Time to end the ‘tyranny of consensus’ on future growth

Alex G Bell 2.pngHuman beings don’t like change, and they don’t like argument. They prefer to assume, whenever possible, that life will continue in a straight line. This preference is especially common in large companies. Change for them means having to develop new products and services, enter risky new markets, and have potentially awkward conversations with investors.

But we all know that change is inevitable, and that life doesn’t move in straight lines. We also know that companies who miss the moment to change can soon find their business model under major attack. Doing nothing is often the riskiest option. Just ask those who worked for once-great companies such as Hoechst, ICI, Union Carbide and others who now no longer exist.

Today, as the blog works with company boards around the world, it is clear that change is increasingly seen as inevitable:

• Many companies are now incorporating a demographic element in their Strategies and Budgets
• Immediately they study the topic, they realise the 25-year SuperCycle from 1983 is over
• Ageing populations in the West and China mean demand is becoming replacement-driven
• Equally, today’s heavy and increasing debt levels mean that people’s spending power is becoming limited as governments increase taxes and reduce benefits

But these companies are still a minority. The problem for the rest, as one senior executive told the blog, is that they avoid the issue and instead encourage ‘the tyranny of the majority’. Employees are discouraged from asking ‘uncomfortable questions’ and frozen out if they persist.

But this attitude will not change what is happening in the real world. Even policymakers are finally, and far too late, beginning to realise their policies have taken us in the wrong direction. Thus Finland’s central bank governor, Erkki Liikanen, has become the first western policymaker to warn:

“Along with rising public debt, the proportion of elderly people in Finland’s population will expand, creating a risk that Finland will drift onto a path of fading economic growth, persistently high unemployment and deteriorating public finances”

Equally Goldman Sachs, famous for their suggestion a decade ago that the BRIC countries were on a fast-track to Western living standards, have now warned:

“China has basically said goodbye to 8% GDP growth in spirit if not in statistics and will have to embrace slower growth, with the average annual growth rate in the next seven years to 2020 perhaps falling to the vicinity of 6%”.

Realistically, of course, 6% is more likely to be a ceiling rather than a floor, given the $tns of debt built up over the decade to finance its wasteful infrastructure and housing boom.

Chemical companies also face the threat of lower demand not just from lower spending, but from technical innovation. Bottles and packaging are becoming ever-thinner, due to developments in polymer engineering, whilst the shift from rigid packaging to pouches means less polymer is needed. Equally, ‘Smart Bottles’ can be 10-15% more efficient than traditional blow-moulding.

None of this means that the end of the world is about to happen. Instead it means that change is underway, and taking us in a new direction. As we move into Budget season, companies need to embrace this change and put into practice the wisdom of telephone inventor, Alexander Graham Bell:

“Sometimes we stare so long at a door that is closing, we seek too late the one that is open”

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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