Forecast and Priorities for 2013. Slowing globalization but increasing IT spend in most sectors, preview of business priorities for 2013, sector-specific technology trends, and much more.
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Big Trends for Business 2013
Introduction—A Stormy, Storming Year: 2012
2012 was another stormy year with hurricanes Isaac and Sandy. It started with expectations of an improved business forecast and ended modestly improved on that front, with the Dow Jones Industrial Average gaining 7.3% for the year.
Strikes and cliffs seem neutralized with some cheerier, though modest, expectations of an improvement in the forecast for 2013. Interestingly (though we are experts at whining), the US is doing well compared to many regions: take the US Dow’s 7.3% gain vs. the Global Dow growth of .2%. See Appendix
below for final 2012 numbers.
In addition, the EU economy shrank while the US economy grew, demonstrating that although we are clearly global and linked, and any market we trade with has an impact, the US, in spite of its debt appetite is still stable in the current volatile environment. Asian growth has slowed and sadly, their GDP growth numbers, according to The Economist,1
Key markets like the auto industry, housing, and consumer retail have grown—we won’t be dancing in the streets, but it shows stability in the economy. The energy industry—both fossil and green energy—is innovative, offering more choice in supply from natural gas, oil, and coal, to wind, solar and thermal. Biofuels continue to show promise for their impact on the environment and maybe the economy, too. Transportation—believe it or not, the airlines are making money again. We might not like how they are making it, though, with hair-splitting fees. Major land carriers are also stable and innovative (see below).2
But, sadly, we had increasing disparity between the well-to-do and the poor. This will have a long term impact on global economies. This, in fact, is a major focus of China’s new administration. And this disparity has implications for peace and tranquility in the world, with fewer resources available for meeting global challenges or dealing with regional turmoil.
Globally, we have had too many disasters to count and although we are good at reporting them, we are not very good at mitigating the risks. Though our heart is in the right place, and many agencies work around the clock to respond—and respond well—the cost of such events is growing.
But let’s pause for a minute. As Fareed Zakaria and we on the ChainLink Team have noted, we do have a case for optimism. There will be sacrifices, but the solutions for the economy are in our hands. And we must face the challenges if we are to avoid leaving the next generation to deal with societal disparities in education and access to health and human services, weakened infrastructures, and the discord that will inevitably accompany them. And since the world did not end in 2012, it is appropriate to look forward, into this year of 2013.
Each year ChainLink Research conducts a business outlook forecast for the year. This article is a preliminary look at what we learned, plus some insights from other research sources, including US government data. Since many of these sources will not have all their final 2012 numbers until later in the month, we will revise and finalize our Business Priorities 2013 on January 21st. Attitudes and budgets won’t be changing much at this point, so it is still valuable to look at early numbers and expectations from survey results now.
Our survey results, plus data from interviews, point to interesting trends for 2013. When you include data from additional sources,3
some important trends emerge:
Slowing in the globalization of trade—a mega-trend that will play out over the next decade. Within China, for example, there is a growing trend to find ways to spread economic wealth throughout and within their country. This means finding ways to manufacture cheaper goods for the masses. Sounds familiar to Americans. However, what took the US generations to go through, China seems to be fast forwarding through in two decades.
Concerns about concentration of wealth, economic favoritism, and political stability will have the new Chinese regime focused on internal issues such as their economy and their environment. But they are not alone in the turn inward. Issues around national debts and societal/demographic trends from the EU, Asia, and the Americas seem to point to more protective and introspective attitudes.
ChainLink’s 2013 research mirrors the business community’s mindset for the future (Figure 1).
Figure 1: Current Mindset/View of the Future
Other mega-trends in the business community:
China off-shoring—will China be the ‘rust belt’ of Asia? I doubt that. But there is a trend out of India and China to outsource work to even poorer economies. Interestingly though, the ‘Made in America’ label is appealing to Chinese shoppers who can afford it. Designer, as well as important business and engineered products are important imports into the Chinese market.
US insourcing—within the US, there is a push to try our hand at some insourcing, as well as attracting more foreign investment. Certain manufacturing sectors will continue to thrive in the US, especially those with low labor-as-a-percent-of-cost. Businesses such as Design, Nano, and Semiconductor are benefiting from our new lower-cost economy. US auto manufacturers should have a decent year, with 2012 seeing a massive payback of the loans from the US government.
Insourcing has a fascinating societal nuance, with the growth of craft, liquidation, and ‘antique’ markets around the country. The resurgence of interest in vintage goods is making a meaningful presence in the economy due to the need for ready cash on the sellers’ side—(eBay, flea markets and consignment outlets) and bargain hunters looking for interesting goods on the buyers’ side.
SOHO—Small Office Home Office and the continued growth of the small business. These businesses comprise an interesting array of opportunities or necessities. On the necessity side, some of these businesses consist of one employee who is consulting due to a layoff, because they can no longer find full-time work in the large corporations. Small companies are also looking to save costs and leverage a national workforce without startup or operational expenses.
On the opportunity side, these businesses extend from new wholesalers and brokers, who know their markets and can manage the introduction of goods into local markets, to the next generation of entrepreneurs who are fueled by new technologies and research in the life sciences.
SOHO also ‘hosts’ a huge market of support personnel in the US that consists of a growing percentage of people who work at home. Some of those workers are very large wage and fee earners, making hundreds of thousands of dollars in big corporations’ support centers, call centers, and direct sales. This approach reduces operational costs for businesses and helps ‘older workers’ haul in the cash. Expect that trend to grow!
New money—keeps entering the business world through private equity and venture capital investments. In 2012, investors aggressively hunted for opportunities. 2012 saw a bumper crop of investments in start-ups, but the average dollars per deal looked smaller. And follow-on investments may be harder to get. We expect that trend to continue with investment capital available for the right opportunities.
Local vs. global—locally-grown food, local goods, trade and community-within-community interest is rising. Along with local comes a focus on cultural businesses and media. The diasporas want a taste of their culture—thus the rise of Spanish, Indian and Chinese media outlets and introduction of more ethnic food products into the market. These will only grow, as cross-cultural interest is on the rise.
Demographic divide—between the working poor and how they spend, the ‘aspirers,’ and the ‘too-rich-to-care’ spenders. Age defiance: retirees who act like young people. Young people who live at home and save. ‘Who has money’ is a huge focus of consumer research and marketing.
Early results from our survey show some important trends. Not surprisingly, the issue of cost containment has resurged as a top challenge for many companies. But finding new customers for growth, it appears, will not be sacrificed on the altar of cost.
Figure 2: Challenges for 2013
So what does it look like behind the stats? Here are important business trends that companies expect to capitalize on in 2013:
If manufacturing goes east/services goes west—In other words, Wholesale Distribution and Services are growing sectors in support of the remoteness of some manufacturing, as companies continue to seek global manufacturing sources to increase trade and decrease costs. Since it appears we are avoiding the fiscal cliff4
as well as the dock strike, importing/outsourcing continue. But companies will seek to be more resilient in the coming decade, as global investing has been dampened due to the many national debt issues.
Devicification—finding ways to create new products or embed intelligence in your older products to sell important upgrades to customers, as well as charge more for what you sell. Connecting to remote monitoring systems to improve asset utilization and performance is a growing market. This is an important product-development trend, as is the categorization of end-users’ purchases. End-users’ hunger for electronics, location-based services, and mobile functions are major areas of research and projects.
Technology optimization of the process/analytics—leveraging technologies like cloud and mobile to gain more efficiency. Cost-saving technologies will continue to be purchased to save money and optimize the business process. This seems to be a return to a trend we saw a few years ago (2007 through 2009), as worries about growth caused companies to focus on cost reduction.
US’s stable economy—relative to the rest of the world, the US is a low-risk economy. More companies want to build factories here, trade here, and leave their money here.
Improvement in energy independence/green technology—energy cost is a highly variable issue. Over time, energy independence and new sources of energy will provide opportunities to Main Street. Already, the transportation (trucking and rail) industry is doing a lot in this area to reduce the cost of domestic freight as well as become greener. Utility costs are down, supported by lower coal prices (an industry in trouble today). Lower demand in global trade will have an impact on international costs. In addition, green technology will continue to be a huge societal and economic issue because of global warming and devastating water and air pollution due to rapid industrialization.
Sector-Specific Technology Trends
With the elections behind us, the US is all tech, all the time, seeing technology as a major enabler of change and effectivity. And that trend is nearly global, with certain regional and sector variations. From green energy to healthcare to mobile-enabled societies, the tech market (with savvy management) will continue to grow. Mobile, social, analytics, and visibility are all critical areas of research, and in many cases, will be invested in this year.
Retail—mobile, multi-channel, and social plus the continued fine-tuning of customer experience and supply chain will be investment areas for both online and brick and mortar retailers. Devicification of in-store processes such as store assistance and self-checkout, and ‘out of the store’ location-based services and improvements in home delivery will become ROI-based programs.
Life Sciences and Healthcare—the Affordable Care Act and major patient safety legislation are huge catalysts for the tech sector. Connected care, patient engagement and trace/visibility technology enabled by devicification—mobile, Auto ID and cloud technologies—will be major research and investment areas. The quest to reduce costs will be an underlying theme for these sectors for years to come. Breakthrough technologies, from robotics that can respond to thought for home healthcare and monitoring that ensure patient compliance, to consumer apps that help you manage your own path to a better you will continue to dominate these sectors. And analysis of the research on outcome-based treatment is a long road, but a critical one.
Food and Beverage—a bit cheesy (modest spend vs. some other industries) with their technology investments, these sectors will invest more in devicification, monitoring safety with miniaturized/portable testing equipment and track and trace technology.
Packaging—this industry is being catalyzed to invest through both the green movement as well as the need for consumer safety. Increased capabilities for cold chain and anti-tampering that protect product quality with sensing methods will continue to be big research and investment areas here.
The Need for Resiliency
Certain sectors are in the throes of coping with global issues and disruptions, and unplanned events of all sizes which are everyday management challenges for them. A grand unifying theme here is the focus on resiliency. Of course, many technologies can help leverage devicification, notably mobile/remote monitoring as well as cloud management and analytics.
Homeland Security and Defense—though we know there are major cuts ahead, the ability to monitor and manage remotely will continue to get a shot from organizations that have vast geographies and security issues as a core focus.
Insurance—at the heart of the resiliency requirement are the organizations we have turned to for over a century for advice and to underwrite risk. Today, these organizations are at the forefront of tech investment to gain ever-better visibility and analytics with which to understand and mitigate risk.
Emergency Reponses—with capital investment from government in short supply, there will be no repeat of the Great Wall or the dikes of Holland to protect citizens. Rather, new technologies that can ensure safety, and provide back-up and quick response, yet which can be leveraged for other business problems will be more the focus. Again, devicification and analytics for tracking, as well as improvements in material sciences will be areas of innovation.
Transportation Industry—the day-to-day challenges from traffic, bad weather, and volatile energy costs demonstrate that continued investments in green energy technology,5
as well as more effective monitoring and tracking are paying off. Devicification and integration will grow in this industry whose road forward has to be ROI-based, service-oriented investments.
Our research shows that financial issues are the major focus for companies. Here are the big issues, not in order of importance:
Cash/working capital, credit, and profit management—the squeeze is from all sides—shorter payment terms to suppliers, longer payment terms from customers, as well as an increase in the cost of supplies. This has a huge impact on inventory strategies. In addition, most companies have some products they sell that are NOT profitable, and customers they don’t make money from. The challenge is being able to truly analyze this issue and model the right target markets and pricing to match services.
Cost/efficiency of operations—the age-old ‘never done,’ and ‘how-to-do-more-with-less’ includes personnel, operation, and inventory challenges.
Pricing—B2B businesses have tremendous pricing pressures due to web transparency and cheaper imports. B2C businesses have major issues with pricing/promotions and coupons, which are killing margins.
Channel development—for product/manufacturers this means seeking good partners to sell/represent their products. Conversely for reps, finding the ‘killer products’ to represent.
Skilled workforce—multiple surveys, including this current Business Priorities report, have shown that finding and retaining a skilled workforce is a critical issue for companies. Figure 2, above, shows workforce issues high on the list.
Limited investment/improvement/expansion due to uncertainty—this was more a concern about where things are going than having cash to invest (though that is an issue for some). Interestingly, in general, the planned growth numbers for smaller business are bigger—especially certain sectors of manufacturing in healthcare devices, high tech, as well distribution and services; auto has been highly variable. The Institute for Supply Management shows growth for 17 manufacturing sectors for 2013 (working at 79% capacity now).6
Risk management—this is a catch-all for global vs. local concerns about the impact from various unplanned events: accidents, supplier shortages, and the big headliners—weather and strikes.
Figure 3: How Companies Plan to Address Internal Challenges
A major issue for all the respondents is not being able to match talent to needs! Ironically, this mismatch is a chicken and egg phenomenon, which slows growth. There are critical job openings in the US, but the mismatch—regionally, as well as by sector and profession—is beginning to have a large impact on economic growth.
Though the US is ending the year with around 7% unemployment, the tech sector is hovering around 3%. This is an interesting view, since there are thousands of job openings for new mobile technologies, as well as traditional positions for ERP packages. But some of those unemployed may not have the necessary skills. Conversely, those who have a role to play in global trade and supply chain, from warehouse workers to planners to technology implementers and consultants have job opportunities across the country.
When we spoke with small-business manufacturers, they also stated that these are issues for them, not just in terms of hiring costs, but also the sourcing of certain critical positions. Unfortunately, our national debate is often dominated by political wrangling rather than finding solutions. Therefore, more businesses have undertaken the issue of job creation and job training and formed more partnerships with schools and universities. Though these measures are somewhat effective, a national commitment to educating young people to do the new jobs in the US could make a major difference for the country.
Addressing this issue can improve the future for individuals, companies, and our country. Let’s find ways to make a difference!
1 See The Economist 2012 in Charts: -- Return to article text above 2 Although ocean cargo continues to be more problematic in certain regions of the world. -- Return to article text above 3 US government, WTO, the Economist, the Wall Street Journal/Dow Jones, the New York Times and several industry indices. -- Return to article text above 4 This may not be the case for businesses that rely on public sector business and government contracts. -- Return to article text above 5 Green tech is a growing sector, but it may be years before it is considered highly profitable.-- Return to article text above 6 ISM will have an update on mid-January and I will cross-reference their research to ours. (It will be interesting to see the economic data coming at the close of 2012 from the government—an important cross-reference to any data we collect from our research.) -- Return to article text above
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