Lessening reliance of the Global Economy on the US

Since the 1950s the United States has been considered a superpower due to its commercial might. The condition of the American economy determined the condition of the world economy– such was the impact of this one large economy. During the recession in 2008, markets collapsed and struck most of the world. But to some countries, especially China, the effect was minimal as compared to the rest of the world. The after-effects of this recession have continued till today with unemployment at all-time highs in 2013 and economic growth rates  struggling to rise.

2014 promises a better situation for the US economy which is reflected in job creation as well. This presents a better outlook for the world economy as well, even today. The world economy is expected to grow 3.6% in 2014, which is up from 3% in 2014, as forecasted by the IMF. This has been attributed to better performing developed economies, mainly the US.

So, as we see the dependence of the world economy on that of the US still remains, but not to the extent it used to be. In the 1980s America’s economy accounted for 1/4^th of the world output, while today it only accounts to 1/5^th. This is thanks to the emerging markets like China, India & Brazil who are now contributing a larger portion to the world economic output.

As other economies emerge from poverty and lack of education, the share of the world economic activities contributed by the US will further reduce, and this presents a new challenge to managing macroeconomics, which would now involve many more factors than before.

Japan’s economy in 2013

Japanese Prime Minister Shinzo Abe announced his plan about a year back to rejuvenate Japan’s economy and bring it out of years of recession and deflation. It is interesting to take note of some of the decisions taken, and their impact on the country’s economy.

Abe’s “three arrows” to achieve this goal are monetary easing, expansive fiscal policy, and long-term growth. The three, in combination are to reinforce each other, and transform Japan’s economy – which has recently dropped to 3^rd place among the top countries according to GDP.

Since “Abenomics” or Abe’s economic policy changes have come into effect, the actual output has come closer to potential input, with the difference dropping below 1.5% (deflation gap). While looking at the Nikkei index, Japan’s stock market, it has recorded unprecedented growth in 2013, with it touching its highest closing level in 6 years on December 3^rd, 2013. Simultaneously, asset prices have risen, and corresponding improvements are seen in the labour market – unemployment rate has come down to 4%.

All this has had an impact on the GDP as well, with a growth rate of around 4% during the first half of 2013. With respect to long-term growth, one factor that is quite useful is the filing of patents during a year. It is said that this would forecast how well an economy would do in the next 10 years. Japan had the highest number of patent filings in the world in 2012. Innovation along with improved trade with emerging economies, which Abe has voraciously encouraged, will ensure the vision of long-term growth.

Optimistic outlook for India’s manufacturing sector in 2014

Indian Manufacturing Sector’s Purchasing Managers’ Index (PMI) which is seasonally prepared by Markit, has consistently been below 50.0 since July 2013. 50 is the point in the index that differentiates a state of growth from one of contraction. In November though, there has been a spike in manufacturing sector activity with the PMI climbing to 51.3 due to new orders and increased output.

This also coincides with a spike in GDP growth in the second quarter this fiscal year which can be attributed to increased performance of manufacturing, construction, farm, and services sectors. Export, which is an indicator of India’s economic health, has also grown but only marginally. This would suggest that the domestic market was the main contributing factor for the GDP growth.

Industry experts claim that easing of RBI’s interest tightening cycle was also one of the other contributing factors to the improved performance. This can be corroborated with the fact that Wholesale Price Index based inflation was at an eight-month high in October (7%), and Consumer Price Index based inflation rose to 10% in the same month.

Inflation is a continuing concern for the economy and it is expected that the RBI will raise the rates again towards the end of this fiscal year. The goal is to maintain the rate of 5% which the RBI considers acceptable, which will consequentially help lower borrowing costs and increase economic activity.

India – Most attractive investment destination

2013 has seen the effect of the global slowdown on emerging economies as well. Growth in the fastest growing economies – China and India were down as well. The Indian government, who was under intense pressure to attract investments, has seemed to have turned things around a little bit. After a series of relaxations in norms related to FDI, the market is a lot more favorable for investment.

The recent survey by Ernst & Young seems to reinforce this aspect, with India topping the list of most attractive investment destinations. India is followed closely by Brazil and China. The remaining countries forming the top 10 are listed below:

4. Canada
5. USA
6. South Africa
7. Vietnam
8. Myanmar
9. Mexico
10. Indonesia

The top 3 investors likely to invest in India are the US, France and Japan; and they have been given new opportunities to invest after the Government of India relaxed FDI norms in many sectors earlier this year.

The Capital Confidence barometer report from E&Y is based on feedback from about 1600 senior executives from big organizations across 70 countries. This feedback throws light on automotive, technology, life-sciences, and consumer products as the most anticipated sectors for deals to be made. Mergers and acquisition activities are also expected to rise in 2014. The economic slowdown may have temporarily dampened investor spirits, but the increase in efficiency to combat the slowdown, has led to a much more favorable business environment.

Japanese Culture and its effect on Business-II

While entering a meeting with more than a few individuals, it is essential to first greet the most senior people in the group, and proceed forward. This is because age is perceived with great reverence in Japan. Adding to this, it also means that hierarchy is paramount in this culture and one must respect the chain of command while conducting business.

Business cards too represent an important part of a relationship. It is considered as an extension of a person’s identity. This is why seemingly normal events can sometimes be considered disrespectful. Below are a few points to consider while dealing with business cards:

• Accept a card with both hands, and make sure to read it briefly before placing it in your card holder
• When receiving a card while seated, it is advised that the card be placed on the table, and only place it in your card holder after the meeting
• When presenting your card, it is advised that you too use both hands. This is considered respectful, and it is recommended to walk up to the recipient if he or she is seated away from you.

When it comes to sales, a pressure centric hard selling approach is doomed to fail in Japan. You would do a lot better with patience, and a subtle yet persuasive presentation. Proposals need to highlight the “fit” between your organizations and elaborate on such points. Once you have concluded, please remember not to drive hard for decisions either. Since the Japanese style for decisions is by consensus, it can appear disrespectful if you push for quicker actions. As with what we have seen, patience is important because with this long process comes the opportunity for a long and trusting business relationship.

Similarly, businesspeople tend to build relationships by discussing aspects from their personal life. While this may seem normal in the West, it is critical to realize that the Japanese value privacy. This is especially important at the start of a relationship, where you may be considered pushy or rude when asking something personal.

Finally, there are a lot of small things that are to be learnt over time regarding how you present yourself in Japan. This can relate to the type of gifts exchanged, behavior while visiting homes, or even the way you use chopsticks. While you can’t necessarily know everything there is about etiquette in Japan, everything that you do know goes a long way in terms of showing respect and flexibility from your side.

China’s loss is India’s gain in Manufacturing

Companies have historically associated low cost with China. However recently, they are considering other options, which have put countries like India on the radar. Besides the issue of China not being as cost effective as before, there is also the issue of distributing risk. There have been several natural disasters in recent years that have affected business – Tsunami in Japan and Thailand are just a couple of examples which caused businesses to consider diversifying risks associated with business. When considering risk and business continuity, the overall costs sometimes discourages putting all your eggs in China’s basket.

India provides different value as compared to China i.e. China caters to high volumes and mass production, while India can provide customization and quality with its well-trained work force. The economic slowdown caused drastic work stoppages in China, due to streamlined operations and a focus on quality. With India, this would not cause such a drastic problem if the country can take lessons from China’s story and improve its infrastructure.

While the Yuan continues to rise in value as compared to the Dollar, the Indian Rupee is at a stage which is advantageous for outsourcing. Along with the depreciative state of the currency, inflation is also considerably lower in India than China.

Though India’s manufacturing sector contributes to just 16% of the GDP, a motivated effort to resolve infrastructural issues, and update labor laws would give a much needed push in a services reliant economy.