Global Economic Dynamics will Cause a Re-Focus on Intellectual Capital


Global competition is reshaping the dynamics of international commerce, although the recent economic recession has brought more focus on recovery plans in advanced nations while many emerging markets skirted the problems of negative GDP growth. Forty years of outsourcing and off-shoring of business activities have made Western companies “lean and mean”, but the relocation of jobs and the resulting redistribution of wealth have left Western middle classes in disrepair and governments searching for domestic growth solutions. As the production capacity of the world continues to shift to Asia , intellectual capital will become a more differentiating force in the marketplace.

The western business model of innovation and process improvements driven by technology and resulting intellectual property rights has already been under attack for decades. Emerging economic powers, especially China and India , have resorted more to imitation and technology importation, rather than innovation, in their quest for economic growth, modernization and prosperity. Legal infrastructure that rewards innovation and protects its rights is nearly nonexistent.

Historically, the cost cutting efforts in the west have led to a massive shift of production capacity to Asia , primarily facilitated by the low cost of labor and enormous quantities of it. Labor-intensive industries were the first to begin relocation back in the seventies, followed by capital-intensive industries like steel and aluminum manufacturing. In the past few decades technology and service-based industries have quickly followed suit. The result has been reflected in global growth statistics where developing countries have doubled and sometimes trebled the real GDP growth of more advanced economies.

Recent reports do not suggest that these trends will change to any material degree. The International Monetary Fund published its update of its global economic outlook this past April. Many of the charts focus on these very issues that have transpired over the past four decades. However, the report goes on to project that over the next five years, emerging markets will grow at 6% to 8% while the developed economies of North America and Europe will be lucky to eke out 2% on a consistent basis. This growth level is not sufficient to produce jobs for new market entrants, nor recover the millions of jobs lost during this past recession.

The economists at Standard Chartered Bank took these trends and projected forward to the year 2030. Their report predicts that China 's economy will overtake the United States by 2020 and treble it by 2030. The new world order of economic super powers will also dramatically change over this time period as highly populated countries leverage their human assets and technology to leap past more established competitors. By 2030, China will be a strong number one followed by the United States , India , Brazil and Indonesia . Perhaps, the time is now to learn a few more languages and how to transact business in this new forex world of global currencies on the horizon.

With these apparent trends reshaping the competitive landscape , intellectual capital assets will become more prized by western companies and countries alike. With production capacity relegated to Asia , innovation will become the emphasis for new directions and growth initiatives. Serving the growing and prosperous middle classes of Asia will demand that these assets be protected in both domestic and global markets, but the history in this area has been bleak. Google and other technology companies can testify to constant cyber attacks and proprietary code transfers without compensation as accepted behavior in state-controlled environments where information and public policy demands interact. Asset valuations mean little when theft is an acceptable business practice.

Asian countries, however, are not sitting on their hands so to speak. They, too, see their future prospects and understand the need for research and development expenses. The growth rates in the following table for the past decade indicate that the benefits of long-term investment in intellectual capital have not been forgotten in Asia . The plan may be to achieve global superiority in scientific and technological research, and, hopefully, legal protections will follow a similar course.

global capital

Major shifts in economic power and competencies are continuing to draft a new economic world order. Competition will depend on hard assets, but the emphasis on intellectual capital development will drive the race.

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