When I started this column two years ago, I focused on the two Pacific Coasts: the “east coast” of U.S. tech firms and venture capital centered primarily in Silicon Valley and Seattle; and the “west coast” that includes dynamic Southeast Asia.
The two coasts, an ocean apart, with distinct cultures and histories, have more in common than most assume—take economic growth in 2020. America’s GDP shrank 3.4% while the ASEAN-5’s shrank 3.5%. And in 2021, the IMF predicts similar growth for both again: the U.S. of 5.1% and ASEAN-5 at 5.2%.
The ASEAN-5 (Indonesia, Malaysia, the Philippines, Singapore and Thailand) has a combined population of 460 million, the U.S. 330 million. The median age in the U.S. is roughly a decade older than that in the ASEAN-5, putting it closer to China’s, yet younger than Europe’s or Japan’s. In both the U.S. and the ASEAN-5, technology is widely embraced and the spirit of entrepreneurship is strong. Reasons to be positive.
But the virus, you say. Vaccines are proliferating, but so are Covid’s mutations. Which will win—and when? Won’t the pandemic shape the economy again in 2021? While tragic on a human scale, Covid is a small event in economic history. For 2021 and the next several decades, we must contend with a far greater force of disruption and instability: the accelerating rate of digital evolution.
Savvy CEOs and tech investors on both sides of the Pacific now assume, correctly, that the pace of digital evolution has doubled or tripled in recent years. This observation was put to a real-world test in 2020, and the results are clear.
“We’ve seen more digital transformation in the last six months than in the last five years.” Microsoft CEO Satya Nadella.
Suppliers of enterprise technology software and services, like Nadella’s company, boomed in 2020. Their stock prices soared even more. That technology accelerates during hard times might seem counterintuitive. But it is validated by history. The 1930s saw widespread adoption of cars, radio, skyscrapers and paved roads. Aviation was transformed by aerodynamic design. Though jet engines did not appear in military aircraft until the 1940s and in commercial airliners until the 1950s, the turbojet was patented in 1930 and first built in 1937.
The 1970s featured coal strikes in the U.K., 18% interest rates in the U.S., turmoil, war and famine in China and Southeast Asia, and oil shocks around the world. Yet Japan and West Germany boomed with innovations in product design and manufacturing, and the U.S. saw raw entrepreneurs create Amgen, Apple, FedEx and Microsoft.
The recession in the early 1990s was short-lived, yet it was bad enough to cause companies to rethink their computing needs. Enter the low-cost alternative: networks hooked up to cheap PCs. Mighty IBM lost more money in 1992 than any company in U.S. history had to that point.
Today? A new global computing grid and set of services—a “stack” as techies like to call it—is being born. The sudden realignment of tech’s hierarchy around cloud computing, digital platforms, enterprise AI and super-fast deployment has created vast wealth for the early investors in companies like CrowdStrike, Palantir, ServiceNow and Snowflake. Fintech leader Ant Financial was poised to hold the biggest IPO in history, and might be again. Regions that have embraced rapid digital change—from Singapore and Shenzhen to Silicon Valley and Seattle—have thrived. The Jakartas and San Diegos are coming up.
Growth investors have crushed value investors of late. To note this fact must mean that value is about to surge. Stocks always revert to the mean. Don’t they? But not all value stocks will come back. Some 25% to 50% of them might be trapped by their own inability to adapt as fast as hyper-scaling technology combined with the urgencies of Covid demand. Stay smart and nimble in 2021.