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Global Forces: how strategic trends affect your business
Global Forces:how strategic trends affect your business 3
McKinsey & Company comprehensively tracks these trends – from basic underlying forces such as changing demographics to more recent trends such as the accelerating Green economy – and assesses their potential impact at both global and industry-
specific level. We have recently developed an updated Global Forces taxonomy consisting of three shaping forces, eleven primary trends and more than 200 industry-specific trends that will fundamentally shape the corporate landscape over the next 10 to 20 years.
Trends shaping the future corporate landscape
Shaping forces Primary trends
Initial/boundary conditions
Granular list of specific trends im-pactinggeographies and sectors, e.g.,
▪ Africa rising▪ War for resources▪ …
▪ Market economy reversal▪ A post-crisis "new normal"▪ Inflation or deflation
Key uncertainties/decisions
Growing life sciences and healthcare
Emerging new consumers
Increasing weight of public sector
Entering a second agricultural revolution
Increasing link of world economies
Growing infrastructure congestion
Continuing urbanization and the rise of megacities
Shifting centers of economic activity
Accelerating green economy
Changing social values
Rebounding regulation
Experiencing Earth’s limits
Proliferating technology and knowledge
Changing demographics
▪ Growing support for clean tech-nology
▪ Emergence of environment-friendly cities
▪ Growing green marketing in consumer goods
▪ ...
After more than a full year in heads-down crisis mode, executives are once again looking to the future. Whether or not they believe the global crisis is over, many have the sense that the world is structurally changing – more rapidly now than ever before. Companies that win in these times will be those that not only stay ahead of these changes, but embrace them and turn them to advantage. To do so will require a deep understanding of the underlying forces shaping the world over the coming decade, uncovering their implications and identifying the bold actions required to capture the opportunities they present.
4Global Forces:how strategic trends affect your business 5
Granular trends changing the world’s demographics
▪ 1.2bn more people in emerging countries by 2030▪ Doubling in number of over-65s by 2030▪ Strong growth potential in Sub-Saharan Africa, North Africa/Middle East, and India driven by increasing
working-age populations by 2030 (70%, 40%, and 30% respectively)▪ Declining growth potential in Europe and Japan driven by shrinking working-age populations (8% and 16%
respectively, assuming no change in immigration trends)▪ Increased pressure for labour market reform in Europe aimed at increasing workforce participation (e.g., extension of
retirement age)▪ Increased pressure for immigration reform in Japan▪ Continuous flow of migration from developing to developed markets▪ Competition between developed markets to attract most skilled immigrants▪ Retired baby-boomers returning to work (e.g., 40% in US)▪ Deficit of skilled workers in both developed and developing countries, in particular engineers and science graduates▪ Pressure to increase productivity of skilled workers, with significant implications for knowledge management practices▪ Lower savings rates in developed world leading to US$31 trillion shortfall in wealth accumulation in US, Japan,
German, Italy, and UK alone▪ Negative pressure on national current accounts in developed world and China, leading to greater cross-border capital
flows▪ 70% of the growth in private consumption coming from consumers aged 50+, with strongest effects in healthcare, food,
and housewares▪ Mounting pressure for social security in China▪ …
A systematic approach is required
Global Forces methodologyGlobal Forces methodology
Expand the solution spaceB
Highlight critical uncertainties and build alternative scenarios off them
Estimate probability of each scenario and industry impact under each
Define the problem and initial conditions
Establish the reference frame
Define boundary scenarios
Quantify industry impact
A C DIdentify under-lying industryassump-tions
Identify rele-vant Global Forces
Test assumptions against Global Forces impli-cations
Identify interactions and implica-tions
Although Global Forces provide high-level insights, they need to be analyzed at a more granular level to be meaningful as inputs to the corporate strategic planning process. Our recent work has focused on ‘drilling down’ into each trend to uncover the specific geography- and sector-level insights useful to strategic planners.
Our findings also suggest that, while individual forces are interesting in themselves, the truly insightful implications are found at the inter-section of multiple forces – i.e., where two or more ‘obvious’ forces interact in complex and non-obvious ways.
To make the CSO’s task easier, we have developed a rigorous 4-step methodology to systematically apply Global Forces thinking in the strategic planning process. This methodology brings together Global Forces, industry-specific insights and advanced problem-solving techniques
to challenge conventional wisdom and create robust future scenarios.Finally, we strongly believe that creating value from Global Forces requires organisations to take an ‘opportunity’ mindset – and that now, as the world slowly rises from the ashes of the global crisis, is the ideal the time to do so.
6Global Forces:how strategic trends affect your business 7
20302010The number of people aged 65+ will double to 1 billion by 2030
523
35
278
85
119
969
69
552
166
164
World
Africa
Asia
Americas
Europe
7.6
3.4
6.7
9.0
16.3
11.7
4.3
11.4
16.6
22.6
People aged 65+Millions
People aged 65+Percent of total population
1,401
-19
108
160
270
195
126
117
444
World
EU - Japan
China
Americas
India
Middle Asia-Oceania
North Africaand Middle East
Southeast Asia
Sub-Saharan Africa
0.9
-0.1
0.4
0.9
1.0
1.3
1.4
1.9
2.1
2010-30 growthCAGR, Percent
~70% of global population growth will occur in less developed countries
2010-30 growthMillions of people
The world’s population will grow by 1.4bn (20%) by 2030, with 70% of this growth occurring in less developed countries. China’s population will begin to stabilise, while those of Europe and Japan will shrink. The global population will age significantly, with over-65s doubling in number to 1bn by 2030.
The following pages present a brief summary of McKinsey’s latest – and still-evolving – views on the most relevant forces and trends shaping the world in the next 10 years.
The working population (aged 15-65) will start to shrink in Europe and Japan this decade, and by 2020 in China. In contrast, by 2030 the working populations in Africa and India will grow by 70% and 30% respectively. Since demographics alone explain 60% of economic growth, these
Changing demographics
trends will create a significant ‘Growth Gap’ in Europe and Japan; to close this gap, Europe will face pressure to increase workforce participation (e.g., by raising the retirement age), while Japan will face pressure to revise its immigration policy. Failure to do so will create an unprecedented ‘productivity challenge’, requiring 50-60% increases in productivity growth if the historical growth paradigm is to be maintained.‘Moment in time’ countries such as China will begin to dominate in terms
of economic output and financial assets, but will soon face the same demographic issues as the West (e.g., requisite welfare system; declining population). ‘Next wave’ countries such as India have many of the required intrinsics (e.g., a growing workforce; political stability) to become major growth players in the next 2 decades. ‘Final frontier’ regions such as Africa may enter a new era of sustained growth if social and political stability can be ensured.
8Global Forces:how strategic trends affect your business 9
For certain key materials, reserves are declining along with oreproductivity
84
99111
116
2020201520102006
-2% p.a.
Known reserves are depleting rapidly
Rich iron ore equivalent – proved reservesBillion tons
Average copper gradePercent
Average grades are declining, driving up costs
2006 2008 2010 2012 2014 2016 2018 2020
0.65
0.60
0.55
0.50
-1% p.a.
Demand for basic materials will continue to grow, driven mainly by Chinese demand
2.8% p.a.
2020
24.9
9.3
2018
23.3
8.4
2016
21.7
7.5
2014
20.4
6.8
2012
19.0
6.1
2010
17.3
5.4
2008
17.8
5.0
Global copper demandMillion tons
Global Iron ore demandBillion tons
5.4% p.a.
2020
3.2
1.6
2018
2.8
1.4
2016
2.5
1.2
2014
2.3
1.1
2012
2.0
0.9
2010
1.8
0.8
2008
1.7
0.8
China
MCKINSEY BASE-CASE SCENARIO
New economic rules for moveable resources are emerging as continuing increases in demand for basic materials and energy come up against three critical supply issues: existing reserves are becoming less productive; the geographic disconnect between sources of supply and sources of demand is accelerating; and many resources are becoming increasingly concentrated in a small number of countries, many of which are potentially
politically risky. As a result, while for the most part reserves will be sufficient to meet demand, cost and volatility will increase. Similarly, structural imbalances in unmovable resources may become explosive in coming years. Water scarcity will become a much greater issue both globally and locally, and growing populations, combined with more protein-intensive diets, will place an increasing strain on agricultural land in many countries. Finally, the
Experiencing Earth’s limits
world’s physical and psychological ‘space’ for waste and pollution is diminishing, with climate change, water pollution and solid waste management become pressing socio-political issues with significant economic knock-on effects.
These trends will drive several implications. Economic rents will migrate backward up the value chain. Companies will integrate vertically
as a result, and the importance of co-operation with governments will increase as more commodities begin to adopt a ‘petroleum-like’ business model. Opportunities will be available in the renewable energy and recycling sectors, as well as for companies that are able to ‘sell’ improved resource efficiency.
10Global Forces:how strategic trends affect your business 11
Product life-spans are becoming ever shorter, and knowledge is increasingly commoditized
Time to reach 50% penetration in US households of new technologiesYears
Number of articles in English Thousands
1,200
1,600
0
400
800
2001 02 03 04 05 2006
Wikipedia
Britannica.com
Scientific journal Nature found Wikipedia to be as accurate as Britannica on scientific subjects
4
911
13
25
28
DVDInter-net
CD player
VCRPCTV
Technological development will continue its exponential trajectory of progress. Consumer adoption rates will quicken; while it took the PC 25 years to reach 50% penetration, the Internet took just 9 years and the DVD player 4 years. Product life-spans will continue to fall; the average model age in a car showroom is 2.7 years – the lowest in several decades. Interconnectivity will grow to encompass even the simplest devices and appliances, placing increasing importance on remotely-delivered
services such as cloud computing. With ubiquitous connectivity and decreasing importance of physical presence, organizational models change and more employees work remotely scattered across the globe, linked by data and video networks. Business models change dramatically, too, driven by the emerging concept of “prosumers”, which moves product creation closer to the consumers. Former innovators and producers will rather enable the process than own it. Information is global.
Proliferating technology and knowledge
The ubiquitous availability of information creates truly global markets and de- mand. The IPhone is a global phenome-non by now, with demand surging in nearly all regions of the world within weeks after its launch. A Twitter user was the first to report the Hudson crash landing in 2009, with millions of people knowing within hours what would have taken days even a few years ago. Knowledge will become even more commoditized as content creation proliferates and dissemination becomes easier. Wikipedia’s 14 million articles have
been written collaboratively by individuals around the world, surpassing the number of articles of the century-old Encyclopedia Britannica in less than two years after its birth. With the ongoing commoditization of knowledge, extracting value from it will become increasingly difficult – success is increasingly dependent on ‘orchestrating’ rather than creating knowledge. Intel-lectual property will be harder and harder to protect, too. Losses from infringement of copyrights passed USD 50 billion in actual losses for illegally distributed applications world-wide in recent years.
8
Successful innovators can thrive both in up and downturns
15.618.0
22.721.8
17.012.4
6.9
15.3
5.36.76.76.55.34.97.4
070605040302
3.5
0120001999
Top innovators3
Average2
Dow Jones1
"New economy" bubble burst
Financial crisis
2008
Shorterreduction
Faster acceleration
Annual organic growth ratePercent
1 Year 1999 = 100; for 2008 value of October 172 Average of all companies in sample (n = 48; CE, CPG and Pharma) without top innovators 3 Top quartile by segment from innovation score (12 companies)
Really benefitting from a crisis has some specific requirements for a company, e.g.,▪ Solid "innovation
engine"▪ Execution and
funding creativity (e.g., partnering)
▪ Insightful prioritization (especially in a prolonged crisis)
12Global Forces:how strategic trends affect your business 13
In developed markets, an industry structure that creates few incentives for cost management will confront the inexorable trends of aging populations, increasing wealth, medical innovation and a rising interest in wellness. The combination will drive a huge increase in the cost and consumption of healthcare services, from 10 percent of GDP today to 15 percent by 2030. In absolute terms this equates to an almost ~2.5-fold increase in the size of the developed
world health industry (from ~US$3.6 trillion to ~US$8.5 trillion). As a result there will be enormous pressure for reform at all levels, with a greater share of the financial burden being shifted to patients and with new business models developing to address the structural costs in the industry. Significant opportunities will be created for healthcare providers who are able to successfully cater to the growing level of consumerism that will flourish as a result.
Growing life sciences and healthcare markets
In emerging countries, healthcare expenditure will grow even faster in relative terms as economies grow and lifestyles change. In China and India for example, healthcare spending has been doubling every five years over the past 1-2 decades. Emerging markets will however experience critical
supply constraints as the availability of healthcare infrastructure and personnel is currently up to 30 times lower than in the developed world. Significant opportunities will be created for providers of effective low-cost care (and insurance) tailored to emerging market conditions’.
Healthcare spend is expected to grow rapidly in both developed and emerging countries
CAGR 2009-2030Percent
Size and share of health-care spendUSD Trillion, Percent
Health-care spendPercent of GDP
2009 20301
9
15
6
7
14
15
11
128.2
9.5
2.1
4.338 36 34
9 11
28
8
50
100% =
EMEA
U.S./Canada
AsiaOther
12.24
2030120092004
3.4
30
4.8
49
4
1 Assumes OECD countries will reach 15% of GDP spent on health by 2030; other countries will reach 10% of GDP (i.e. current level for OECD countries)
AmountUS$ bn
2009
1,730
2,400
530
190
20301
4,100
3,650
3,430
980
Rapid growth in emerging markets driving rise of Asia and EMEA vs. US/Canada
Evolution of healthcare spending in India
USD billion1
Percent of GDP ~2 ~2.7 ~4.9 ~5.0
16%
2006-072000-011995-961990-91
Evolution of healthcare spending in China
USD billion1
18%
2006-07
150
2000-011995-961990-91
Percent of GDP ~4 ~4 ~5.5 ~5.7
In China and India, healthcare spend is doubling every 5 years
1 Assuming a constant exchange rate of $1=45 INR
45
23
95
72
3010
Health care has grown at a rate nearly twice as much that of GDP during the past 10 years and is expected to maintain the momentum going forward
14Global Forces:how strategic trends affect your business 15
Close to 300 million new Middle class, Upper middle class, and Global consumer households will emerge over the next 10 years, representing an 80% increase from today’s levels. More than 80% of the growth will come from developing countries – with half from China and Eastern Europe alone. Africa will contribute a larger share of growth than India.Consumption in these markets will
switch from basic necessities to discretionary items (e.g., in China the share of discretionary spend will almost double to ~70% by 2020). However the consumption patterns of these emerging consumers will be significantly different from developed market consumers, and as a result, significant product innovations and changes in overall business models will be required to capture the opportunity.
Emerging new consumers
In the last century, governments in devel-oped countries have addressed the needs of modern societies by expanding their financial involvement, spending more on healthcare and pensions, and imposing greater taxes. Since 1913 government spend has risen from ~10% to 35-50% per cent of GDP in developed markets. This trend is expected to con-tinue as the rising number of over-65s drives a significant increase in social ex- penditure. Emerging markets will also see a rising share of government spending as social insurance systems are established and expanded.
The recent crisis has also resulted in a sig-nificant increase in governments’ involve- ment and ownership of the economy, while at the same time reducing their financial flexibility due to the growth of the debt. These trends will result in pressure for large tax increases where possible, (e.g. 175% in Japan is not realistic), out-sourcing and privatization, as well as a significant public sector productivity imperative (especially where taxes are already high) which will require major reforms in the way the public sector is managed and structured. Oppor- tunities will be created for private compa-nies to play a role in each of these areas.
Increasing weight of the Public Sector
Public spending on pensions and healthcare benefits will continue to grow due to aging populationsPercent of GDP
14.1
15.3
17.8
21.1
19.9
17.7
23.1
21.7
24.9
22.6
UK
Japan
Germany
France
Italy
2030
2007
By 2020 there will be an additional ~300 million Global, Upper middle, and Middle class households (80% increase)
Worldwide consumer households 1Millions of households
▪ Global, Upper and Middle expected to grow from ~400m to ~700m (27% to 42% of total)
▪ Significant decline in Poor consumers from 800m to 500m (57% to 33% of total)
840
549
228
429
Lower middle
294
112
291
2008
1 471
Poor
1 676
2020F
GlobalUpper middleMiddle 193
73137
CAGR, 2008-20F%
2020 breakdown%
2008 breakdown%
9 617
5 47
13 418
-357 33
1100 100
516 25
75+
55-75
25-55
0.5-10
10-25
Income definition1
US$000s
1 Based on non-PPP adjusted dollar incomes
16Global Forces:how strategic trends affect your business 17
Global food production has doubled in the last 50 years, driven by an agricul- tural productivity revolution in the US and Europe. To cope with the sharp increase in world population and replicate devel-oped countries’ diets elsewhere in the world, a second agricultural revolution will need to occur in developing countries to meet a potential doubling in food de- mand over the next two decades. While additional land is available, the bulk of the increased demand will be satisfied only if a massive increase in agricultural pro-ductivity is achieved. A further doubling in current food production is theoretically
achievable, but only if advanced agricultural techniques are massively implemented (i.e., mechanization, fertilizers, engineered seeds).Significant challenges will be faced, not least in the areas of water scarcity and climate change. On the other hand, significant opportunities will be created for suppliers of agricultural equipment, chemicals and biotechnologies – pro- vided they can adapt to the unique chal- lenges in developing countries. Aqua-culture will also be a significant opportunity as ocean fisheries continue to be depleted.
Entering a second “agricultural revolution”
International trade is expected to recover from its pre-economic crisis levels and grow to 37 per cent of world GDP by 2020 (up from 19 percent in 1990), placing in- creased importance on logistics, infrastruc- ture and trade agreements. The geographic patterns of trade are undergoing signifi- cant changes, with the growing importance of intra-regional trade (due to near-shoring and regional free-trade agreements) as well as the emergence of new ‘silk roads’ between emerging markets (e.g., 36 per cent compound annual export growth from Africa to Latin America in the past five years). Cross-border capital flows are ex-pected to recover from the recent down-turn, although it is uncertain whether the
14 percent per annum of recent decades will be sustained. Growth in these capital flows will be driven by Asia and the Middle East – both as providers and recipients of capital. The increasing link of world economies has significant implications for global financial risk management, as market diversification becomes more challenging and as the imperative for international policy coordination mounts (as demonstrated by the recent crisis). Business opportunities will be created for suppliers that are quick to respond to changing supply chain configurations (e.g. near-shoring), and logistics and infrastructure players are likely to capture a growing slice of economic rents.
Increasing links between world economies
1 Value of exports of goods and service, forecasted in May 2009 (adjusted based on the effect of crisis)
37
27
24
19
2010F
2020F
2000
1990
Percent of foreign trade flow1
on global real GDPPercent
Doubling of international trade vs. GDP from 1990 to 2020
The long-term upward trajectory in international trade is expected to continue
12,556
19,509
31,476
32,585
41,767
59,728
18,163
37,613
43,520
63,332
86,493
92,799United States 27,831
Africa 8,672
India 7,683
Europe 12,988
South America 12,967
China 12,278
1963 20032030 (projection on 1963-2003 CAGR)
Increase to Chinese levelsGlobal cereal output can theoretically be doubled – but only
by massively rolling out advanced agricultural techniquesHg of cereals/ha
18Global Forces:how strategic trends affect your business 19
Rapidly increasing world trade and the resulting logistics needs will result in growing global infrastructure congestion. In developing markets, this is being fur-ther exacerbated by rapid urbanisation and the rise of megacities. In response, countries will need to invest at an unprece- dented pace to upgrade their infrastruc- ture, with China alone forecast to invest USD 1.3 trillion2 in the next five years. Developed countries, especially Europe and Japan, will be constrained by lack of available space and will need to improve the efficiency of their existing infrastruc-ture (e.g., through technology).
Across the world private capital, private developers and private operators will play a critical role as the reliance on Public-Private Partnerships increases – both because of the size of the chal-lenge as well as growing strains on public finances in other areas (e.g. healthcare, social security). For some categories of goods, supply chain economics will favour near-shoring over off-shoring as transport costs and the risk of delays rise. For logistics players themselves scale will increasingly become a critical competitive advantage.
Growing infrastructure congestion
For the first time in history, over half of the world’s population is currently residing in urban areas. By 2020, the urban population is expected to rise by a further 20% to over 4.2 billion people, 80% of which will be found in developing coun- tries. China and India will be at the fore-front of urban growth with 100 000 people moving to cities in these countries every day. Of the 19 new megacities expected to rise in developing markets, seven will be in China and four in India. The rise in urbanization will help drive eco- nomic growth and open up new consum-
er markets in developing countries; some megacities will become markets comparable in size to small nations. Managing these cities and their supply of resources will be a formidably complex task, placing severe demands on infra- structure, resources and the environment, and requiring new and innovative man- agement practices. This will create a sig-nificant opportunity for companies who address these needs. Funding mecha- nisms will also evolve, with increasing opportunities for private sector infrastruc-ture players and real estate developers.
Continuing urbanization and the rise of megacities
0.5 0.6 0.6 0.6 0.7 0.7 0.8 0.8 0.8 0.9 0.9 0.9 0.9 0.90.3 0.3 0.4 0.5 0.6 0.8 0.9 1.21.4 1.7 1.9
2.2 2.5 2.83.2
3.6
0.40.4DevelopedDeveloping
2025
4.5
20
4.1
15
3.7
10
3.4
5
3.1
2000
2.7
95
2.5
90
1.6
2.2
75 85
1.4
1.9
70 80
1.2
65
1.1
60
0.9
55
0.7
1950
0.7
By 2020, developing countries will account for almost 80% of the world’s total urban populationBreakdown of total urban populationBillion people
Developing countries, % of total
42 44 46 48 51 54 57 61 64 47 69 71 73 75 77
Forecast
79
Transport volume growthIndexed, 1996 = 100
CAGR of global real GDP and goods trade value1
Percent
Global goods trade is growing twice as fast as GDP (and accelerating)
3.43.03.5
8.6
6.1
4.9
2005-20F1995-20051985-95
2.5X
2.0X
1.4X
Real tradeReal GDP
Trade as % of GDP3
Percent
19 24 37
As a result, demand for transport infrastructure is growing exponentially
CAGR, Percent
1996 2000 2004 2008
180
160
140
120
1000
GlobalGDP (real)
Rail intermodal2
Ocean
Air Freight
240
220
200
280
260
1 Value of total (exports + imports)/2 for 200 reporting countries, adjusted for inflation to 2000 values2 U.S. only, total of Class 1 intermodal loadings3 Latest figures before decline due to 2009 recession
Rapid growth in trade is driving exponential demand for transport infrastructure
Forecast2008-20F
6.1
3.4
9.2
n/a
Historical1995-20083
5.1
3.0
9.6
6.9
20Global Forces:how strategic trends affect your business 21
Emerging countries will continue to drive ~80% of world economic growth over the next decade. India, China and Africa will grow significantly faster than the global average, sustained by a growing workforce, availability of raw materials, and rising investment spend. Although developed countries will still dominate capital markets, the financial influence of China, Russia, India and the Middle East will increase dramatically, with sovereign wealth funds and Asian central banks in particular playing an increasingly
pivotal role on the global financial stage.Developing markets will be a critical growth driver for companies from the developed world. However the reverse is also likely to be true, and developing world incumbents may increasingly enter developed markets on the back of increased scale back home – often with innovative, disruptive business models.
Shifting centers of economic activity
New mindsets and regulations will create a very significant market for clean tech, fos- tering technology advancements in a vir- tuous cycle. Such investments will gener-ate productivity improvements, new jobs and wealth, as well as secure energy sup- plies. The market for low-emission technol- ogies is expected to grow to USD 1.2 tril- lion in 2030. Achieving these benefits will require the private sector to carry out most of the green transformation (such as green- house gas abatement) – but change will not occur without incentives, investment and mandatory policies from governments. The estimated investments in abatement
related businesses alone will exceed USD 3 trillion until 2030. In addition glob-al agreement will be vital to achieve scale and set international standards to allow the mobilization of capital, tech- nology and capabilities across borders. Public opinion will accelerate change, as the environment becomes an increas- ingly topical issue among consumers and the media. Businesses will have to take this trend serious given the increas-ing public and regulatory influence. How- ever, plenty of opportunity exists within the new “green economy” making it an at- tractive growth area for many companies.
Accelerating green economy
A new brand of ‘green’ consumer is emerging and is willing to pay premium prices
New hybrid vehicle registrations, USMillion vehicles
5.75.7 6.86.8
Price premiums paidApproximate percent
Consumers are increasingly interested in buying green … … and will pay a premium
0.30.30.20.1
2007e
+53%
2004 05 06
6.86.66.15.5
2001 02 05 2006
+5%
2
4
20Hybrid autos
Renewable energy
Green construction
Ø 9
0.50.5 2+2+
Renewable energy consumption, USQuadrillion Btu
Market share,percent
3.73.7
3.83.8
4.24.2
6.96.9
8.98.9
1.11.1
2.72.7
2.12.1
xx CAGRDeveloped countryEmerging countries will be the engine of economic growth in
the next decadeShare of global GDP, percent
28 26 21 19
27 2622 21
97
65
1016 19
6 7
9 9 10 10
14 14 15 15
6
North America
JapanChina
Rest of AsiaAfricaOthers
2020
100
India
Europe
4
2015
100
4
2005
100
4
4
1995
100
3
4
3.83.8
22Global Forces:how strategic trends affect your business 23
In the West, changes in family structure and social norms will continue, driving changes in consumption habits (e.g., quantity and timing of spend) that companies will have to track carefully – especially in the retail and consumer goods industries.Emerging markets will continue to evolve towards individualistic, consumer-based societies, but significant regional variations will become more prominent as these economies rise in importance. This will
also lead to a further increase in cultural diversity in tomorrow’s economy, e.g., increasing the influence of the Islam.While emerging markets grow, limitations to productivity and decreas-ing population will make further growth in some Western countries a stretch target, triggering the evolution of values other than growth as main driver for economies. Thus, “Happiness” as objective of future economies could be another dimension countries might optimize for in the future.
Changing social values
In developed countries, a new wave of regulation has begun – reversing the deregulation trend of the past – to address an increasingly complex and interconnected business environment. Both recently deregulated sectors (e.g., utilities) and historically deregulated ones (e.g., banking) will have to deal with stricter regulatory and political frameworks. Moreover, increased consumer awareness of the interconnection between
global problems and business is changing public opinion toward major companies. This desire for a “new social contract” will create pressure for companies to actively help alleviate these global issues. In emerging countries, strong economic growth will also drive a higher level of regulation, potentially more focused on supporting investments than on breaking up monopolies.
Rebounding regulation
In developed countries a new wave of regulation is coming, to address an increasingly complex and interconnected business environment
Basic materials▪ Implementation of Kyoto
Protocol▪ US antidumping act (steel
industry)
Petroleum▪ Barriers to available resources▪ Environmental compliance
Food▪ GM▪ Advertising of junk food
Telecom▪ Pricing, bundling of Voice over
Internet Protocol (VoIP)
Insurance▪ Solvency requirements▪ Federal charter proposal in
European Union
Financial▪ Basel II capital requirements▪ Single market for retail
financial products in European Union
Transportation and logistics▪ Deregulation of rail freight
industry in Europe▪ Network access in postal and
rail
Pharmaceuticals▪ Product approval▪ Drug re-imbursement▪ Market entry of generic drugs▪ Marketing
Natural gas▪ Long-term diversified supply
Power▪ Implementation of Kyoto Prot.▪ Capacity regulation▪ Transmission regulation
(networks, distribution)
Worldwide changes are taking place in family structure and social norms
52
50
48
42
40
EasternEurope
WesternEurope
8
7
6
30
29
28
27
26
0
WesternEurope
USA
China
Single parent households are increasingPercent of households
More women are workingPercent of women working
2003 20081998 20081998 2003
24
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McKinsey Strategy Practice February 2010 Copyright © McKinsey & Company www.mckinsey.com/clientservice/strategy