“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
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China World Wide WebG7
Twenty years ago . . .
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. . . who would have imagined?
G20 Mobile WebChina
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More than 50% of chief executives believe that, in the next 10 years, their business model will undergo fundamental transformation
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The Great Rebalancing
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+50% of GDP growth over the next 10 years will come from
non-OECD countries
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1.3 million a week
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New ShenzhenOld Shenzhen
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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
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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
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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
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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
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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
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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
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Pricing the Planet
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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
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2006 2020
“Clean” energy
Fossilfuels
100% = QBTU
464
~22%~21%
624
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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
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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
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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
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The Global Grid and next wave of technology to drive productivity
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Two decades of growth . . .
Compound Annual Growth Rate*, 1990-2005Percent
GDPTradeflows
Capital flows
5%
7.4%
10.7%
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Late 2000s
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North America
l
Rest of world
Europe
Asia1 and Australia
Japan
Middle East167
24
14
29
45
27 41
30 13
-2
18
42
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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
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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
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Somalia
Tanzania
Ethiopia
KenyaUganda
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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
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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/,
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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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