Tackling Trends

New IBM report looks at how the 'Rubik's cube' interplay between business and national development can ensure prosperity, writes John Collins.

Global investment flows, employment patterns and consumer spending are in the midst of massive changes. By the year 2020 there will be 140,000 multinational companies doing business around the world, making an average of about 28,000 investments overseas each year.

That's one of the main conclusions of a major new report from IBM titled Economic Development in a Rubik's Cube World, which looks at how the global "mega-trends" can be harnessed by national development agencies - such as Enterprise Ireland and IDA Ireland - to ensure prosperity in their own countries.

IBM's researchers - largely based at its Institute for Business Value in Dublin - identify six main mega-trends which they believe are changing the game for businesses that operate on a global scale. The related trends of globalisation and population change are altering what businesses can achieve in different countries but also the location of the most populous markets they may want to sell into.

More rapid changes in the development of technology, as well as the rise of the well-informed consumer, are shifting power in markets but also creating new sectors and activities that can be profitably addressed.

IBM also suggests that corporate social responsibility is no longer a nice option for corporations while risks such as political uncertainty and terrorism are also muddying the waters.

The report suggests the interplay between these trends, how business is responding to them and what this means for national development agencies should be considered as a Rubik's cube.

As the big trends change between now and 2020, business will respond in a number of ways, the seeds of which can already be seen. As the report points out, multinational businesses are "stripping away non-core activities, expanding into new activities, placing greater importance on collaboration and partnership, and reorganising their core competencies".

The development agencies that succeed in 2020 will be those that have responded to changes in their clients. They will have understood that while the market is growing, competition for inward investment is becoming fierce.

The growth in foreign investment in the United Arab Emirates, Bahrain, Qatar, Latvia, Singapore and Bulgaria in 2002-2006 means that on a per capita basis they are now attracting more investment projects than Ireland.

IBM also suggests that IDA Ireland and similar agencies will have to realise that different factors such as efficient regulation are becoming central to where corporations choose to locate activities.

For example, attracting a data centre will put the focus on a location's data privacy regulations and reliability of power supply.

"Ireland is relatively well positioned to embrace the mega-trends of 2020," says Ronan Lyons, an IBM executive who co-authored the report with Susanne Dirks and Mary Keeling.

"The challenge is that competition is intensifying. Ireland has been very successful in certain sectors but we need to move to an activity-based approach rather than sectoral. We need to diversify in terms of where Ireland gets its projects from."

The study also suggests that countries will need to partner with other locations if they are to succeed. It highlights a technology alliance between Singapore and Qatar in the area of e-government as a best practice example. "Just as in the business world, Ireland is going to need new partners," says Lyons.

Some of the statistics that IBM cites, mostly from UN sources, provide lots of food for thought for "Ireland Inc".

In the first 20 years of the century, 94 per cent of the 1.8 billion increase in the world's population will be in developing countries. Sub-Saharan Africa and south and central Asia will see their work forces increase by 200-300 million. Available workers in North America will increase by just 20 million in the same period but in Europe and Russia this number is forecast to shrink by almost 40 million.

Lyons says the so-called BRIC countries (Brazil, Russia, India and China) are going to become increasingly important players and will be home to powerful corporations that invest overseas.

"They are going to be much more powerful economically in the next 20 years," says Lyons. He points out that already India is one of the biggest investors in China and Malaysia.

Given the report has been authored by one of the world's largest IT companies, it is not surprising that the role of technology is highlighted, although IBM couldn't be accused of overplaying it. One fifth of the workforce in the EU, US, Australia and Canada now work in IT, communications and related areas. The over-arching trend is that new technologies are being adopted at a much faster rate.

In the 1800s it took the railroad almost 80 years to clock up its first 50 million users. It took less than 40 years for radio to achieve the same level of adoption, while in the 1990s the web became this popular in less than five years.

Internet usage is continuing to grow rapidly - in 2000-2007 it more than doubled to almost 1.2 billion people, and is expected to increase to two billion by 2010. Again it is Asia and Africa that will drive that growth.

This is one area where Ireland faces a major challenge. The country tumbled from 16th in 2006 to 21st in the IBM e-readiness rankings, a study of a range of factors related to countries' support environments for carrying out electronic business which is carried out by the Economist Intelligence Unit.

"We really need to get up that ranking," says Lyons. "In the 1990s Ireland prioritised international connections and did that successfully. We now need to give consumers and small businesses the same connectivity as large businesses enjoy."

IBM is not a totally disinterested player in this debate. The technology company has a global services business that competes for outsourcing contracts from some of the biggest multinationals.

That has seen it come in for some flak in Ireland for moving jobs offshore, particularly after it won the contract to manage Xerox's Dublin call centre last year. IBM executives respond that in the global economy, work will flow to the place where most value can be added.

To continue attracting inward investment, and even to foster our own multinationals that will invest overseas, we will have to add to the traditional factors that IBM identifies - such as location, language, effective regulation and taxation.

The difference now is that emerging economies with well-educated young workforces are nipping at our heels.