Imagine 2007...

What does the new year hold for the UK, its economic prospects and its changing role in global business? Richard Scase, emeritus professor of organisational behaviour, Kent Business School, reads his tea-leaves.

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Last Updated: 31 Aug 2010

It is always difficult to predict business trends, and in many ways the long-term patterns are easier to identify than the short-term. For instance, it is reasonably certain that the Chinese economy will continue to grow, but it's much harder to determine what will happen next year to European growth rates or the value of the euro.

Without doubt, India and China will continue to occupy an increasing number of column inches in MT in 2007, and the attractions of these economies for foreign direct investment are unlikely to decline. I expect to see a growing number of UK companies searching out the opportunities generated by a rapidly growing mass of affluent consumers, already numbering about 200 million, each with an annual income of $30,000 or more. In particular demand are the products associated with Western lifestyles, so there will be a greater spend on luxury household goods, branded clothes, leisure and media products.

India, with its affluent and large English-speaking population, is attractive to UK-based media companies. These range from businesses in advertising to printers and online entrepreneurs. The demand for healthcare and beauty products is also ready to take off. And so exports from the UK to India are likely to grow rapidly from the present low base of 1.75%. Compared to China, there are strong advantages to doing business in India: greater transparency of regulation, the common use of English, and legal and accountancy systems that are similar to those in the UK.

Alongside India, China will continue to grow but probably at a lower rate, because energy bottlenecks and shortages of commodities such as steel, copper and aluminium will restrain development. Its demand for oil will grow exponentially over the coming years - China accounted for no less than 30% of the world's increase in oil consumption last year. In 2007, I suspect that China's political influence on governments in Asia, Africa and South America will increase.

This draws attention to the issues that will dominate corporate debate in 2007: energy, global warming and environmental sustainability. It's no longer merely a topic for after-dinner talk among the chattering classes. The Stern Report shows that a 1% increase in world temperatures could displace 100 million people fleeing rising sea levels and put many major cities, including London, at risk.

Pollution and environmental sustainability will stay high on the political agenda - and the corporate sector will be expected to respond. It's likely that green taxes will be introduced, but firms will also be given incentives to implement technologies that make less use of raw materials and energy resources. This could mean an increase in the funding of R&D projects both for companies and universities.

In 2007, the UK economy is likely to grow at about 2.6%-2.8%. House prices will increase by about 5%-8%, depending on the region. Interest rates could go up to 5.25% or even higher by the year-end. Industrial exports are likely to continue their long-term decline but compensated for by the continuing growth in the overseas sales of 'invisible' knowledge services to the emerging-market economies.

Since most of these services are located in London and the south, the country's north-south divide will continue to widen, despite the dynamic growth of cities such as Leeds and Manchester. The migration of talented young people to the south will be sustained, further straining local housing markets and reinforcing regional inequalities in talent, job opportunities and house prices.

Next year's growth of the UK economy will add to existing skill shortages, particularly in the home counties. This will act to pull in workers from the EU accession states, filling job vacancies in the retail, hospitality and construction sectors. Most of these workers are young people who regard their stay in the UK as short-term and as a means of supporting their families back home. Take a look at Stansted airport on a Friday night. It's not just the 'weekend breakers' that are congesting the airport but young workers returning home to Poland and the Czech Republic for short visits. Without this flow of labour, certain sectors of the UK economy will under-achieve.

If the UK economy remains buoyant in 2007, what about the rest of Europe? Indicators suggest that the German and French economies will pick up to about 2% growth. Pressure for structural reforms will grow as the impact of globalisation becomes more widely recognised. Ageing populations will put further pressure on state budgets and strain the euro. Indeed, looking further into the future, I'm prepared to hazard a guess that the euro as we know it today may not be around in 10 years' time.

FURTHER AHEAD - TO THE BRAVE, THE BOLD AND THE CREATIVE GO THE SPOILS

Doing business in the 21st century is going to be tough. The internet revolution has created an inter-connected global economy that has opened up unprecedented markets, but it has also created greater risks. Today, business opportunities are in the BRIC (Brazil, Russia, India and China) economies, each of which has weaknesses in its compliance and regulatory regime - which means businesses will have to reassess their risk-management strategies.

They will need to be less risk-averse and more adventurous and entrepreneurial. Corporate scenario planning will be more complex, and many companies will be inclined to develop more cautious, short-term investment strategies. They will not survive. The rewards will go to the more adventurous, self-confident CEOs who recognise the need for more entrepreneurial corporate cultures to realise the opportunities.

Future organisations will have to abandon operational processes based on hierarchical control and the specialist division of operational job tasks. Cost is the optimum consideration and costs are much lower in the BRIC economies.

Western companies need to develop specialised, high-value products and services for the mature economies as well as for expanding groups of affluent consumers in the emerging markets. The future is with the professional services organisation - whether Coca-Cola, Pfizer, Motorola or the BBC. The basis for their high performance and competitive advantage is leveraging creativity. Traditional management models are inappropriate: innovation and creativity cannot be designed as routine productive processes in the way that cars can be manufactured.

Knowledge-based businesses will have to encourage flexible, remote and other working practices, according to individual preferences and needs. Firms need to redesign workplaces as cafes to encourage the exchange of ideas and informal collaboration The new business leadership style is relaxed and self-confident but sets tight performance targets and time and cost budgets.

Edited extracts from Richard Scase's new book Global Remix (Kogan Page, £14.99).

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