New Realities, New Rules
Speaking to the Birmingham Rotary, UPS Chief Executive Officer David Abney discussed the need for new rules to deal with new realities created by technology and emerging markets.
Today I want to talk about two things – realities and rules.
Right now, we’re experiencing disruption like the world has never seen before. I’d like to spend a few minutes talking about new realities that have developed as a result. And then I’d like to suggest new rules for dealing with those realities.
From our vantage point, we see three new realities: Exponential change driven by technological innovation. … A revolution in electronic commerce … and a growth in global trade – especially with emerging markets.
Together, they create an interconnected world where technology enables e-commerce, e-commerce enables emerging markets and emerging markets enable enormous growth opportunities for American business.
Let’s examine these new realities one at a time, starting with technology.
We are on the brink of a technological revolution that will alter the way we live, work, and relate to one another.
The changes are characterized by a fusion of technologies that are blurring the lines between the physical, digital, and biological spheres.
The reality is … thanks to technology, the world is moving not just fast, but exponentially so. And if it feels like the pace is accelerating … well … that’s because it is.
The reason is simple: Things are happening faster because we’re getting smarter.
In fact, futurist Ray Kurzweil wrote that the pace of progress was accelerating so fast that, “We will not experience 100 years of progress in the 21st century—it will be more like 20,000 years of progress (at today’s rate).” Even if he is only 25 percent right, that’s a lot of progress.
No one will feel the enabling power of technology more than small businesses. There was a time when a business that wanted to compete globally had to build its own supply chain, source its own materials, set up sales outposts and figure out pricing.
Then the whole world became a supply chain. Now that it is, all you have to do is create the tools, services and security to become part of it. And we have! It’s called e-commerce.
There are few places where technology has touched more lives in more places than e-commerce.
The revolution is where consumers with unbridled expectations join hands with the technology to make their every expectation a reality.
Because of social media and other elements of global connection, it’s amazing how quickly those expectations are becoming uniform around the world.
The same here in Birmingham as they are in Beijing.
As for me, my demands as an e-commerce consumer are simple. Give me anything I want, make it easy, and give it to me on my terms. I bet you’re the same way. Delivering on those demands has led to a $2.3 trillion e-commerce market worldwide. By 2021, it’s projected to almost double.
Many believe it’s the end of physical retail as we know it.
To borrow from Mark Twain, we think the reports of physical retail’s death have been greatly exaggerated. However, the e-commerce upheaval definitely will change the size and functions of retail stores.
For many companies, that upheaval is a frightening prospect. For others, it offers a great opportunity. Omnichannel is the fancy word for giving customers choice – not just in the array of goods, but also in how they buy them.
I’ll give you an example: Hibbett Sports, based right here in Birmingham. For decades, Hibbett Sports customers have bought sports equipment, athletic apparel, and footwear in its retail stores, which now number more than 1,000.
But just last year, they entered the world of e-commerce. Hibbett’s new website accounted for approximately 5 percent of their Q3 sales. And 20 percent of their site visitors are from places where there are no Hibbett stores.
Hibbett Sports has been a UPS customer for nearly 30 years. Our small package delivery brings inventory through the front door of their stores, which are typically located in places without loading docks.
After the website launch, our global network helped them handle as much as 7 to10 times more volume.
At UPS, we’re using innovation and technology to give our customers more choice, control and convenience.
Our annual technology budget? A billion plus.
Our spending priorities? Operational efficiency, growth initiatives, customer experience.
Today, we collect and manage 21 petabytes of data across our network. That’s enough to store the DNA of the entire population of the world… and then some.
More than ever, we’re responding to the needs and demands of consumers who are pushing the boundaries of e-commerce daily – wherever in the world they may be.
And that brings me to the third new reality: emerging markets.
By 2025, annual consumption in emerging markets will reach $30 trillion dollars.
They call it the biggest growth opportunity in the history of capitalism.
According to Oxford Economics, eight of the world’s 50 largest cities in 2014, as measured by GDP, were in China. But by 2030, that number rises to 17.Markets like Chengdu and Hangzhou will be just as important as cities like Dallas and Seoul are today.
By 2060, China, India and the rest of the developing world will eclipse the West in a dramatic shift in the balance of economic power. By 2060, the combined GDP of China and India will exceed that of the OECD – and the total output of China, India and the rest of the developing world will be greater than that of developed countries. We don’t have to wait that long to see the growing clout of emerging markets. Today, China’s population — 1.4 billion strong — includes 350 million middle-class consumers with a real desire for U.S. products and services.
We find ourselves in a world where all regions of the world are important competitors – North America, Europe, Asia, South America and Africa.
But right now, competition isn’t the only challenge.
We’re facing a turbulent time with a huge disruption in the politics of trade.
First, there was the BREXIT referendum, followed by a new U.S. Administration questioning whether existing trade deals were good enough, and the subsequent withdrawal of the United States from the Trans-Pacific Partnership (TPP).
While change and uncertainty can be uncomfortable, I think it’s important to acknowledge that as the new administration has brought some strong views on trade and somewhat unconventional negotiating approaches, we have seen a refreshing conversation about trade enter the national dialogue.
We have seen governors, farmers, business leaders, and Members of Congress increasingly engaged on trade and talking about the benefits of modernizing NAFTA.
We have seen a recognition that digital trade represents a new horizon for many small and medium-sized American businesses.
And with the focus on free and fair trade, we are having a needed conversation about full implementation of trade agreements, about protecting America’s innovation edge, and about countries fulfilling past promises.
This is a good thing.
So where does UPS stand on all this?
I won’t surprise anyone here by saying that UPS has a big stake in international trade.
Trade agreements are good for our customers – following the implementation of a trade agreement, we have generally seen a 20% increase in export volume.
And that helps support jobs for our customers and for UPS. In fact, every 22 packages we ship across a border supports one job.
We are one of the leading advocates for trade policies that will break down a range of trade barriers because we believe when it’s easier to trade, more trade happens…and more people are better off because of it.
A mountain of economic research documents how trade has improved the human condition.
The expansion in free trade has increased household incomes, women’s rights, and human longevity – and decreased abject poverty, military conflict, slave labor and child labor.
That’s the power of trade ... and the power of logistics.
I’m proud that UPS has played a role in the trade boom … and the growth of logistics over the past century.
But, are today’s rules good enough to deal with the new realities of technology advancing e-commerce, and e-commerce advancing emerging markets in a hyper-globalized, super-networked and exponentially changing world?
The answer, unfortunately, is no.
New realities call for new rules.
Rule number one: Inclusiveness.
While UPS believes free trade has served this country – and certainly our company and workers well, we acknowledge that there are people who feel left behind, and who feel great uncertainty due to the pace of technological change and globalization.
We absolutely need to hear these voices and take them seriously.
In our view, the solution should be to pursue a more inclusive form of trade that gives small businesses, minority and women-owned businesses, and rural enterprises more opportunities to thrive through trade.
UPS has put a significant focus on capacity building for small and medium-sized businesses – including women-owned businesses - to help them become more competitive suppliers to multinationals.
Rule number two: Modernization.
NAFTA provides a great example of the need to ensure trade agreements keep up with the times. You can’t take a static trade agreement template and expect it to deliver the results you want over time, not with the e-commerce and digital trade boom we are seeing.
NAFTA was originally negotiated a quarter of a century ago and e-commerce was not even a part of those talks. Therefore we couldn’t agree more that the agreement needs to be updated to reflect today’s dynamic digital economy. UPS has been working to ensure the agreement supports these advancements.
While talks have been challenging in some areas, we remain optimistic that the three countries will ultimately forge an agreement that will allow North America to remain globally competitive and also be a driver of growth, particularly for small and medium-sized businesses.
Rule number three: Fairness.
Our goal in trade relationships is that countries will maintain open markets and play by high-standard rules. American companies don’t fear competition, but they want a level playing field, their intellectual property protected, and transparent rules that allow them to compete.
The recent focus on U.S.-China trade and heightened leverage gained through threatened tariffs and other actions is driving intense talks between the two countries that may lead to new market opportunities and an improved environment for American companies.
Korea and the U.S. likewise recently reached agreement on updates to their bilateral trade agreement that will deliver important benefits and allow the two countries to return their focus on cooperative efforts on North Korea.
We don’t have a crystal ball and we’re not at the finish line on some of the current trade discussions, but the downside of escalation of disputes and the upside of finding solutions leads us to be cautiously optimistic about where we’ll end up.
Combined with the recent tax reform bill and ongoing regulatory reform efforts, we see America on a path of enhanced growth and competitiveness.
Despite all of the uncertainty that today’s environment represents, we must continue to embrace change to take advantage of the opportunities offered.
And despite a host of challenges, from political shifts and growing cities to climate change and advancing technology.
We must create higher standards and smarter rules to simplify how goods cross borders, and streamline the flow of commerce to meet the demands of the 21st-century economy.
We must help create rules that make trade fair, safer, cheaper, and faster for American businesses of all sizes.
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