emerging trends - mckinsey.doc

8/13/2019 Emerging Trends - McKinsey.doc

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Emerging Trends - Mckinsey

Those who say that business success is all about execution are wrong. The right productmarkets, technology, and geography are critical components of long-term economicperformance. Bad industries usually trump good management, however: in sectors such

as banking, telecommunications, and technology, almost two-thirds of the organic growthof listed Western companies can be attributed to being in the right markets andgeographies. ompanies that ride the currents succeed! those that swim against themusually struggle. "dentifying these currents and developing strategies to navigate them arevital to corporate success.

What are the currents that will make the world of #$%& a very different place to dobusiness from the world of today' (redicting short-term changes or shocks is often afool)s errand. But forecasting long-term directional change is possible by identifyingtrends through an analysis of deep history rather than of the shallow past. *ven the"nternet took more than +$ years to become an overnight phenomenon.

Macroeconomic trends

We would highlight ten trends that will change the business landscape. irst, we haveidentified three macroeconomic trends that will deeply transform the underlying globaleconomy.

%. Centers of economic activitywill shift profoundly, not ust globally, but alsoregionally. s a conse/uence of economic liberali0ation, technological advances, capitalmarket developments, and demographic shifts, the world has embarked on a massiverealignment of economic activity. lthough there will undoubtedly be shocks and

setbacks, this realignment will persist. Today, sia 1excluding 2apan3 accounts for %+percent of world 45(, while Western *urope accounts for more than +$ percent. Withinthe next #$ years the two will nearly converge. 6ome industries and functions7manufacturing and "T services, for example7will shift even more dramatically. Thestory is not simply the march to sia. 6hifts within regions are as significant as thoseoccurring across regions. The 8nited 6tates will still account for the largest share ofabsolute economic growth in the next two decades.

#. Public-sector activitieswill balloon, making productivity gains essential. Theunprecedented aging of populations across the developed world will call for new levels ofefficiency and creativity from the public sector. Without clear productivity gains, the

pension and health care burden will drive taxes to stifling proportions. 9or is the problemconfined to the developed economies. any emerging-market governments will have todecide what level of social services to provide to citi0ens who increasingly demand state-provided protections such as health care and retirement security. The adoption of provenprivate-sector approaches will likely become pervasive in the provision of social servicesin both the developed and the developing worlds.


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+. The consumer landscapewill change and expand significantly. lmost a billion newconsumers will enter the global marketplace in the next decade as economic growth inemerging markets pushes them beyond the threshold level of ;&,$$$ in annual householdincome7a point when people generally begin to spend on discretionary goods. romnow to #$%&, the consumer)s spending power in emerging economies will increase from

;< trillion to more than ;= trillion7nearly the current spending power of Western*urope. 6hifts within consumer segments in developed economies will also be profound.(opulations are not only aging, of course, but changing in other ways too: for example,by #$%& the >ispanic population in the 8nited 6tates will have spending powere/uivalent to that of ?$ percent of all hinese consumers. nd consumers, wherever theylive, will increasingly have information about and access to the same products andbrands.

Social and environmental trends

9ext, we have identified four social and environmental trends. lthough they are less

predictable and their impact on the business world is less certain, they will fundamentallychange how we live and work.


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intellectual-property rights, and profit repatriation7are not understood, let aloneaccepted, in many parts of the world. 6candals and environmental mishaps seem asinevitable as the likelihood that these incidents will be subse/uently blown out ofproportion, thereby fueling resentment and creating a political and regulatory backlash.This trend is not ust of the past & years but of the past #&$ years. The increasing pace and

extent of global business, and the emergence of truly giant global corporations, willexacerbate the pressures over the next %$ years. Business, particularly big business, willnever be loved. "t can, however, be more appreciated. Business leaders need to argue anddemonstrate more forcefully the intellectual, social, and economic case for business insociety and the massive contributions business makes to social welfare.

. Demand for natural resourceswill grow, as will the strain on the environment. seconomic growth accelerates7particularly in emerging markets7we are using naturalresources at unprecedented rates. Ail demand is proected to grow by &$ percent in thenext two decades, and without large new discoveries or radical innovations supply isunlikely to keep up. We are seeing similar surges in demand across a broad range of

commodities. "n hina, for example, demand for copper, steel, and aluminum has nearlytripled in the past decade. The world)s resources are increasingly constrained. Watershortages will be the key constraint to growth in many countries. nd one of our scarcestnatural resources7the atmosphere7will re/uire dramatic shifts in human behavior tokeep it from being depleted further. "nnovation in technology, regulation, and the use ofresources will be central to creating a world that can both drive robust economic growthand sustain environmental demands.

usiness and industry trends

inally, we have identified a third set of trends: business and industry trends, which aredriving change at the company level.

C. !e" global industry structuresare emerging. "n response to changing marketregulation and the advent of new technologies, nontraditional business models areflourishing, often coexisting in the same market and sector space. "n many industries, abarbell-like structure is appearing, with a few giants on top, a narrow middle, and then aflourish of smaller, fast-moving players on the bottom. 6imilarly, corporate borders arebecoming blurrier as interlinked DecosystemsD of suppliers, producers, and customersemerge. *ven basic structural assumptions are being upended: for example, theemergence of robust private e/uity financing is changing corporate ownership, lifecycles, and performance expectations. Winning companies, using efficiencies gained bynew structural possibilities, will capitali0e on these transformations.

=. anagement will go from art to science. Bigger, more complex companies demandnew tools to run and manage them. "ndeed, improved technology and statistical-controltools have given rise to ne" management approachesthat make even mega-institutionsviable. Eong gone is the day of the Dgut instinctD management style. Today)s businessleaders are adopting algorithmic decision-making techni/ues and using highlysophisticated software to run their organi0ations. 6cientific management is moving from


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a skill that creates competitive advantage to an ante that gives companies the right to playthe game.

%$. 8bi/uitous access to information is changing the economics of knowledge.Fnowledge is increasingly available and, at the same time, increasingly speciali0ed. The

most obvious manifestation of this trend is the rise of search engines 1such as 4oogle3,which make an almost infinite amount of information available instantaneously. ccessto knowledge has become almost universal. @et the transformation is much moreprofound than simply broad access. 9ew models of knowledge production, access,distribution, and ownership are emerging. We are seeing the rise of open-sourceapproaches to knowledge development as communities, not individuals, becomeresponsible for innovations. Fnowledge production itself is growing: worldwide patentapplications, for example, rose from %==$ to #$$< at a rate of #$ percent annually.ompanies will need to learn how to leverage this new knowledge universe7or riskdrowning in a flood of too much information.

ompanies need to understand the implications of these trends alongside customer needsand competitive developments. *xecutives who align their company)s strategy with thesefactors will be the best placed to succeed. Geflecting on these trends will be time wellspent.

[About the Authors

As in January 2006, Ian Davis was worldwide managing director of Mcinsey !

"om#any and $li%abeth &te#henson was a consultant in Mcinsey's &an (rancisco

office) *

6ome facts and predictions to make you think

Total world cross-border trade as a percentage of global 45( %==$- %CH! #$%&1estimated3- +$H

9umber of regional trade agreements: %==$- &$! #$$&- #&$

hange in 4ermany)s population over the age of & from #$$& to #$%&: ++H"ncrease in tax burden needed to maintain current benefit levels for 4ermany)s futuregeneration: =$H

hange in 2apan)s population over the age of & from #$$& to #$%&: +?H hange in2apan)s population under the age of & from #$$& to #$%&: -%+H "ncrease in tax burdenneeded to maintain current benefit levels for 2apan)s future generation: %&H

omputational capability of an "ntel processor, as measured in instructions per second%=%- ?$,$$$! #$$&- %$,C$$,$$$,$$$

ultiple by which e-mail traffic has grown from %== to #$$&: #%&


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9umber of 86 tax returns prepared in "ndia #$$+- #&,$$$! #$$&-


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emerging trends - mckinsey.doc

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