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Our Man In Davos: 4 Takeaways from the World Economic Forum

Jan 19, 2017
World Class Faculty & Research


World Economic Forum in Davos, SwitzerlandSMITH BRAIN TRUST — Several world leaders opted out of the World Economic Forum in Davos, Switzerland, this week. Xi Jinping didn't. He became China's first leader to speak at the gathering that's designed to shape global, regional and industry agendas at the beginning of each year.

Also participating: Anil K. Gupta, the Michael D. Dingman Chair and Professor of Strategy, Globalization and Entrepreneurship at the University Maryland's Robert H. Smith School of Business. He contributed to a "future of retail" panel and watched Xi present China "as a defender of globalization and global trade." Gupta says Xi made a "not-so-veiled dig" at Donald Trump in the United States and Brexit voters in the United Kingdom, amid rising questions in France, Italy and other European Union members about free trade and the free movement of people.

Recognized as among the world's "most influential management thinkers" by Thinkers50, Gupta, in an interview with Smith Brain Trust, offers insight from the ground in Davos. He covers Xi's message and its substance, the reasons for political leaders skipping the event and the future of retail. An edited transcript follows:

Q: What was the audience's response to Xi's portrayal of China as a defender of globalization and global trade? 

A: In their public comments to the media, no CEO has questioned whether Xi's comments had any basis. Why would they, unless they are eager to be punished by China. In private, however, their views are quite different. They know the hurdles that the Chinese government places in the path of foreign companies, especially those with technology-based advantages. Even if all of Trump's isolationist rhetoric were to become reality, the U.S. would still be a more open economy than China is today.

China loves open borders … as long you open your borders to them and don't ask for reciprocity. Until about 2003-04, China was indeed marching toward greater two-way openness. However, once it got entry to the World Trade Organization, it seems to have felt free to ignore most of its stated obligations. For example, import of cars was to have become duty-free years back. But, the 25 percent import duty remains in place. Not just that, foreign car companies remain barred from owning more than 50 percent equity in their China-based operations.

Q: Are China's institutions ready to lead the world's economy?

A: One could question whether they are ready to be among the leaders. Take the case of the Chinese currency. It remains heavily controlled, both with respect to valuation as well as movement in and out of China. It's officially part of the International Monetary Fund's list of the world's reserve currencies, but its use in international trade remains miniscule – well behind the U.S. dollar, the euro and the Japanese yen. Thus, the Chinese central bank is nowhere close to playing the role that the U.S. Federal Reserve or the European Central Bank play today. Or, look at China's status as a market economy. As recently as a few weeks back, both the U.S. and the E.U. decided to hold back on granting China "market economy" status – given the extent of the Chinese government's subsidization of various industries and companies, and the barriers faced by foreign companies (including their China subsidiaries) in selling to government entities. Thus, Chinese institutions are not yet close to being viewed as global leaders. Yes, China is an economic superpower. However, Chinese institutions remain relatively lightweight on the global stage. 

Q: Interesting. Just as a reminder for our readers, you've said in the past, including in a recent interview with China Business Knowledge@CUHK, that China also must manage the slowdown of its economy. Changing topics now, China's Xi and Britain's Theresa May attended the annual forum but other world leaders were absent. Does that suggest to you that the forum is becoming irrelevant?

A: The absence of the heads of state of most big countries is a direct result of the fact that they are caught up in domestic politics and concerns about globalization. Of course, it would have been odd for President Barack Obama to show up – given that he leaves office on Friday. Trump obviously has to focus on taking charge as the incoming president. The German, French and Italian leaders are all caught up in domestic politics. This is not the time for them to be seen as pro-globalization ideologues. The World Economic Forum has never been a gathering where any Russian president has felt welcome. Japan's Shinzō Abe could have come. However, that would have meant he'd come across as second fiddle to China. Why would he want to take that risk? The same goes for India's Narendra Modi. Time will tell how Davos evolves. It's still getting a large number of big-name CEOs. Of course, it does face growing competition from other high-profile gatherings including TED, SALT (SkyBridge Alternatives), Wall Street Journal CEO Conferences, the Aspen Ideas Festival and others. As of now, my best prediction is that, five years hence, Davos would still be the premier global summit of world leaders. Could Trump be here in January 2018? I won't rule it out.

Q: You were part of a panel in Davos on global retail. What are CEOs' leading concerns regarding the future of retail?

A: Traditional storefront retail is being disrupted by online commerce at an explosive pace in every corner of the world – U.S., Europe, China, India, Africa, you name it. While traditional retail is under pressure, it's not about to die – except in some segments such as electronics retailing, According to an Accenture report prepared for the Forum, in developed markets, storefront retail accounts for 90 percent of all retail today and will still account for 60 percent of all retail in 2026. However, there is one caveat: some CEOs believe that traditional retail will contract at a faster pace. Thus, the big challenge for traditional retail is how to transform themselves rapidly while also dealing with a contraction in the existing storefront space and workforce.

As the consumer becomes increasingly empowered, the whole sector is morphing from B2C to C2B. The new reality demands a very different approach to retailing – social media marketing, personalization of shopping, an omni-channel presence, fast-speed C2B2C turnaround, and at the same time, the ever-important operational efficiency. These new "outcomes" require a very different skillset for the professional talent. Key among these will be: mastery of social media marketing, data sciences, design thinking, and a customer-centric mindset.




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