Global GDP is likely to fall by 3% in 2020. This is the largest economic downturn since 1945, albeit not at the same magnitude than at the time or during the 1929 crisis. For companies, additional credit will not compensate for losses in capital and value. The only companies to come out of the crisis stronger – or simply to survive it – are those that focus all of their resources on their strengths, as long as those strengths also match the growth trends of tomorrow. The most rational thinking today is to bet on a forced and brutal return to reality. What is this reality?
The exceptional global economic growth of the past 70 years is today threatened by three strong factors. The pressure induced on the middle classes, which results in temptations of national withdrawal and protectionism. The fight against climate change linked to the use of fossil fuels which results – beyond energy savings and changes in the energy mix – in temptations to reduce global growth and relocate production. The anticipation of a virtual disappearance of fossil fuels and their impossible replacement in the required proportions by the year 2070, which can fundamentally challenge economic growth.
One of the critical roles of boards and chairpersons of large groups is to define the level of ambition for their companies and shareholders in terms of growth and return to share to shareholders. If this level is too high, the risks entailed may lead to losing independence; if it is too low, the company might become vulnerable to attacks from competitors. How to calibrate the level of ambition?
Paradoxically enough, successful companies often face a growth issue. They have developed strong positions thanks to a competitive and differentiating model which generates strong profitability and cash flows. However, their growth is low: markets are often mature and growing slowly; it is difficult and expensive to gain market share. There is one possible option: developing a new pillar.
No company will create value in the long term if it does not growth regularly. This growth is necessary to maintain strong competitiveness, motivate teams, attract talents and pay shareholders.
Growth ambitions are often not consistent with value creation ambitions: strategic plans tend to be the sum of the strategic plans of activities and geographies. Therefore, how to calibrate the growth ambition?
As the world’s second largest economy, China is the key market for future growth and value creation in most industries. A large number of Western companies have in the past few years established significant presence in China, realized strong growth and developed profitable positions.
To continue strong growth and to increase competitiveness compared to Chinese leaders in their home market, Western companies need to address some key issues and shift strategic levers so as not to lose momentum.
Large corporations which are stuck into Western mature markets and traditional businesses can hardly grow above 4 to 6% p.a. They do not create value.
Strategically and financially, they need to deeply change their portfolio of businesses and geographies to reposition on high-growth market and to re-allocate resources accordingly. Many groups give up when faced with the difficulty and risks of such a strategy. Why?
Family businesses are often mentioned as companies which have a high performance and which succeed in combining short-term resuls with a long-term vision. This generally holds true. However, it is often forgotten that family businesses must be led with three specific stakes which can be contradictory: the company strategy, the wealth management strategy of the family and the governance.
Periods of economic downturns often highlight the obvious. Every company must regularly adapt and reallocate its resources. It must do so not only in the choice of its activities, trades, business models and geographies, but also in terms of its costs. Only a significant decrease in costs allows investments for growth.