessing social technologies. Technology have not really been given their fair
share in strategy discussions and it is high time we did so. Technology thinking and
architecture within organizations must evolve beyond their usage in
communication, storage, financial platforms. Encouragingly, there are some green
shoots seen in this area with business leaders taking notice of this lacunae in their
strategy making process.

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- Executive Decision Making & Leadership: Again, technology can play a pivotal
role in providing executives with specific and intuitive dashboards with lead / lag
indicators. It is high time we critically analyzed the outcome and impact of our
investment in time and money towards executive coaching. Executives must be
good at understanding the impact of political, market, policy, socio-economic, and
technology developments on their businesses. Which means demonstrating
excellence in one’s specific functional or technical domain alone is no longer
adequate. Corporate learning and development programs have a lot of catch up to
do as well so as to develop programs that develop targeted capabilities and
reinforce specific behaviors aligned to business needs, and must be tied down to
executive / leadership succession planning to address growth strategies and
forecasts over a five-year horizon.
Adopting an integrated approach towards Strategy Making & Execution, Business
Transformation, Technology Assimilation, and enhancing Executive Decision Making &
Leadership would help build required resilience and ingenuity within their
organization. It can help businesses to overcome market pricing challenges and deliver
on profitability commitments by leveraging productivity. It can help organizations
create sustainable value for their stakeholders even during tough times.
Subramanya Raja.V
Subramanya Raja.V is a Founder Director in Pearlstellar Business Management Pvt. Ltd. He is
a keen observer of global economy, business, technology, politics, and social affairs. His area of
expertise include strategy, operations excellence, organization design, leadership impact,
performance management, change management, and customer engagement. He is passionate
about collaborating with business leaders and chief executive officers in their endeavor to
improve business performance.