Forecasting the Unknowable Future of Business - Pacific Standard

Forecasting the Unknowable Future of Business

Corruption and terrorism pockmark the road ahead for international business, according to a respected global survey.
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Baseball legend Yogi Berra once said, "The future ain't what it used to be."

Leaders in global marketing agree.

To divine that future, Michael R. Czinkota, an expert in international business and former official in the Reagan and Bush administrations, and colleague Ilkka Ronkainen at Georgetown University's McDonough School of Business have teamed up every five years since 1986 to publish, "Trends and Indications in International Business: A Delphi Approach."

While this year's study ranks the predictable challenges of terrorism, globalization, corruption and cultural adjustment as the top issues affecting global business, the report questions the traditional view of growth -faster, better, bigger — as a marker of success. The authors suggest that growth be redefined as rearranging resources and doing business by enacting positive efforts to understand culture and improve human capacity.

Czinkota told Miller-McCune.com that measuring growth with a linear "yardstick" may be giving way to seeing it as "angles on a protractor."

The authors offer their 2008 vision of the future as a community of borderless business acting in consensus toward three important goals: the reduction of global inequality, mandates for stable and consistent human rights, and support for individual freedom.

"There are many different ways to grow; they don't all have to proceed at the same rate and level," he said.

Making Academic Research Accessible

Czinkota said the broad goal of the Delphi study is to bring their research findings out of the academic environment and into business decision-making — even though he notes a new McKinsey study that finds few companies act on the international trends that have been pointed out to them.

"By our gathering data from global sources, and diverse sectors, we create a 'representative world view,' so to speak, that identifies the issues and challenges occurring and how these can potentially impact global business activity," Czinkota said.

He describes their research using the 50-year-old Delphi method to survey, by e-mail, 34 participants drawn from the Americas, Africa, Asia and Europe academic, corporate and policy sectors.

The first step is an open-ended question asking them to "identify international business dimensions subject to change in the next 10 years." Respondents then are asked to offer their views and recommendations that corporate leaders might use to address barriers.

Through these reports, the two professors have been making important predictions of emerging trends in the international marketplace for 25 years. And their batting average has been pretty good.

In the 1986 "Trends" study, 17 key forecasts were made, of which the authors deemed 14 were accurate five years later. In spite of this 82 percent "hit rate," the panel did not see one key, world-altering event — namely the fall of the Iron Curtain. This could have been potentially a function of that particular study survey mix — respondents were selected from just one country.

In the 1992 study, which did use a global panel, 40 key predictions were made; its five-year hit rate was 80 percent. All the inaccuracies, however, were overstatements — while the forecasts' direction was accurate, the researchers anticipated more rapid transformations than actually took place.

The 1997 "Trends" study reported an accuracy rate of 65 percent. Once again, a major world-altering event had not been predicted: the attacks of Sept. 11, 2001.

Overall, the authors affirm that despite these "black swans" — events for which there is no previous experience to create a predictive history — the average predictive accuracy of recent studies is still 76 percent.

What You Don't Know Can Hurt

Terrorism is the biggest policy issue identified in the latest study, but panelists disagreed widely on how to "defeat or at least to manage terrorism," the researchers wrote.

"Some panelists felt very strongly that materialism and 'having something to lose' are key dimensions to secure for those who perceive themselves excluded from the benefits of globalization. Others suggested a prime role for spirituality, empathy for and understanding of cultural differences. Future success may favor those who have the ability to pair values with valuation."

And while the survey looked a lot at the wider populace's willingness to pursue counterterrorism while not falling prey to xenophobia, and to make sacrifices if necessary, companies may make the most direct statements.

"Certainly terrorism has changed the process of customs and will influence the level of a firm's participation in overseas markets," said Dan O'Flaherty, vice president of the National Foreign Trade Council and U.S.-South Africa Business Council. They also determine how a business participates, he added — through direct investment (such as buying or building factories or schools), through foreign portfolio investment or through exporting.

In the Delphi report, the authors predict companies will focus increasingly on the least dangerous alternative, exports. "They will either pull out from countries that lack law and order or service them only at a very high risk premium," the report says.

On globalization — the change rated second most important — they note that while education and removal of trade and investment barriers can improve living standards generally, the panelists caution that an "uneven distribution of winners and losers can produce other consequences." Developing countries may experience environmental degradation and workers must contend with barriers created by their respective governments that prevent them from earning developed-country levels of pay.

Cultural adjustments also must be made — or else.

O'Flaherty illustrates a relevant scenario. When sanctions were lifted against South Africa, he says Pepsi attempted to gain market presence in South Africa. They targeted the then-newly enfranchised black population with a promotions campaign featuring well-known African Americans and high-profile entertainers. The campaign fell flat "as a day-old cola."

"First of all, the average black person in South Africa did not have a clue who these American celebrities were; and second, Coke had a prevailing dominant presence. In the end, Pepsi spent a lot of money and after two years, they pulled out of the country." Pepsi returned but only after one of its subsidiary South African markets, Simba Chips, turned a profit a decade later.

This example reinforces the Trends study panelists' caution that making assumptions and engaging in efforts "to induce homogeneity" can backfire. The overwhelming use of English, for example, as "the language of business" can breed resentment and hostility.

"The key is figuring out how to crack the code to enter the respective market," O'Flaherty said. "You have to understand the competition policy, labor legislation, the influences and complexities of the culture and the obstacles to market entry."

Corruption was a third key policy issue in the Delphi report.

Although greasing the skids of trade may be common, corruption — particularly social acceptance of bribery — does more harm than good. Czinkota said those surveyed reported that while "it is human to lubricate relationship with gratuity," in the end "you end up with shoddily built roads, clinics with overpriced equipment and structures that collapse."

The authors recommend the international community focus on corruption from the top down, adopting policies such as the U.S. Foreign Corrupt Practices Act and pursuing those who have grown wealthy through bribery.

The Delphi forecast isn't all about problems. It predicts growth in global industries such as communications/IT, coordination of services/demographics, pharmaceuticals/biotech, environmental and energy sectors.

Mark Ahn, founder and former CEO of oncology biotech researchers Hana Biosciences, confirms in a 2007 White Paper that the "global biopharmaceutical industry represents an attractive, high-growth industry of the future." But the professor and chair of science and technology entrepreneurship at New Zealand's Victoria University of Wellington sees a larger global message in pharma's successes.

He cites current enabling trends, "such as technologies and democratizing forces of the Internet contribute to the concept of 'virtual proximity' of global collaboration and coordination," giving the word "location" a new meaning. Ahn recalls a quote from an investor who explained: "Silicon Valley as a locality matters less and less every day, but the Silicon Valley mentality matters more and more globally."

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