What is the New Economy? Understand main characteristics and influence on the market

New economy is the term used to define business models impacted by a series of technologies and based more on services than products. High-growth industries that are at the forefront of technological innovation are examples of New Economy businesses. The union of services and technologies has also enabled the development of companies that use technology to solve society's problems. As a company born in the New Economy, iFood has a lot to share about this concept.

What is New Economy?

The New Economy refers to a new business model for companies, based on investment in technology, innovation – all of this supported by agile management, with more flexible hierarchies, diversity of people and focus on ESG

Thus, this impact generates a radical change in the way companies are managed, positioned and deliver their product or service, as stated by iFood's VP of Finance and Strategy, Diego Barreto.

Change is therefore an important component of the New Economy. 

In a constantly evolving world, companies need to keep up with these rapid changes whose main ally is technology.

It is known, however, that the development of the industry with the integration of new technologies has been happening for a few decades. Examples of this are: 

  • Agricultural producers who have introduced new technologies and drastically changed the way food is produced;
  • Traditional manufacturing has given way to advanced manufacturing, integrating continuous quality improvement with a skilled workforce;
  • The latest production technologies to produce higher quality and lower marginal costs. 

So the difference is that in the New Economy all types of businesses are driven by technology. 

New economy, digital economy and industry 4.0: understand the relationship

The New Economy encompasses terms such as Digital Economy, Industry 4.0 and Digital Transformation, as companies use technologies and data in their activities.

The term New Economy was first mentioned in 1990 to refer to new companies that were standing out from traditional ones through new business models. 

In the West, the term gained prominence for Don Tapscott in the book, The Digital Economy: Promise and Peril in the Age of Networked Intelligence (1995), one of the first to show how the Internet would change the way we do business.

Meanwhile, in 2021, Diego Barreto, VP of Finance and Strategy at iFood, launched the first book on the impacts of the New Economy in Brazil: “New Economy – Understand why the entrepreneurial profile is swallowing up the traditional Brazilian entrepreneur”. 

The work that became a best-seller is one of the references on the subject in the country, as is Diego, one of the Brazilian leaders of the new economy.

New economy and old economy: understand differences

The old economy is described as a traditional model of doing business. In other words, operation depends on political access, consolidation of the company in a specific sector and demand for capital, as Diego Barreto explains.

Meanwhile, the technology-based New Economy often explores simplicity and testability. This makes it possible to direct and scale investments assertively, as the results are apparent. 

The Covid-19 pandemic has accelerated the ongoing digitalization process. 

Even though some companies and executives remain in the analog mentality – that is, they use technology and integrate it into their businesses without producing it – the moment calls for a technological profile.

Being technological means producing with multidisciplinary teams that understand data, technique and are not afraid of trial and error to achieve exponential results. 

Furthermore, the logic of the New Economy is to encourage small and medium-sized companies to build a path outside the traditional one, using technology as a results accelerator. 

Ultimately, this applies to valuing new ideas and the ability to scale products and services. 

Can the New Economy kill the old economy?

The New Economy happens every time technology broadly changes a business's value chains. Examples of this are historical facts such as the Industrial Revolution, oil domination and the age of communication. 

What differentiates companies is not just the inclusion of technology, but having their own technology, with a multidisciplinary team that produces its own tools, models, tests and positioning.

While the old economy delivers a product or service in a linear manner, the new economy brings both together in the same production chain. 

Thus, the operating logic is carried out in an ecosystem that includes the use of API (platform integration). Therefore, the ability to integrate systems and solutions feeds this logic. It is possible for traditional companies to go through this transition. 

The common point among traditional companies going through this transition is the shareholders who understand the business as a whole. The shareholder is responsible for making this change as they understand the digital mentality and have decision-making power.

The New Economy can be considered a state of mind, points out Diego Barreto, VP of Finance and Strategy at iFood. We don't have to go far to find examples of large companies like Blackberry and Yahoo, which were born in the New Economy, but did not keep up with the accelerated development of new technologies.

New economy: a concept that emerged in 1950

When American athlete Phil Knight decided to open a business selling high-quality running shoes in the late 1950s, he had a brilliant idea: the company would be more competitive if the shoes were made in Japan.

It was a concept he explored in a paper written while studying for his MBA at Stanford University. However, Knight's letters to Japanese manufacturers went unanswered. He and his running coach Bill Bowerman, who became his business partner, had to start selling shoes from an existing Japanese brand before they could arrange to have their own designs manufactured.

Knight and Bowerman were ahead of their time. Manufacturing in Japan has helped his company, Nike, become one of the world's largest suppliers of athletic footwear. It took 30 years for outsourcing to become a common business practice.

Impacts today

In this way, today's companies can outsource almost every aspect of their operations – from manufacturing and customer service to management functions. It is estimated that global outsourcing revenues exceeded US$$510 billion in 2010.

According to the teacher Peter Liesch, international business expert at the University of Queensland Business School, changes in production patterns are transforming the nature of business. 

“Companies can enter the market to acquire production capabilities from anywhere in the world, which has consequences for the way companies are structured. You can have a world-famous brand without manufacturing the product,” he says.Does globalization translate into the new economy?

Although outsourcing and offshoring are a characteristic of the new world economy, and now there is the inshoring, Professor Liesch believes that the concept of 'globalization' does not tell the whole story about what is happening. Other factors come into play. Centrally planned economies, such as the former Soviet Union, transformed into market-based economies while barriers to trade and investment were being torn down.

There are more markets now than ever before: more are being created, with even more to come, and a worldwide marketplace for market transactions is in place, as shown by the trend toward outsourcing and offshoring. The markets we have are also more efficient.

Professor Liesch says: “New markets are being created all the time – in fact, many business activities involve creating markets that did not previously exist. For example, Amazon has created a global marketplace for book delivery, while Facebook and other sites have created a social media marketplace that didn't exist before. At the same time, obstacles to business are being removed.”

What are the main characteristics of the New Economy?

Professor Peter Liesch, an international business expert at the University of Queensland Business School, says companies need to understand the implications of the New Economy for their own operations. 

In this sense, he highlights the seven main characteristics of the New Economy. 

      1. More production options

No matter what the production processes, chances are that the same capabilities exist elsewhere. 

Therefore, find out where these services are located. How affordable are they? Could you outsource production and reshape your business? 

Remember that there is often a trade-off between the desire to control production and the interests of efficiency. 

However, outsourcing is not the only option – there are alternative forms of international economic engagement and more are yet to be created.

      2. The chance to create new markets

The new world economy offers many opportunities for smart minds. It is not always the lack of capital that prevents people from implementing their ideas. Entrepreneurs have the power to create new markets and often this requires little investment.

      3. Small businesses can think big

International success is no longer limited to big businesses. “Small companies can be as international as large ones,” says Professor Liesch. “While we still have multinational companies, there will be more and more opportunities for small and medium-sized businesses – which is good news for local economies as they employ more people.”

      4. A more level playing field

The democratic quality of the new world economy ensures that opportunities are not limited to the areas of science and technology. 

“While there is potential to develop things, it also means making better use of things, doing things in a different way that can give companies a competitive advantage,” explains Professor Liesch.

“Similarly, developed economies are no longer the bastion of all things innovative – brilliant ideas can come from anywhere in the world.”

      5. Networking is important

Contact networks help companies to know the market and to be known. They must have a good understanding of their own and peripheral networks because of interconnections beyond their immediate networks.

      6. Culture is not a restriction

“Companies do not need to speak the same language and do business in the same way,” says Professor Liesch. “While cultural differences are more of a barrier for consumer businesses than for business-to-business sectors, any company can overcome them. Managers must not be culturally blind – but, equally, they must not be culturally limited.”

      7. Regionalization, not globalization

Talking about globalization can be misleading, as connections between companies generally occur at a regional, not global, level. For example, European Union (EU) companies doing business in the EU or North American companies doing business under the North American Free Trade Agreement (NAFTA). 

Research into business behavior and trading patterns Fortune 500 reveals regionalization in most industry sectors. 

These connections arise for commercial reasons – free trade agreements can be implemented later, but only after initial connections have been made by companies.

Professor Liesch adds: “the internationalization of production is redefining the world economy and presenting new possibilities to companies. In this new world, companies will compete on equal terms. Smart companies will use their ideas to gain a competitive advantage, and traditional limitations such as size or industry will not hold them back. The world market for market transactions is a defining feature of our modern world economy. ”

What is the New Economy in Brazil?

The New Economy in Brazil is a silent revolution. The massive use of technology, accelerated by the Covid-19 pandemic and globalization, opens up opportunities for new businesses and the massive transformation of old economy businesses. However, only a few companies are realizing this movement and looking to the future.

Excellence in service provision is one of the pillars of the new economy. If in the past having bad service was acceptable, in the new economy it is not. 

Although it seems obvious to say that the world has changed, some companies and people still do not fully understand these changes. “It is a turbulent and dynamic scenario, and remaining stuck in old paradigms and practices can mean being swallowed up by businesses aligned with principles of constant innovation. Mastering the new rules are attitudes that define who remains in the market”, explains Diego Barreto, VP of Finance and Strategy at iFood.

It is essential to understand which Old Economy practices are impacting businesses and companies. Furthermore, incorporating concepts such as diversity, inclusion, sustainability and radical transparency are determining factors for the success of Brazilian companies in the new economy.

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