By Pete Julius
The McKinsey Quarterly just completed a global survey of business executives, which focused on five issues: global economy confidence, pricing, workforce, debate over China and India, and IT spending. Fifty-five hundred corporate-level executives from a wide range of industries participated in the survey. Industries included business services, IT/telecom, consumer products, banking/finance, heavy industry and various public and nonprofit entities. The majority of the respondents came from small to mid-size companies. Roughly 62% of the respondents represented firms of less than 500 employees and about 68% were from firms with less than $250 million in revenue. This article will provide a brief analysis for three of the five issues: global economic confidence, workforce, and China vs. India.
Global Economic Confidence
Over 60% of the respondents from around the world are optimistic about the global economy in the next six months, but that represents a drop in confidence. The same survey asked the same questions back in January of this year. In that survey, Indian and Chinese executives felt 82% and 73% optimistic about their regional economies. Now they are only 68% and 65% confident respectively. Those are significant drops for two countries that are expected to grow significantly over the next few years. It might be that India and China are feeling a little less comfortable with their political, social and economic structures than they did six months ago. Economic confidence from North American executives was more steady, and only dropped from 69% to 66% during the same time period. These percentages were derived from developing a weighted average for the following four questions:
- How are current economic conditions in your country versus six months ago?
- What are your expectations in your country for the six months ahead?
- How are current economic conditions in your industry versus six months ago?
- What are your expectations in your industry for the six months ahead?
Aside from the global picture, over 50% of all respondents expect economic conditions to be substantially or moderately better in their region in the next six months. India and China, both with 69% confidence, believe that their economies will be at least moderately better. Europe responded at 60%, while North American corporate executives responded at 59%.
Workforce
Corporate executives from around the world are anticipating hiring new employees over the next six months. Around 50% of the North American survey respondents plan to hire, 19% of which expect to increase employment by 11-25%. Many Chinese and Indian companies plan to hire more workers. The majority of the respondents represent companies of less than $250 million in revenue.
India vs. China
China and India will continue to be significant sources of technical and workforce talent for the next six months. In fact, India is believed to be even more attractive than China. The results of the survey point out that 58% of the respondents from large companies, those with revenues exceeding $1 billion, view India as somewhat important to very important as a significant source of technical talent. Only 48% of the respondents felt the same about China. More importantly, the survey broke the respondents out by region and respondents from every region were more in favor of India than China for technical talent.
Over the past few years this country has lost many manufacturing and back-office related jobs to other countries like Mexico, China and India. As economic development practitioners and consultants, we have tried to figure out what jobs are leaving this country and which ones are staying during this trend. One economic development tactic for the recruitment and retention of new jobs has been to focus on companies that produce high value, high wage jobs. But guess what–we may be losing even those types of jobs soon. The survey respondents suggest that 31% of the large companies, those with revenues exceeding $1 billion, will invest in R&D facilities in India, while 27% suggest that they will make R&D investments in China. Even more shocking, 29% of the respondents from North American say they will make R&D investments in India, while 24% will say they will invest in China.
One of the most interesting survey questions asks about the respondents’ perceptions of the political infrastructure of China and India, which seem dependent on the respondents’ home country. As you may suspect, North American respondents were the least confident about the political structure of these two countries to liberalize and manage economic growth effectively, with only 7% expressing strong confidence. Developing markets, which included India and China, responded with 29% of the companies indicating that they were very confident. Asia-Pacific was next with 22% and Europe was third with 15% of their respondents feeling very confident.
The survey suggests that the global economy will continue to be prosperous over the next 6 months, especially in India and China. This survey, like many other surveys and reports, suggests some harsh realities for the United States. We must accept the fact that we will continue to lose jobs to China and India at least in the short term. That does not mean that our unemployment rate will skyrocket or our economy will go into the tank, but it does mean we need to become smarter about our economic development strategies. We need to think more competitively, collaborate, stop local bickering and work more cohesively. That will mean smarter marketing, more creative strategies and the developing incentive programs to keep our jobs. For those marketing majors and professionals out there, you know that competition is a crucial element to marketing. Mexico, India and China are all competition. This country has been a superpower for many years without having to worry about or compete with other nations. We may have gotten a little too relaxed and cocky. Times are changing and the competition is here. Now it is time to market!
Source: The McKinsey Global Survey of Business Executives, July 2004 http://www.mckinseyquarterly.com/links/13966