Mon, Jun 3, 2019
by Sivakrishnarajah Renganathan
Sivakrishnarajah Renganathan is the Managing Director/Chief Executive Officer of Commercial Bank of Ceylon PLC, the largest private bank in Sri Lanka and a Fellow of the Chartered Institute of Management Accountants, UK (FCMA), Chartered Global Management Accountant (CGMA), a Fellow of the London Institute of Banking & Finance, UK (FLIBF) and a Fellow of the Institute of Bankers Sri Lanka (FIB). This blog post is a submission to the Bretton Woods@75 initiative: a global dialogue to honor 75 years of economic progress and to revitalize the spirit of Bretton Woods now and for the future.
In a world faced with growing political uncertainty, ever-changing demographics, hyper-connectivity of individual consumers, exponential technological developments and shifting values and attitudes of the Gen Xers and Gen Zs, businesses find it increasingly challenging to stay on top of their game. However, despite these external factors of complexity and nuance, there are a few internal factors that remain surprisingly traditional and straightforward.
One such issue that will be increasingly challenging for businesses is maintaining a diverse talent pool that can grapple with mercurial macroeconomic conditions. A diverse talent pool will possess the ability to analyze, dissect and make accurate predictions utilizing the big data that is thrown at it through sophisticated analytic systems. This is especially relevant to Asian and South Asian markets where the education systems are heavily compartmentalized and theoretical knowledge is promoted over practical knowledge. Organizations that are cognizant of the need to prepare for these macro environmental changes are strategizing to address this issue by investing in up-skilling and reskilling workers to cater to consumer demands of the digital age, but training and infrastructure upgrade costs remain a challenge for the developing world.
The increasingly tough global economic conditions will create issues for smaller economies trying to compete in the global markets. The monopolies created by the bigger countries will exert extra pressure on Asian and South Asian countries pushing them towards further import dependency to promote and maintain friendly relations. Unpredictable politics resulting in inconsistent and vague policies and regulations will affect economic growth and slow down businesses, especially exports, leading to losses and a struggle to establish and maintain a consistent status in global markets. Sufficient government support through policy adoption to develop and promote home-grown enterprises can help uplift communities in the rural areas and aid in economic growth and development. Unconventional economic systems like the gig and shared economies that are disrupting traditional businesses can be looked at positively as solutions to growing unemployment rates and other socio-environmental concerns in developing economies.
Demographics play a key role in the world economy and one such demographic issue is the rapid growth of the global aging population, posing a multitude of socio-economic issues. The global aging population was estimated to be around 13% of the total population in 2017. Aging populations result in an increased dependency ratio, shifting of traditional consumer sectors of the economy through wider markets created by senior citizens and high investments on retirements affecting savings portfolios, ultimately resulting in lower economic growth. The biggest challenge will be the shrinking labour pool, since the retirement age will remain fixed. This is mainly applicable to Asian and South Asian markets, where a small percentage of retired employees rejoin the workforce.
The technological revolution has brought in additional challenges of staying on top of the security game, providing additional training to staff, big investments on state-of-the-art technology and investments in customer acquisition. The new technologies such as AI, unconventional approaches to business by Fintechs and Blockchains etc have created additional challenges in relation to compliance and data security. These new technologies and all the ground work associated with them are proving challenging to business in the Asian region, given the limited capital availability. Despite the initial setbacks, the industry has taken off at a record pace; making it so dynamic that today’s innovation faces the threat of becoming obsolete within a week. This dynamism brings about more challenges to the highly regulated finance sector as it struggles to compete with the less structured Fintech companies entering the industry offering services and solutions to meet the needs of the modern consumer.
Catering to the needs and consumption modes of millennials will have a significant bearing on the future growth of the economy and requires business readiness on many fronts, including resources, budgets, workforce and channels of access. Understanding this particular segment has proved a challenge globally and even more in traditional Asian markets. The finance sector faces the challenge of providing sustainable, futuristic, profitable and instant products and services demanded by this important group of customers. The fast-growing start-up businesses are challenging traditional business models by delivering solutions at a convenience and speed that is greatly valued by this new consumer segment.
It is clear that the macroeconomic factors will keep fluctuating, often negatively. Strategic business planning is what will keep businesses in fighting shape.