Economic growth finds itself subject to a pincer movement of pressures. On one side is society railing against the depletion of resources, dissemination of species and climate change. On the other side is the family, with global birth rates tumbling. For example in the U.S. the rate is 1.86 births per woman, well below the required replacement rate of 2.1, and in Japan the population is predicted to shrink by a third by 2065. China’s birth rate is 1.57 and its population is forecast to peak in 2030 – the Chinese are now living longer, which is why it’s not falling sooner. It will then fall from this level of 1.4 billion to 1.0 billion by 2100.
This global scenario raises an interesting question. How might business operate in a no-growth economy? It’s an issue that needs exploring even at this early stage because the very prospect strikes fear into the hearts of executives. But for smart companies who can see the writing on the wall, there are positive alternatives. Here are four around which your business strategies might cluster as the no-growth economy unfolds.
In a growing market, such as health care, company growth is achieved through an increase in the market itself and by stealing share from competitors. Take away the former and competition intensifies as Richard Hamermesh and Steven Silk noted in studying stagnant industries. With this comes a fall out in the number of competitors. They observed an interesting feature of the firms that succeeded in these static circumstances. The companies made a concerted effort to chase burgeoning segments within their industries. Your business might be focused on a certain segment within your industry. Widen your lens. They cite the example of General Cinema Corporation which noticed that movie theatres were closing across the U.S. Management turned its attention to the one segment of the industry that was growing – shopping centre theatres. The segments subject to growth in any industry come and go over time. If you have your antennae up you’ll spot the segments with growth capabilities and remain successful.
Another analysis on this same theme, growing in non-growing industries, has put a twist on this conclusion. It noted that winners in low-growth industries not only steal market share from their competitors but they do so with an emphasis on profitably. The authors, Kasturi Rangan and Evan Hirsh, noted: “When companies successfully get these two things going together—market share and profitability gains—they in effect create their own growth cycle, one that is independent of the industry cycle.”
It’s a truism to state that monopolies rest on their laurels. They get lazy, content with the market they control, and fail to innovate. On the other hand, competition has firms fighting to find the next best way. A no-growth situation intensifies this battle even further. A study has found that one way of surviving this is to put the blow torch on developing high-quality innovative products. This moves a business away from competing on price alone which is often the hallmark of stalled industries. A report on the U.S. yoghurt industry noted that heightened competition within it had spurred product creativity markedly. This showed in a variety of ways including: yoghurt types (whole milk versus fat-free as one example), formats (single-serve cups versus multi-serve tubs), packaging, flavours, styles (such as non-homogenized) and milk origin (such as 100 per cent grass-fed cows). Picture this now for your business in a no-growth situation.
Once growth ceases in a domestic market the corporate pressure to grow can find its outlet in exporting – an option you might consider. Japan has the third largest economy in the world, is the third largest car-manufacturing country, has the largest electronics goods industry and is renowned for its innovation – one indicator of which is its high level of global patent filings. We can think of the brands that are now household names achieved via a massive emphasis on export—brands such as Toyota, Honda, Nissan, Canon, Sony, Panasonic. Each of these have adapted to Japan’s slow-growth local situation by ratcheting up exports.
Another option is diversifying into adjacent domestic markets. There are numerous examples of firms that have hit the ceiling in one industry, in terms of market share, and have sought their future in another, i.e. to grow through diversification rather than battle for remaining share. Wesfarmers which employs over 200,000 staff has, until recently, stayed steadfastly focused on the domestic Australian market applying its management skills to expand across industries. Today it is the nation’s eighth largest company by market capitalization and is a dominant player in hardware, food retail, department stores and a variety of its own retail brands.
We know that we must take pressure off the planet if it and we are to survive. That won’t happen without business’s support and this won’t occur if business can’t see a way through the post-growth economy. My aim has been to show that all is not lost if economic no-growth becomes the norm. It’s up to CEOs, boards and senior executives to be positive about their organisation’s future and to find room for the environment as well as profits. Savvy businesses will become more proactive, not only in abandoning the narrative of single-minded economic growth, but also in finding alternative pathways to profitability. Future generations depend on such leadership.
Graham Kenny is President of Reinvent Australia and Managing Director of Strategic Factors and KMS Education, Sydney-based consultancies that specialise in strategic planning and performance measurement.