Penny Burtt Slide - megatrends

“Tomorrow Belongs to those who prepare for it today – mega trends that will shape the next 20 years”

Presentation at Australian Institute of Company DirectorsDirecting in the Asian Century

Singapore, May 8, 2013

CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited

McKinsey & Company | 2

China World Wide WebG7

Twenty years ago . . .

2


. . . who would have imagined?

G20 Mobile WebChina

3


More than 50% of chief executives believe that, in the next 10 years, their business model will undergo fundamental transformation

4


The Great Rebalancing

5


+50% of GDP growth over the next 10 years will come from

non-OECD countries

6


1.3 million a week

7


New ShenzhenOld Shenzhen


Globally, the number of megacities will double over the next 10 to 20 years

SOURCE: United Nations; World Urbanization Prospects 2007; McKinsey Global Institute China All City Model; McKinsey Global Institute analysis

1 Cities with 10 million or more inhabitants

Mumbai

Delhi

New York

Los Angeles

Mexico City

Osaka-KobeTokyo

Paris

Rio de Janeiro

São Paulo

Manila

Cairo

Istanbul

Moscow

Buenos Aires

Beijing

London

Seoul

Kinshasa

Lagos

Dhaka

Karachi

Bogota

Tehran

Lima

Jakarta

Hyperabad

Bangalore

Ahmadabad

Chennai

Hangzhou

Shenzhen

Shanghai

Guangzhou

Tianjin

Wuhan

Lahore ChongqingChengdu

Xi’an

Kolkata

Megacities1 2007

Additional megacities by 2025

9


The urbanisation will result in the emergence of 3 billion middle class consumers

525

1,740

3,228

10532

4,884

234107

313

680

322

2020

3,249

165 57

251

703

333

2009

1,845

181

664

338

2030

Middle East andNorth Africa

Sub-Saharan Africa

Asia-Pacific

Central andSouth America

Europe

North America

Global middle classMillions of people

10


100

48

TotalDeveloping economies

52

Developedeconomies

SOURCE: Global Insight; EIU; MGI

A tidal wave of consumption

Private consumption growth, 2008-2025Percent, 100% = 16.6 trillion dollars

With an average per capita spend of just 15% of that of developed nations, we can expect to see radical innovations in business models

11

McKinsey & Company | 12SOURCE: BoA Merrill Lynch Wireless Matrix 3Q 2009

Airtel went from a regional Indian telco to one of the world leading mobile operators

▪ 5x lower per-minute prices, but same margins as western telcos

▪ Relentless acquisitions

▪ 200M subscribers globally, 5th largest global wireless carrier

Low cost does not necessarily mean low margins

12


Top 5 construction equipment manufacturers by revenue, 2009$ billions

Top 5 volume producer of high selling construction equipment SKU Wheel Loaders, units, 000s

SOURCE: Bloomberg; Company Website

Major value-volume disconnects emerging

Chinese manu-facturers supply more than one-third of emerging market demand

4510

15

32

TerexVolvoLieb-herr

Kom-atsu

Cater-pillar

182024

2930

Lin-gong

Cater-pillar

XGMCLiu-gong

Lon-king

13


20

60

80

40

Profit

100

Growth

100

GDP growth, 2009-2023Percent

GDP share, 2023Percent

65%OECD

SOURCE: IHS Global Insight, disguised client example

MNCs must wrestle with the disparity between long-term growth and near term profits …

Disguised company example:Revenue growth vs. profits

OECDNon-OECD

100%= $26 T

100%=$76 T

4654

65

35

14


Pricing the Planet


An expected +30%increase in resourceconsumption by 2020

+50% of oil reserves in just 4 countries – Iran, Iraq, Venezuela, and Saudi Arabia

Not just oil, but across commodities—metals, water, food, and other resources

16


2006 2020

“Clean” energy

Fossilfuels

100% = QBTU

464

~22%~21%

624

17


Entire industries shifting

SOURCE: McKinsey steel model

1 Profit pool calculated based on EBITDA x demand/production, calculated for 12 major regions, with EBITD based on historical highs and lows by region and product

11

22

31

8 15 17

41

78

7

81

28

61

Profit pool1 split, HRCEBITDA in USD billions, Percent

Iron oreCoking coal

Steel-Making

1995 2000 2005 2009

18


Resource conservation going mainstream

ManufacturingAgricultureLogistics

No left turns…

28.5 million fewer delivery route miles

3 million gallons of saved gas

31,000 metric tons reduced CO2 emissions

2% reduced fuel cost

+ 60% of global water goes to agriculture, most is wasted▪ Low-cost irrigation

technologies can double yields while reducing water usage 50-75%

SOURCE: NY Times; McKinsey Water Initiative; UNESCO; WBCSD; IWMI-Summary of Comprehensive Assessment in Agriculture; executive summary of the WWDR. World Bank, 2001, Washington DC; UNESCO; FAPRI (2008); London Science Museum

Direct Panel on Loom CAD technology weaves exactly-shaped fabric panels – no cutting, no scraps▪ 15-20% less fabric▪ 70-80% less water ▪ 50% shorter lead time

19


Surprising “green” technologies

Genetically Modified FoodsFewer pesticides Less H2O usage

Less land useLower carbon footprint

Already +20% of developed world crops

0

50

100

150

200

250

300

1980 1990 2000 2010 2020 2030

Yield increase from GMOsBushels per acre

ILLUSTRATIVE

Potential of 2x yield growth from GMOs vs. conventional breeding

Trend yield growth from conventional breeding

20


The Global Grid and next wave of technology to drive productivity

21


Two decades of growth . . .

Compound Annual Growth Rate*, 1990-2005Percent

GDPTradeflows

Capital flows

5%

7.4%

10.7%

22

McKinsey & Company | 23SOURCE: IMF 23

Late 2000s


North America

l

Rest of world

Europe

Asia1 and Australia

Japan

Middle East167

24

14

29

45

27 41

30 13

-2

18

42

15

A world in which non-US capital flows are out-growing US flowsGlobal cross-border capital stock flow 2001- 07, select flowsCAGR %

1 14 countries – Japan, China, Hong Kong, Singapore, Australia, South Korea, Malaysia, Thailand, India, Indonesia, Taiwan, Macao, Philippines, and Vietnam

SOURCE: McKinsey Global Institute Cross-Border Investments Database; team analysis 24


Fully global supply chain – where did your iPhone come from?

Foxconn City (Longhua, PRC)Home of 300,000 workers

Foxconn ▪ $62b revenue▪ 920,000 employees

New York City

Apple▪ $65b revenue▪ 49,000 employees

SOURCE: Bloomberg; Apple; Foxconn; Wikipedia; press search 25


Somalia

Tanzania

Ethiopia

KenyaUganda

26


Companies increasingly born global

▪ Launched by a Swede and a Dane in Luxembourg in 2003

▪ Is the largest (12%) provider of cross border communications in the world – without a network infrastructure

▪ Partnered with international telecom operators to expand reach

▪ 40 M international users online at peak times

27SOURCE: Company Web sites; press search


Worldwide installed network devices, 2014

“The Internet of Things” will change the ways companies do business

Networked devices(RFID tags/Sensors)

20-50 B

Industrial(e.g., Auto, utilitymetering, buildings, retail, banking)

412M

Mobile devices accessing internet

1.7 B

Explosion in the network of users, objects, and information

Devices accessing Internet

10 B

28SOURCE: Analysis Mason, Press search, Network World August 16, 2010; Juniper Research 1/19/ 2010 press release,

http://www.juniperresearch.com/reports/embedded_mobile_&_M2M_%20Strategies , Business Week 6/29/2009: “Online Gizmos Could Top 50 Billion in 2020”, http://www.socialmachinery.com/2009/10/27/50-billion-devices-connected-by-2020/,

http://www.juniperresearch.com/reports/embedded_mobile_&_M2M_%20Strategies

http://www.socialmachinery.com/2009/10/27/50-billion-devices-connected-by-2020/


Cutting-edge technology has enabled signifi-cant productivity gains in leading companies in the worldTechnology

Telemetric sensors allows measurements to be made at a distance, via radio wave or IP network transmission

Reduce supply costs by 12%, 10 - 15%

fleet size reduction

Global Positioning System GE Transportation uses GPS for monitoring transportation equipment and cargo, and transaction support (e.g., pre-clearing fuel taxes)

Company Application Sample Impact

A sensor-enabled telemetric solution was attached to BP’s railcars to optimize fleet management

Increase efficiency of

liquid petroleum tanks by 25%

space-based satellite navigation system that provides location and time information in all weather

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What happens next?

“If the burden of leadership in the modern age can seem overwhelming, the good news is that the potential benefits are overwhelming too. The flip side of all the chaos, complexity and pressure is that large organizations – if led well – can do more for more people than at any other moment in human history. Leaders who understand their role and how to leverage it in this rapidly changing context, have the opportunity to change the world in ways their predecessors never imagined.”

-- Dan Vasella, Chairman Novartis

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Penny Burtt Slide - megatrends

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