Small Business

What Are Some Of The Current Business Opportunities In The World Economy

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 8 minute read

America has been at the forefront of industry, trade, and governance for two centuries. Therefore, the United States has become one of the world’s leading economic powers, ruling most of the industrialized world in the 19th and 20th centuries.

The American “can-do” attitude, which includes the willingness to “think outside the box,” challenge accepted wisdom, and keep going even when faced with overwhelming odds, has been an inspiration for many and is changing lives all over the world.

Leaders know that the key to lasting success is not amassing material possessions but rather improving people’s lives and the world at large via innovation. Falling trade barriers, however, have presented international leaders with new difficulties, and America’s position as the world’s foremost economy has been and will be tested to its limits.

Challenges for American Businesses in the 21st Century

McKinsey Quarterly identifies three potential threats to the competitiveness of American businesses in the next years:

  1. Emerging Markets Dynamism

Borders, both natural and manmade, that formerly served to safeguard domestic and regional economies have crumbled, making the globe a “flatter” place. Therefore, as economist and “New York Times” writer Thomas L. Friedman predicted in 2005, markets are global and more competitive.

By the end of the next decade, China will be home to more Fortune 500 businesses than the United States or Europe combined. Almost half of Fortune’s Global 500 list of key worldwide players already comes from developing countries, a 900% rise in only 20 years. Global expansion will be bolstered by the domestic markets generated by the almost two billion new customers in emerging regions.

  1. Technology and Networking

The computer industry moniker “Moore’s Law,” which states that processing power doubles roughly every two years, is still in use and may turn out to be an underestimation. 

SingularityHUB reports that experts in the field of computing predict the first “exaflop” computer will be in use before the end of this decade. The processing capacity of an exaflop machine is comparable to that of a human brain, as it is capable of a quintillion calculations per second.

The expected quantum leap in computing power will have far-reaching implications, including the ease with which new ventures can be launched and grow in size with relatively little initial investment, a rapid realignment of value between countries and industries to reflect the rapid pace of change, and the emergence of competitive advantages for small businesses over their larger, more established competitors. Companies have a shorter lifespan and more fast decision making is required than ever before.

  1. Aging Populations

Although the average age of the world’s population is increasing, many wealthy countries are seeing a decrease in their birth rates. This pattern is currently spreading to the developing world, and it is expected that by 2050, the global population will have reached a plateau, if not declined.

For instance, the birth rate in the United States is at an all-time low, representing only half of what it was in 1957, as reported by Pew Research. The Federal Statistical Office of Germany predicts that by 2060, the number of individuals of working age in the nation would have dropped to 36 million, and that the overall population will have decreased by up to one-fifth (from roughly 50 million in 2009).

The Wall Street Journal reports that Thailand’s fertility rate has dropped from 6.1 in 1960 to 1.4 in 2012. Reduced economic growth and consumer spending are common results of a shrinking labor force. If you want to think about it in terms outside of economics, such tendencies suggest that there will be less of everything and more fierce rivalry among enterprises for the remaining parts of the pie.

The United States of America’s competitive advantage is also threatened by two more factors:

  1. Multinational Corporations’ Rise

Multinational firms, which span borders and operate in a number of different nations, have been around for quite some time, but their prevalence has increased dramatically since the conclusion of World War II. Globality Studies Journal reported in 2012 that there are over 63,000 multinational corporations with hundreds of thousands of overseas branches.

These corporations have tremendous sway over both the economy and politics. One of the largest, ExxonMobil, is often believed to wield more sway in the Middle East than the United States Congress. Foreign Policy published an article in 1998 stating that many people believe multinational corporations are “stateless,” meaning that they serve only the interests of their widely distributed owners.

Having foreign nationals in leadership roles only serves to highlight the company’s lack of country devotion. Manufacturing jobs in the United States have been outsourced and offshored for decades, and the country’s influence on the international arena has diminished as a result of multinational corporations’ global outlook.

  1. Excessive Financial Sector Power

There has been a rise in the influence of Wall Street, and particularly hedge funds and investment firms, over the management and strategy of publicly listed companies. According to Harvard Business Review, Wall Street has grown so influential that more than half of CFOs would abandon a project with a positive net present value (i.e., intentionally hurt their company) in order to meet its demands and satisfy its desire for “smooth” profitability.

To put it another way, in order to appease Wall Street’s need for short-term profits and high stock prices, the management of publicly traded companies often foregoes opportunities to create long-term value.

Although American companies have always held a dominant position in international trade, these kinds of challenges and shifts will test their mettle as market leaders.

Future Success Factors

There has never been a time in America when the need for authentic leaders, who are both visionaries and practical thinkers, was stronger. To be competitive in a global economy, the United States needs to make a number of adjustments, and the time to do so is now.

  1. STEM Education Has Been Reemphasized

There has never been any other method to improve oneself or one’s community except via education. Research shows that increased productivity due to innovation accounts for at least half of economic growth in the United States. Knowledge, skills, and talents in STEM (science, technology, engineering, and math) are projected to boost the competitiveness of American businesses, increase exports, and provide high-quality employment opportunities.

About one million more STEM workers are needed in the United States than are projected to graduate over the next decade, according to the White House Office of Science and Technology Policy. Sadly, less half of undergraduates who declare a STEM major actually graduate with a STEM degree.

Since less than half of U.S. high school graduates are prepared for college work in math and only 30% in science, we need to enhance our public educational system to meet our demands in the next decades. According to the World Economic Forum, the United States has the 52nd best math and science education in the world.

The education in the STEM fields is beneficial not only to the person but also to the country. The U.S. Department of Commerce reports that STEM occupations now account for more than 5% of the workforce, growing at a rate three times that of non-STEM occupations over the previous decade. In the coming decade, STEM occupations will expand at a rate more than twice as fast as those in other sectors. In a nutshell, if we want to reap the economic benefits of technological innovation, we need to improve math and science instruction in our country’s primary and secondary schools.

While tuition at universities has steadily risen over the past few decades, public education funding has been steadily eroded. Improve our educational system and reduce the price of higher education if the United States wants to keep its competitive edge or stay even.

  1. Reduce Wall Street’s Influence

The 2008 mortgage security problem is emblematic of the systemic flaw that requires widespread protection against losses (bank bailouts) yet concentrates profits among a few highly paid Wall Street executives.

A healthy financial system is essential for expansion, but the current state of affairs in the United States leads to major distortions. The Harvard Business Review proposes some adjustments worth considering.

  • Raising the bar for the capital requirements of commercial and investment banks. The combined assets of the six major banks in the United States in 1995 were equal to 17% of GDP. It reached 53% by 2013. New York University researchers estimated a shortage of $340 billion or more in the six banks notwithstanding the new Dodd-Frank regulations in the event of another catastrophe.
  • Reduce the corporate tax rate and cap interest deductions. The reduced rate would make up for the loss of the deduction while reducing the financial sector’s sway over business operations. Without the deduction, businesses are less likely to use debt and more likely to use equity to fund their operations.
  • Taxes on Economic Deals. From 1914 through 1966, the United States implemented a tax first advocated by economist John Maynard Keynes. By reducing the frequency of trades, attention may once again be paid on the intrinsic worth of investments rather than the daily fluctuations in their value.
  • You should include your investment income in your regular income. There is no correlation between the United States’ enviable capital gains rate and the country’s robust economy, according to research conducted by economist Leonard Burman and the Congressional Research Service.
  1. Increase your investment in leadership development.

Few firms have adequate leadership, Harvard Business School professor John P. Kotter said in 2013, making them “susceptible in a fast-moving environment.” Sixty percent or more of all businesses see “leadership gaps” as their most pressing issue, despite the fact that firms continue to invest in Leadership Training, paying an average of $1,169 per learner in 2013.

Fortunately, leadership is not an innate quality but one that can be developed through practice. According to Marshall Goldsmith’s article in the Harvard Business Review, leaders should “promote and support the decision-making environment and to offer workers the skills and information they need to make and act upon their own decisions.” To put it plainly, in today’s competitive global economy, you can’t afford to have anything less than an empowered, engaged staff.

John F. Kennedy often stated that leadership and education go hand in hand, a statement no doubt informed by his own journey from privileged, affluent son of a politically powerful man to revered president who inspired his age. “Men make history and not the other way around,” Harry Truman, the president famous for his motto “The buck stops here,” famously stated. 

When there is a lack of direction in a society, things tend to stagnate. When strong leaders see a chance to improve things, they grasp it with daring and expertise, and that’s how progress is made. A visionary leader in the proper setting may do wonders for a business.

Bottom Line

American businesses face some obvious obstacles. It’s also clear that “business as usual” is ineffective. Our labor is unmotivated, economic gains aren’t shared fairly, and foreign firms have free access to our markets. Educated workers and a lack of interference from Wall Street mean that the time is ripe for a renewed national entrepreneurial drive.

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