Transcript Positioning Your Business for the Future

Positioning Your Business for
the Future
The Economic, Societal, Energy and
Technical Trends which Will Impact the
Local Economy over the Next Decade
Overview
• The economy is turning to growth but the
next decade looks like a sluggish period
• Chester county’s economy is one of the
best in the country and offers numerous
opportunities
• The competitive environment is changing
fast so you must adapt to the new
environment
Thesis
• It is one thing to lay out the likely
scenarios, however, it is up to the
individual business to decide how to utilize
the information for its own needs.
• The only certainty is that change is
accelerating and you must adapt or you
will fall behind your competition.
My Background
• Over 30 years of experience in implementing marketing
and business development strategies for start up, small
and global businesses.
• Fields of experience include mergers and acquisitions,
new business development, electric vehicles, automotive
components, electronic components, fiber optics,
batteries, medical instruments, and environmental
strategies.
• Besides working in the US during an incredible period of
progress, I have participated in the emergence of China
and SE Asia economies while also seeing first hand the
growth and stagnation of western Europe and Japan
along with the collapse of the Soviet Union.
The Current Economic
Environment
We have to establish where we
are today before looking at the
future.
Past Downturns
Duration
months
Real
GDP
IPI
Mfg
Peak
UR
Great Depression
Aug 1929 - Mar 1933
43
-27%
-53%
25%
Recession
Nov 73 – Mar 1975
16
-3.1%
-13%
9.0%
Recession
July 81- Nov 82
16
-2.9%
-9.3%
10.8%
Avg Postwar
10
-2.0%
-8.2%
7.6%
Current Fcst (p-t)
19
Data Courtesy of Bob Shrouds of Dupont Corporation
- 3.5% -16.5% 9.6%
• This downturn may not compare with “The
Great Depression”…
• But economists have already labeled it …
“The Great Recession”
• The recession should be over by the end
of the year with + GDP growth predicted
for Q3 and Q4
How is PA Doing?
• Unemployment rate is 21st lowest in US: 8.3% vs. 9.5%
for US in June
• 2008/2007 growth rate was 1.1% vs. 0.7% for US
• Q1 2009/ Q4 2008 growth rate was +0.1% vs. -6.4% for
the US
• Overall PA taxes are 15th lowest in US
• Real estate and corporate income taxes are on high end
• Housing prices yr/yr -4.2% for PA vs. -12.8% for US
• 5 year housing prices, +17.7% for PA vs. -2.9% for US
• PA is doing much better than other NE States and better
than average for the US
PA Budget Issues
• 2009-2010 deficit projected at $4.3B or
16.8% of revenues
• NJ, NY and DE projections are worse
• Inevitable tax increases and/or cuts in
services as budget must be balanced
Regional Tax Structures
Income
Tax
Sales
Tax
Gas
Tax
Corp.
Tax
PA
DE
NY
NJ
MD
3.07%
(flat)
6.95%
(grad.)
8.97%
(grad.)
10.7%
(grad.)
6.25%
(grad.)
6%
0
4%
7%
6%
32.2¢/g
23.0¢/g
42.5¢/g
14.5¢/g
23.5¢/g
9.99%
8.7%
7.5%
9.0%
8.3%
How is Chester County Doing?
• #1 in PA for per capita and household income
• 11th richest county in US
• Lowest unemployment rate in 11 surrounding
counties
• 2nd lowest unemployment rate in PA
• Highest educational level in PA
• Real estate prices -7.4% yr/yr (back to ’05
levels)
-5yr growth in real estate prices is +5.7%
-10yr growth in real estate prices is +73%
• Thus Chester County is doing quite well on a
relative basis
Unemployment Rate for 11
Surrounding Counties
Source: Bureau of Labor Statistics
Unemployment Rate vs. Education
(5/2009)
•
•
•
•
No high school degree
15.5%
High school degree
10.0%
College education
4.5%
42.5% of Chester County adults have
college degree or better
ECONOMIC TRENDS
• The prime factor which will dictate the
future economic climate is the national
public debt that is being created in
response to the “Great Recession”.
Historic National Public Debt
Deficit Projections
• The nonpartisan Congressional Budget Office
says the deficit will average nearly $1T over the
next decade.
• Deficits will run ~4% of GDP even after the
economy recovers.
• Debt will reach ~80% of GDP by 2019.
• This does not include any negative impacts from
carbon taxes or medical care reform.
• Countries with debt to GDP > 50% have been
stagnant for last 20 years
- Germany 65%, France 64% vs. China 18%
Impact of Systemic Budget Deficits
• If debt to GDP reaches 80%, US could
lose its AAA bond rating
• To get deficit back to 2008 level would
require raising taxes 60% or inflating the
economy 100%
• A 100% inflation of the economy would
result in a 100% depreciation of the dollar
• The Administration has testified that the
deficit trend is “unsustainable”
Impact of Budget Deficits
•
•
•
•
•
•
Higher taxes
Weaker dollar
Higher energy/transportation costs
Higher commodity costs
Higher inflation
Higher interest rates
Higher Inflation/ Higher Interest
Rates
• Will occur because deficits must be
monetized
• US Treasury must sell bonds and buyers
will demand higher rates
• The yield on 10 and 30 year bonds
currently indicate long term 5% inflation
• At that rate people on fixed income will
lose 50% of their buying power in 14 yrs.
Higher Inflation/ Higher Interest
Rates
• Depresses residential and commercial real
estate
• Low growth, stagflation
• General feeling of being on a treadmill
• Out migration of retirees and high income
individuals
• Continuously raising prices to make up for
higher costs
• Unions and employees press for wage increases
Higher Taxes Inevitable
• End of “Bush” tax cuts in 2011?
- Top marginal tax goes back to 39.5%, ~ 10%
increase
- Dividend and capital gains taxes go from 15% to
earned income rate
• Some type of tax to pay for medical care reform?
• Taxes on “unhealthy” products?
• Higher fuel taxes?
- Or tax on mileage driven
• Tax to limit carbon dioxide emissions?
• Higher school taxes?
• National sales or value added taxes?
• Higher state and local taxes
Impact of Higher Taxes
• Intercity and interstate migration to low tax
areas*
• Off shore migration of businesses and
residences
• Barter society
• Non taxed “perks” are more important
• Underground economy
• Importance of tax attorneys and
accountants
Chester County Taxes
• Currently well positioned compared to
surrounding area
• Recent West Chester school levy increase
may be a bad omen
Weak Dollar/ Higher Commodity Costs
•
•
•
•
Inbound tourism accelerates
Outbound tourism decreases
Export businesses thrive
Imports cost more especially commodities like
oil and copper
• Foreigners buy US real estate and businesses
• Manufacturing with high material content will
suffer
• Domestic goods are favored
Higher Energy/ Transportation Costs
• Expect $6-8/gallon gas cost similar to
Europe and Japan
• Higher cost hybrid and electric vehicles
will be effectively mandated
• Higher auto insurance premiums
• Higher cost electricity
• Push for mass transit
• Reversal of suburban sprawl
Low Growth Rates
• According to CBO projections, the
economy will only grow at ~ 2% rate for
the next decade
• The bond market indicates a 5% inflation
rate
• Unemployment will probably be persistent
perhaps at ~8% rate
• Thus the next several years look like a
period of “stagflation” similar to the 1970’s
Winners and Losers
• For the past 50 years he economy has been
driven by the consumer via low interest rates
-Real estate, communications and electronics
have been the prime beneficiaries
• Recently 72% of the GDP was driven by the
consumer
• The new environment will reduce the role of the
consumer and increase the role of the industrial
and government sectors
Alternate Economic Scenarios
• Double dip recession is possible but not
probable
- Occurred in the 30”and the 70’s in the US and
Japan in the 90’s
- Excessive interest rates, taxation, terrorist
attacks can trigger it
• Faster growth is possible but highly unlikely in a
sustainable manner
- Even more government spending and weak
dollar stimulated exports can help for a while
SOCIETAL TRENDS
Less Affluence
• Luxury goods and high end restaurants hurt
- Bistros, trattorias, tapas bars, and BYOBs lower cost for the
consumer
- Blue Pear and Teca are good examples of trend
- Gourmet food trucks and home deliveries will spread
• Less extensive vacations especially overseas
- More travel by car and bus
• Outward sprawl reversed
- Retirees sell off suburban land to finance future
• Home remodeling thrives instead of spacious new
homes
• More “do it yourself” landscaping, cleaning, painting etc.
Less Affluence
• Vehicles will be used longer
- Good for auto repair and used car dealers
• Home care for the elderly increases
- Organizations like “Living Angels” are enablers
• Retirement and marriage are delayed
• Couples have fewer children and divorce less
• Non profits suffer from lack of funds but more
volunteers available
Interstate and Interregion Migration
• Population and businesses move to low cost,
low tax, pro business areas
- NJ, NY, Conn., OH, Philly, NYC are already
impacted
- So far Chester County is benefiting
- Diversified economy: financials, pharma, tourism,
universities, farming provide balance
- Retaining good schools, pleasant environment and
skilled workers is a prerequisite
• Some low cost areas will be resurrected
- e.g. NE PA will grow with Marcellus shale and east
coast warehousing jobs, and retiree low cost of living
Working at Home
• Higher transportation costs and better
communication capabilities will accelerate
trend to work at home
- High bandwidth fiber optics and cable make
videoconference and group internet use
practical and inexpensive
- Many at home workers will be independent
contractors “free agents”
- Home office products will be growing market
- Will have need for “in house” day care
Learning at Home
• On line education is fastest growing
segment of educational market
- High school, college, graduate school and
specialized training all being impacted
- Electronic aids such as Kindle and
interactive internet assist trend
- On line college was 11% in 2008 up from 1%
in 1998
- “Jack Welch Management Institute” MBA
costs $21,000 via Chancellor University
Office of the Future
• Physical office has a set of dedicated work areas, few
permanent offices
• Many employees work remotely with 100% electronic
contact with everyone
• Cloud computing reduces need for IT dept.
• Office space and equipment is very flexible, generally
leased and electronically sophisticated
- Co op offices are shared by very small businesses
• Chief Knowledge Officer is key
-Historian, allocator of resources, referee and performance
evaluator
• Sr. Administrative Asst will be one of few permanent “in
office” employees
-Coordinates info to the mobile work force
- “War Room” captain
Office of the Future
• Microsoft Office SharePoint server is
typical of system used to integrate and
simplify every day business functions
• Provides hierarchal access for executives,
customers, suppliers and all employees
• Helps meet regulatory and company
requirements for control over content,
storage and security
Office of the Future
• “Second Life Grid”
- “Virtual” platform to conduct meetings,
conferences, focus groups, recruiting,
training and product demonstrations
- Currently used by IBM, Xerox and
Michelin to reduce cost and expand reach
- Enables direct interactive engagement in
a 3D environment that includes voice, text,
and document sharing
Home Medical Care
• Drive to control medical costs will force use of
new technologies to monitor and treat patients at
home
-Home medical monitoring will wirelessly measure
heart rate, blood pressure, oxygen in blood, glucose,
EKG, falls, panics etc.
-Implantable and “in clothes” sensors developing
rapidly
-Drs, nurses and EMS will be “on call” but theme is to
be proactive rather than reactive
-Many surgeries and emergency treatments replaced
by home medication
Multigenerational Homes
• An aging, less affluent population will lead to
elders staying with their children
- Alternatively, they will move into co-ops to share
expenses and receive minimum nursing care
- “Green House” project is an example
• Lower growth economy, higher educational costs
and delayed marriages will lead to children
staying with parents longer
• Bigger, older homes in an urban environment
will be favored ( good for home offices too)
Demographic Changes
An Aging Population
• 20% of population in PA is at least 65 today and it will
accelerate with the baby boomers coming of age
- 77 million baby boomers will retire in the next 15 years
• Healthiest, wealthiest, most active, longest living and
best skilled senior segment ever
- looking for meaningful roles in the community
• Generally fiscally conservative segment worried about
inflation and tax increases because of fixed income
• Increase in hip fractures, cancer, Alzheimer’s and traffic
accidents
• Segmentation of media, entertainment and services for
seniors
-Virtual reality games, Wii, elder movies and cable shows
- Improved voice activated computers will drive more internet use
- More extensive senior tours and adventures
Demographic Changes
The Rise of the “Millenials”
• The generation born between 1978-2000
• Completely at ease with a digital life style
• Not really interested in the traditional
corporation, newspaper, TV or church
• Their “on line” world features Twitter, texting,
Facebook, You Tube, Linked In and their
limitless successors
• More educated, progressive and racially diverse
than the baby boomers
• Well suited for the “free agent” role in the
economy
Digital Life Style
• Ubiquitous communications
- All time attachment to internet, phone and
entertainment device
• Home entertainment will be at consumer’s
demand
- TV will be a device to deliver any program, movie, or
game desired at any time
• Kindle will make reading and learning easier and
less costly
- Gradually replaces newspapers, magazines, bound
books and text books
- Print size can be adjusted for seniors
- Device can read to the user
Digital Life Style
• “Open Table” concept will link restaurants and
other service providers (plumbers, hair salons,
auto repair shops etc.) to the consumer
- You decide on time ,place and type of service and
Open Table will provide you the options and confirm
your selection
• Instead of dividing society, the very low cost of
connectivity will actually unite society via cell
phones and the internet
• Security will be enhanced by stationary and
airborne surveillance systems
• Privacy issues will be continuously battled
Digital Life Style
• Lancaster, an example of digital surveillance to
reduce crime:
- “Most closely watched small city”
- 70 closed circuit cameras so far, going to 165
- Round the clock scrutiny of parks, streets and other
public spaces
- Non profit group “Lancaster Community Safety
Coalition” hires civilians for monitoring and notification
of police
- Organization set up by business owners, city officials
and civic boosters
- Raised money from private donors and foundations
- So far little public outcry
Energy and Technical Trends
TECHNICAL/ENERGY TRENDS
• Revitalized domestic energy industry
• Hybrid/Electric vehicles change the industry
• Electronic revolution continues through
nanoscale technology
• Cloud computing accelerates mobility, lowers
costs and enhances productivity
• Nanoscale medical instruments and treatments
improve medical care at reduced costs
“New Domestic Energy Age”
• Natural gas further developed for its domestic
availability, low cost and relative “greenness”
• Nuclear energy resurrected as an answer to CO2 control
and being complementary to battery powered vehicles
• “Off shore” oil and gas further exploited to lessen
dependence on foreign sources and to enhance govt.’s
revenue stream
• Solar and wind heavily subsidized but will stay a small
part of the actual energy base
• “Clean coal” is not seen as a practical answer for the
next decade
• Biofuels have a chance but ethanol experience is
impediment
• “Off shore” wave energy will be evaluated as stable
resource
Natural Gas “Explosion”
• Technology breakthroughs have made NG extremely
plentiful and low cost in US
• PA will benefit enormously through the exploitation of its
Marcellus shale deposits
• Economic impact on PA in 2020 estimated by PSU in
July 2009 study:
- $25B added to state GDP
- $1.4B added to state and local taxes
- 176,000 new jobs
• Projects have started and deals are being made for
access
• Reserve is sufficient to support PA economy for 100
years
Marcellus Shale
Thickness map of the Marcellus Shale. Modified after: United States Geological Survey, Open-File Report 2006-1237, Assessment of
Appalachian Basin oil and gas resources: Devonian Shale-Middle and Upper Paleozoic Total Petroleum System, by Robert Milici and
Christopher Swezey. [3]
“Natural Gas Explosion”
• Many coal fired power plants will be converted to
NG
- 43% lower CO2 emitted
-Technology is well established
- 57% of all new electric generation is from NG
- New Exxon technology may eliminate any CO2 issue
• Use of NG for large vehicles will increase but
won’t spread to common automobiles
Nuclear Energy Prospects
• Worldwide the number of plants will double in next 20
years
- China, India and Middle East lead
• US today has 104 Generation I facilities which supply
20% of our electric power
- None built for 30 years
- 31 applications in the pipeline including PECO’s parent
- $122B in Energy Dept. loan guarantees available
• Much safer Generation II plants now supply 77% of
French, 46% of Swedish, 35% of Japanese power
• Generation III plants to be “modular”, safer with no
control rods, do not use weapons grade enriched fuels
and minimize nuclear waste i.e. “ nuclear batteries”
Chester County’s Energy Future
• Currently in good shape with ~10% excess
electric power available
• Low demand growth is predicted because
of a minimum of heavy industry
• Long term, proximity to NG, potential “off
shore” oil and some of the new nuclear
plants should provide a smooth and not
too costly transition from the current heavy
reliance on coal
Hybrid and Electric Vehicles
• By 2020 they will comprise 20% of the vehicles
sold
• Mandated CAFE standards, higher gasoline
prices and govt. subsidies enhance this outcome
• 3 types will be commercialized:
- The current hybrids where a nickel metal hydride
battery assists a gas engine
- A “plug in “ hybrid where a new technology battery,
lithium ion, will power the vehicle with assistance from
a small gas engine
- An all battery vehicle
Current Hybrids
• Cost at least $5K more than the current IC
vehicle of comparable size and performance
• Increased fuel economy provides 3-9 year
payback depending on the gas price, subsidies
and auto company pricing strategy
• Insurance and repair costs are higher
• Limited number of repair shops and technicians
trained for service
• Basically a “beta test” for the next generation
- Never expected to dominate the market
“Plug In” Hybrids
• The real game changer as long as new lithium ion
batteries are proven practical
• Will require at home, office or service station charging for
at least several hours
• Will have practical range, much higher fuel economy and
can be used in larger vehicles
• Will still generate CO2 emissions if electricity is
generated by coal
• Lithium ion batteries for vehicles have never been mass
produced, unproven durability and potential risk of fire
• Asians, esp. the Japanese, will dominate the production
of the batteries
- auto companies become assemblers, testers and marketeers
“Plug In” Hybrids
• First vehicles launched in 2010
• 12 million/yr forecasted for 2020
• Higher up front costs suggest that leasing will be
key to initial adoption
• Chevy “Volt” to be introduced next year
- $40,000 4 passenger compact
- 40 mile range on battery
- 12 gallon gasoline engine to extend range
- 6-8 hours to recharge on 110 volt circuit
- Battery to be made in Korea
Full Electric Vehicles
• With success in hybrids, full lithium ion powered
vehicles will be developed for the limited range
commuting market
• If the electricity CO2 issue is resolved (nuclear &
NG), then this concept will be pushed to further
limit CO2 and reduce foreign oil dependence
• Success will depend on battery costs and
available charging infrastructure
Local Impact
• Need for skilled technicians and repair shops
• Need for recharging, replacement and recycling
stations
- Old battery will be valuable
• Used car and repair shops will thrive as many
consumers try to resist the trend
• Auto parts suppliers will be severely impacted
• Insurance policies will be revised because of
uncertainties and safety issues
• New car dealers will have to retrain personnel
and develop new sales strategies
• Electricity should be readily available for
charging
Nanoscale Computer and Memory
Devices
• The trend of the last 40 years of doubling computer
capability every 18 months while lowering cost will
continue for the next decade
• A 4TB supercomputer the size of a lap top is achievable
• A DVD the size of a quarter holding 250 movies is
achievable
• Computers will have processing power greater than the
human brain and will understand your intent
• Robots with human skills will handle dangerous missions
• Off site remote controlled surgery will be feasible
• Police will have enhanced surveillance techniques but
privacy issues will be persistent
Cloud Computing
• Common business applications accessed on line via web
browser
- requires only a low cost netbook computer
•
•
•
•
•
Software and data stored on remote servers
Billed similarly to your utilities, pay only for what you use
Avoid up front costs
Lower overhead from fewer needed IT resources
Immediate access to upgrades and wide range of
software
• Vendors include IBM, Microsoft, Amazon and Yahoo
• Users sacrifice their privacy and personal data to 3rd
parties
Nanotechnology for Medical
Applications
• Improved delivery of drugs
- Extremely small size will allow drug particles to be
targeted at the cell level
- Can get the drug through the cell membrane where
it will do the most good
- Allows for lower dosages and less tissue damage
• Cancer treatment
- Earlier stage detection via exceptional images of
tumor sites
- Multifunctional nanoparticles will detect, image and
treat tumors
- RF therapy will attach nanoparticles to tumors and
“cook” them in situ
Thoughts for Small Retail
Businesses
• Expect slow growth and no return to the 90’s or even 5
years ago
• Target the “do it yourself “and home office markets and
tourism
• Use “on line” marketing and IT systems
• Reduce debt and lease commitments to improve balance
sheet and cash out flows
• As inflation takes off continuously raise prices
• Try to use domestic products which will have stable
prices
• Make sure you understand your “millenial” employees
Thoughts for Those Involved in the
Transportation Industry
• Understand the tremendous change that
will occur
• New car dealers, used car dealers, repair
shops, parts suppliers, gasoline stations,
electrical contractors, insurance agents
and bankers will all be impacted
• Opportunities exist on both sides of the
electric vehicle and natural gas evolution
Thoughts for Those Who Are in the
Real Estate Business
• The days of low interest rates and easy
credit will not return for a long time
• The reversal of urban sprawl will benefit
urban sales
-“Walkability” will be a selling feature
• Target foreign buyers by selling the
“Chester county environment”
• Get involved in the “Marcellus shale”
regional boom
Thoughts for Those in the Mid Size
Service Businesses
•
•
•
•
•
Embrace the technical trends
Use “on line” IT and marketing services
Develop a virtual office, keep everyone mobile
Lower fixed asset costs
Watch out for inflation impacting your
transportation and material costs
• Target the growth markets; governments, home
health care, home learning, tourism, electric
vehicles, Marcellus shale and export industries
Summary
• Chester county businesses are in a
favored position.
• Despite generally sluggish growth many
opportunities will exist for those who
understand the changing environment
• Contact SCORE to fine tune your strategy
• Embrace the changes and thrive!