I was privileged to be a guest of the CBI at its Annual Conference this week and it was excellent. I once served on the CBI National Council and before that was a founder member of its Market Advisory Board when Sir John Banham was Director General. The theme of this year’s conference was Growth and export was the prime strategy to achieve it. In support of this theme there were keynote addresses from David Cameron MP, The Prime Minister; William Hague MP, Foreign Secretary; His Excellency Abdullah Gül, The President of Turkey; Jim O’Neill, Chairman, Goldman Sachs Asset Management; and Sergio Marchionne, CEO of Fiat and Chrysler.
David Cameron gave an impressive tour de force in which he recognised the difficult macro-economic conditions but then outlined his strategy for growth. He demonstrated a strong commitment to business led growth and particularly to commercial diplomacy. All those in the hall that I talked to were impressed but I told them that was not how the media would report it. Sure enough when I got home that night and switched on the news the reports merely talked about his comments on the economy, which had taken him two minutes, and ignored his detailed exposition of what the coalition government was doing to fix it, on which he spent over 25 minutes. I believe the principal cause of the current economic doldrums is the lack of confidence that is inspired by the media led by the BBC.
William Hague was if anything even more impressive than his boss with a richly detailed list of actions the FCO was taking to use diplomacy to support jobs and growth in our economy. I was particularly taken by the changes in UKTI which he outlined. Some years ago I applied for the role of CEO of UKTI. The adverts and the head-hunter said they wanted someone who had a strong international business background but also knew Whitehall. My credentials on the first point were fine, but somewhat sketchy on the second. I got through to the final shortlist of four candidates and was interviewed by a distinguished panel consisting of two permanent secretaries and three other Whitehall dignitaries. I came a very close second, was the preferred commercial option but my lack of knowledge of Whitehall and long learning curve counted against me. The preferred candidate had that Whitehall experience but his experience of industry was only as a lobbyist. Now, six years on with little progress, they are appointing a new CEO with significant change management experience.
The President of Turkey appeared with much fanfare and a huge entourage the day before his official State visit to Britain. He then delivered in perfect English a lecture on what he and his government had done correctly to restructure the economy in contrast to the countries of the EU who had been negligent about their own Maastricht criteria and created a new moral hazard by bailing out countries that had failed to reform themselves. I could do a full blog on President Gül’s address alone but suffice it to say that Turkey has gone through painful restructuring and is now growing at around 10% p.a. This growth is employment generating. The economy is now No. 16 in the world and No. 6 in Europe.
Ten years ago Jim O’Neill coined the acronym, the BRICs, standing for Brazil, Russia, India and China. At that time their combined economies were $3 trillion of which China was a bit less than $1.5 trillion, smaller than the UK. Now the UK has reached $2.6 trillion while China has grown to $7 trillion and the BRICs combined about $13.5 trillion. Add in Indonesia, Korea, Mexico and Turkey, each over 1% of global GDP, and these eight economies will add $15-$20 trillion over the next decade, more than the US plus the Euro area put together. More than half of the new growth will come from China which has slowed its growth rate from 10-11% pa to a mere 8%.
In 2012 the BRICS will create another Italy in term of growth. China creates another Greece every 4 months. In other words there is not a global crisis; there is a North Atlantic crisis. No wonder President Obama is turning his attention to the Pacific economies. We are seeing the biggest rise in middle classes in centuries due to globalisation. Defined as on annual incomes ranging from $6000 - $30,000 p.a. between one half and two thirds of these new consumers will live in the BRICs. The biggest driver of increased consumption is rising wealth. The UK requires a change in mind set. We still export more to Ireland with its 3 million inhabitants than the BRICs with their 3 billion inhabitants. They are gradually changing to a consumer model with growing imports.
I was amused to hear Jim interviewed by Sarah Montague on the Today programme the following morning. After making some of these points she seemed to get the message and asked him if we were sometimes too downbeat about the economy. He said in exasperation "Oh! This is the centre of downbeat!” I’m not sure if he meant the UK or London or the BBC or the Today studio but Sarah did not respond!
Sergio Marcchionne is a barrister, solicitor and accountant who appeared in casual dress. He quoted the proverb “You can live for 40 days without food, for 4 days without water, for 4 minutes without air but not 4 seconds without hope”. His job at Fiat was quite simple, either rationalise the production side or look for new sources of growth. Since the credit crunch not one unit of production has been rationalised in Europe. Unilateral actions by member states have worked against the best opportunities of the auto market. No EU automobile manufacturer could survive from EU demand alone. Fiat’s response is to share investment with Chrysler in an alliance that has saved both entities. The automobile market is very capital intensive and sensitive to operating leverage. He believes that only 5-6 large-scale automobile groups will survive but Fiat-Chrysler will be one of them as it grows its volume from 4.2 million units this year to 6 million in 2014. He finished with some cutting remarks on the UK’s unfortunate switch from manufacturing to service which he thought not only bad for the economy and employment but for the soul of a country.
I came away from the conference pleased that the subject of export led growth was properly back on the agenda and that many good examples of companies and countries doing it right were given. My own career has been shaped by international business. In 1978 I took over the marketing for some non-canned products in the Pedigree Petfoods range. A new factory had been built in order to make these products, partly as an insurance policy in case the exploding prices of commodities at that time put a stop to our successful canned business. But the British consumer had not taken to these products in the volumes needed and so it was clear to me that we had to increase our exports. Working with sister companies across Europe I set out to do that and that brought me to the attention of the Americans who had a similar need. I went to Los Angeles in 1980 and was asked to open the Chilean market in 1981. In 1984 I joined Pillsbury who also had a strong export business in the Middle East and In 1988 I joined Sony and was part of the management team that won a series of Queen’s Awards for Export. At one point we were in the top twenty exporters in the UK. Global experience with Pentland and NXT has meant that I have now done business in more than 50 countries.
Sir Roger Carr, President of the CBI with a string of Chairmanships behind him and John Cridland, the quietly effective Director-General both made useful contributions on the main theme but they also addressed the topical theme of the image of business. This is such an important topic that I will address it in a separate blog. There were many good stories on the day but I’ll close this blog with one from Jim O’Neill. Cycling with his wife in China they came to a modest village with no obvious signs of prosperity. In the middle of the village was a billboard which read:
“Success in English = success in Life!”
Copyright David C Pearson 2011 All rights reserved