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Red Flags for the Decade Ahead


On our list: family businesses under stress, a dearth of managers, and corruption

What are the big concerns confronting business in the next 10 years? — Fatma Abdullah, Dubai, U.A.E

Because most of the mail we receive is about headline news—from the credit crunch to food shortages—your long-horizon question came as a pleasant relief. Better yet, it underscores an important reality that's all too easy to forget. In business, you can never stop planning for the future, even when it feels like the present requires all your attention. Indeed, imagine if loan-giddy banks had planned for the day when the housing market started to contract. Perhaps we'd be hearing about record earnings now instead of write-offs. Or imagine if Americans had planned for energy independence. Perhaps today nuclear plants would be generating a significant percentage of our power, as in France, Japan, and Sweden.

But hindsight is easy, and you're asking about foresight, so let's turn in that direction. Simply put, in the next decade, the global marketplace will continue to get more competitive, compelling managers to make their organizations more agile, productive, innovative, and technologically advanced.

Old news, right? We agree. Most companies have spent the past few years, if not longer, grappling with the transformative impact of globalization. So what's actually new to add to your list of "big concerns" for the future? With all due respect to professional prognosticators, which we are not, we'd add three items, based on recent small-session meetings with executives in the U.S., Eastern Europe, the Middle East, and India.

Our first area of concern: the future of the family-run business, which plays so big a role in so many economies. Such companies have strengths, of course. They can give employees a sense of humanity and belonging. And in hard times, their cultures can be forgiving and resilient.

But we sense twin fault lines spreading beneath the foundations of many family businesses. The first relates to the traditional family company's emphasis on wealth preservation over accumulation. That protect-the-assets approach often worked in simpler times, but it could prove devastating in a global environment where risk-taking and growth are essential to survival.

And then there's succession, which has never been easy for families. But today, greater longevity means many patriarchs stay in power much longer, forcing a whole generation of family members into other pursuits. "Kids" these days don't want to wait until they're 50 to take charge. At the same time, too many patriarchs adhere to the age-old practice of passing the reins to progeny, regardless of talent. That tradition brought acceptable odds of success in less competitive eras. No more.

The second item we'd add to our red-flag list is the persistent dearth of, no, not engineers or scientists, but professional managers in the developing world. On our recent trip to your country, for instance, we heard CEOs of both local and Western companies say the only thing holding them back was the inability to find people to run their operations, from HR to finance. Incidentally, this challenge (like all challenges) presents an enormous opportunity. There's gold in them-thar hills for any experienced manager who's got the ambition, interest, and global mind-set to work abroad for several years.

Finally, an issue that has been around forever but stands to grow in importance because it makes people so much less productive: corruption. We're not talking about large-scale corporate graft here—though that's awful—but the "payoff culture" that's the norm in too many parts of the developing world. We understand, of course, that such cultures spring up where wages are so low that people seek other sources of income. Thus, to open a restaurant in Delhi or get a taxi license in São Paulo, you have to "thank" local regulators. Every bureaucrat with a stamp becomes an "entrepreneur." But the existence of such shadow economies drains the life out of real ones, diverting cash, energy, and hope.

Not to be pessimistic. Yes, the family business situation worries us, as do the managerial shortage and corruption. Still, business has always overcome seemingly insurmountable challenges. Tomorrow will be no different.

Jack and Suzy Welch await your questions. E-mail them at thewelchway@BusinessWeek.com For their video podcast, go to www.businessweek.com/search/podcasting.htm

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