At some point this reverie will be shattered by the harsh ringing of an old-fashioned alarm clock. As the grey, smoke-tainted dawn light filters in, the would-be corporate heroes of the next decade will realise that Asia is not a place. It has no capitol. Every country has different competitors, different market dynamics, different consumer preferences and different cultures. Indeed larger countries such as China, Japan and India have almost as much diversity internally as is seen between countries in the region. This is in stark contrast to the more Westernised countries in the region – in Australia, the weather and the road signs and the preferred football code may vary from State to State, but there is enormously commonality of consumer mores and cultural preferences.
Here lies the greatest existential challenge for Australian corporates – and indeed their peers from North American, Europe and beyond. Far and away the largest growth prize, in both relative and absolute term, lies in Asia in both the next two decades. Consumer wealth is exploding, market sizes are expanding dramatically, and average wages are still half an order of magnitude lower than the West. This part of the dream is true – the streets really are paved with gold. And yet these streets are unfamiliar, and the gold is hard to find, let alone pick up. Overlay the parallel explosion of online activity, not to mention the dramatic impacts of the impending energy revolution as the world moves to lower cost renewable energy (yes, you’ve read that correctly) and the environment for corporate decision making now resembles nine dimensional chess.
Nine dimensions? If this sounds extreme, think of this. Different historical context. Different cultural evolution. Different physical environments. Different economic advantages. Different competitive dynamics (and different competitors). Different market structures. Different rates of development. Different currencies. That’s nine and I didn’t even have to stop to think. These all add together to create dramatically different opportunities, with different levels of capital investment, different business models, different profitability and different returns over different time scales.
For one of the world’s most successful twentieth century companies, this is a veritable nightmare. For the corporate leaders of today, who cut their management teeth in the 1970s and 1980s, it is a world that was unthinkable even twenty years ago. But a ten hour flight to any of the fifty largest cities in Asia will prove beyond a shadow of a doubt that it is true.
The only solution to this intricate and tangled web of growth prospects is to embrace complexity. Companies need to complexify their thinking and strategies. They need to abandon the desire to make simple choices driven by base case scenarios and welcome in to the Boardroom the vast range of outcomes that is possible in real life. This isn’t easy. The old fashioned appraisal tools of medium term forecasts and discounted cash flow models simply won’t cut it. These are 1950s technology at best (indeed the origins of the thinking goes back to the late nineteenth century). If your decision-making doesn’t employ Monte Carlo simulations and Bayesian statistics, then you’re just playing spin the bottle, $100 million dollars at a time. Big corporates have engaged big data when it comes to exploring consumer preferences – now they need to embrace strategic analytics and bring big data into the boardroom. Without it, they will follow once great companies such as Nokia, Kodak and Lehman in the graveyard of once great companies who kept their eyes focused on the near distance whilst accelerating down the motorway.