Two layers of forces at play


It used to be that you needed to keep a weather eye on your industry and that was enough.

Track the processes and technologies used, the manufacturing advantages and disadvantages, and the market shares and product mix of the contenders.

Well, you still have to do that. But these days, there’s a second factor at play you also have to keep an eye on.

Call these the meta- or macro- conditions. The ones that underlie the broader global picture as a whole and affect everyone.

Previously, these didn’t matter so much. Countries and regions in disarray were places where you didn’t put plants, didn’t have subsidiaries. Distributors and agents were good enough, if you bothered with them at all.

Now they matter, because any part of the globe can suddenly turn turtle into a crisis.

Don’t believe me? Think about the endless Eurozone issues of the past two years. Europe — a market of half-a-billion people, wealthy and with excellent infrastructure — isn’t quite as rock solid as it appears, more because no one really knows, now, what’s the next domino to tip over and be patched, and whether someone will fail to catch a situation in time and all of a sudden banks come crashing down and nations erupt in violence in the streets.

The macro items to look at are subtle, and move more slowly.

Energy return on investment (EROI) is one to pay attention to. It affects future buying power, and future costs, far more than do most other factors.

When EROI was 100:1 (we got 100 units of energy output for every unit of investment put into getting it), early in the twentieth century, we switched to oil and gas and prospered. We also globalized on the back of it.

Right now our societal EROI is at a tipping point. Depending on precisely how many “reserves” you trust, how many costs revealed by the energy industry you believe, etc. we’re globally somewhere between 10:1 (a very optimistic assessment) and 3:1. That’s a blend across everyone and everything: at 3:1 more and more of the economy is actually below the 1:1 where you have no growth at all. You’re destroying capital and not generating enough to pay back the investments made.

Hmm. Doesn’t that sound like an economy that, no matter how much money you throw at it, can’t get up off the mat?

Wouldn’t that show up as rising energy prices even in the face of falling demand? Rising food prices? Falling demand for things that aren’t needed to survive?

Rising food and energy prices are what underlay the Arab Spring in 2011, after all.

More product line extensions, more shifting to ever-cheaper labour markets, and more money into creating marketing hype won’t overcome macro forces like these.

Creating products that are an order of magnitude cheaper to own and operate, coming up with new manufacturing techniques that are much more efficient on an EROI basis (so that you can build locally and save on shipping) instead might be just the ticket.

The bottom line here is that the job of figuring out the future picked up an extra dimension in the past few years.

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