The New Economy

By Jeroen Haemers

Business community is undergoing a rapidly changing world with new upcoming trends every year. What trends are underlying the current state of the economy and how will this affect the economy on the long-term? Should we fear or should we welcome such trends? How will this consequently work out for the future job market environment?

Multinationals massively reallocate their executive teams mainly to Asia and the United States. In Volkskrant’s edition[1] of February 28th, Professor Henk Volberda, teaching Strategic Management at RSM, expresses his fears about the ongoing trend[2] of reallocating management layers to upcoming markets worldwide. Not only low-skilled work is outsourced, but also human capital is slowly moved across national borders. A sensitive issue, which could harm the economy badly on long-term.

Reallocated executive teams lower the importance for multinationals to invest in R&D in the Netherlands. There is no need for human capital, so why bother to invest? The economic focus within globally branched concerns is changing rapidly. With management teams on site, multinationals can more easily sell their products implying larger profits for their shareholders. However, the negative consequences are heavily underestimated. It is common for expats on site to lose overview due to cultural and language barriers and consequently lose sight on the interests at the HQ in the Netherlands. Moreover, most of the Western companies react rather convulsively on this ongoing trend. They keep cutting back on costs and are short-term thinking. More of the same doesn’t improve one’s position.

How should multinationals react on this trend? Social innovation[3] is the key. More and more organisational structures are arising making decentralized working possible. One of the major problems that multinationals experience, isn’t the lack of innovation, but rather the implementing of such innovative ideas. However, smaller companies and new entrants are able to implement this appropriately. Organisations should engineer their structure to best fit the technology, in which it will be more conducive to innovation. Increased levels of innovation will eventually have disastrous consequences known as the ‘disruptive innovative thought’, wherein innovation is that far advanced, that old systems will be blown away and will disappear.

2015 will be another year experiencing new disruptive innovations.[4] There will arise new ‘Ubers’, though this time not within the taxi segment but rather within the financial sector. New entrants will challenge the large, established banks. For example, large players like Google an Amazon are slowly moving into the financial direction, as the introduction of payment methods shows. In fact, the Netherlands is an interesting market for such players, as adoption of new technology is rather advanced.

As a result of new developments, trends such as ‘the internet of things’, big data and robotics, new business models arise. This technology existed already five years ago, but it isn’t all about technology. Rather it is about how one can create value by means of these technologies. For the Dutch manufacturing industry, this new technology provides new opportunities. Rather slowly, it’ll get more economically profitable, to move production facilities back to the Netherlands. However, the source of production is all about customized production and focused on the knowledge-based manufacturing industry. For example, Philips is producing the newest robotic complex razor blades in Drachten and even though this kind of production is exciting at this very moment, more production alike will be observed in the upcoming years. This implies that production can once again be brought back to the Netherlands, however, in a different setup. Demand for employment will increase more and more within the IT-department.

Therefore, demand for employment will shift due to the impact of robotics. Step by step, robotics will gather more prominence. Only smart companies, those whom invest in human capital, will be able to keep on growing at a steady rate. By adoption of new technologies, the production process will change, causing the mid-segment of the labour market to decline. A break-up will arise; on the one hand companies will invest in upgrading employees to specialize them further, but on the other hand one will observe companies competing on costs thus rather employing downgrading of their employee base.

This way, the labour market will be split into two extremes. Highly-paid knowledge-based jobs and low-paid jobs with almost no need for education. It’ll be sectors that cannot be outsourced abroad. For example, a barber one cannot outsource to China, so every bit that cannot be outsourced, will remain here in the Netherlands. However, this will all be low-paid jobs and the magnitude of the job will get smaller. Looking at the health sector, one can clearly observe how this sector is robotised. More and more work will be replaced by robots, meaning robotising will move faster that you’ll expect.

In 2014, several companies announced they will split up parts of the companies and this trend will continue in the upcoming years. Under pressure of their shareholders, splitting up the company is a discussion that gains more relevancy. However, this isn’t a positive development, as this will reinforce the aforementioned reallocation of HQs to overseas economies due to the smaller head offices caused by splitting up the company. Another risk will be that these smaller companies will be more attractive to be taken over by other companies and therefore this will weaken their competitive advantage.

Nevertheless, the trend of the growing start-ups in the Netherlands will continue to strengthen. New entrants like Blendle, Peerby and Vandebron will stand up, providing the opportunity to establish new, large, globally powered companies from within the Netherlands. Therefore, we have to look into the development of human capital, invest more into the width and depth of the necessary skills. Nowadays, universities are too focused on knowledge production, but rather they have to focus more on the appropriate application of all this knowledge. From that point onwards, eventually, we will end up in a knowledge-based economy in which we will lead and excel. Thus, for all future job seekers, the key to success is not creating new technology; it is applying it appropriately.

In corroboration with Professor Henk Volberda