Our research shows that the emerging economies’ share of Fortune Global 500 companies will probably jump to more than 45 percent by 2025, up from just 5 percent in 2000. That’s because while three-quarters of the world’s 8,000 companies with annual revenue of $1 billion or more are today based in developed economies, we forecast that an additional 7,000 could reach that size in little more than a decade—and 70 percent of them will most likely come from emerging markets. To put this dramatic shift in the balance of global corporate power in perspective, remember that many of the world’s largest companies have maintained their current status for generations: more than 40 percent of the 150 Western European companies in last year’s Fortune Global 500 had been founded before 1900. … The rebalancing of the global business landscape will probably be even faster and more dramatic than the shift of economic growth to emerging regions. Large companies matter, and not just for their ability to create jobs and generate higher incomes; they are also forces for increased productivity, innovation, standard setting, and the dissemination of skills and technology. Their geographic shift will have profound implications for the nature of competition, including not only the race for resources and talent but also, more broadly, the emerging markets’ efforts to reach the next level of economic development and prosperity.
Our central finding is that the hype may actually understate the full potential—but that capturing it will require an understanding of where real value can be created and a successful effort to address a set of systems issues, including interoperability. ... To get a broader view of the IoT’s potential benefits and challenges across the global economy, we analyzed more than 150 use cases, ranging from people whose devices monitor health and wellness to manufacturers that utilize sensors to optimize the maintenance of equipment and protect the safety of workers. Our bottom-up analysis for the applications we size estimates that the IoT has a total potential economic impact of $3.9 trillion to $11.1 trillion a year by 2025. At the top end, that level of value—including the consumer surplus—would be equivalent to about 11 percent of the world economy ... Achieving this kind of impact would require certain conditions to be in place, notably overcoming the technical, organizational, and regulatory hurdles. In particular, companies that use IoT technology will play a critical role in developing the right systems and processes to maximize its value. ... The digitization of machines, vehicles, and other elements of the physical world is a powerful idea. Even at this early stage, the IoT is starting to have a real impact by changing how goods are made and distributed, how products are serviced and refined, and how doctors and patients manage health and wellness. But capturing the full potential of IoT applications will require innovation in technologies and business models, as well as investment in new capabilities and talent. With policy actions to encourage interoperability, ensure security, and protect privacy and property rights, the Internet of Things can begin to reach its full potential—especially if leaders truly embrace data-driven decision making.
From 1980 to 2013, vast markets opened around the world while corporate-tax rates, borrowing costs, and the price of labor, equipment, and technology all fell. The net profits posted by the world’s largest companies more than tripled in real terms from $2 trillion in 1980 to $7.2 trillion by 2013,1 pushing corporate profits as a share of global GDP from 7.6 percent to almost 10 percent. Today, companies from advanced economies still earn more than two-thirds of global profits, and Western firms are the world’s most profitable. Multinationals have benefited from rising consumption and industrial investment, the availability of low-cost labor, and more globalized supply chains. ... But there are indications of a very significant change in the nature of global competition and the economic environment. While global revenue could increase by some 40 percent, reaching $185 trillion by 2025, profit growth is coming under pressure. This could cause the real-growth rate for the corporate-profit pool to fall from around 5 percent to 1 percent, practically the same share as in 1980, before the boom began. ... Profits are shifting from heavy industry to idea-intensive sectors that revolve around R&D, brands, software, and algorithms. Sectors such as finance, information technology, media, and pharmaceuticals—which have the highest margins—are developing a winner-take-all dynamic, with a wide gap between the most profitable companies and everyone else. Meanwhile, margins are being squeezed in capital-intensive industries, where operational efficiency has become critical. ... As profit growth slows, there will be more companies fighting for a smaller slice of the pie, and incumbent industry leaders cannot focus simply on defending their market niche.
The events of 2015 have shown that China is passing through a challenging transition: the labor-force expansion and surging investment that propelled three decades of growth are now weakening. This is a natural stage in the country’s economic development. Yet it raises questions such as how drastically the expansion of GDP will slow down and whether the country can tap new sources of growth. ... to realize consensus growth forecasts—5.5 to 6.5 percent a year—during the coming decade, China must generate two to three percentage points of annual GDP growth through innovation, broadly defined. If it does, innovation could contribute much of the $3 trillion to $5 trillion a year to GDP by 2025. China will have evolved from an “innovation sponge,” absorbing and adapting existing technology and knowledge from around the world, into a global innovation leader. Our analysis suggests that this transformation is possible, though far from inevitable. ... To develop a clearer view of this potential, we identified four innovation archetypes: customer focused, efficiency driven, engineering based, and science based. We then compared the actual global revenues of individual industries with what we would expect them to generate given China’s share of global GDP (12 percent in 2013). As the exhibit shows, Chinese companies that rely on customer-focused and efficiency-driven innovation—in industries such as household appliances, Internet software and services, solar panels, and construction machinery—perform relatively well.
1. Customer-focused innovation: The Chinese commercialization machine
2. Efficiency-driven innovation: The ecosystem advantage
3. Engineering-based innovation in ‘learning industries’
4. Science-based innovation: Novel Chinese approaches
- Also: McKinsey - Gauging the strength of Chinese innovation (FULL REPORT) > 15min
- Also: Re/code - No. 1 Producer, No. 1 Consumer (Book Excerpt) < 5min
- Also: Wall Street Journal - How Chinese Stocks Fell to Earth: ‘My Hairdresser Said It Was a Bull Market’ < 5min
- Also: Financial Times - China migration: At the turning point < 5min
Until the turn of this century, population growth generated more than half of all global consumption. But between 2015 and 2030, three-quarters of global consumption growth will be driven by individuals spending more. This shift has profound implications for companies. What’s now important are emerging demographics: the latest report from the McKinsey Global Institute (MGI) finds that nine groups will generate three-quarters of global urban consumption growth to 2030, and just three of these will generate half of consumption growth and have the power to reshape global consumer markets over the next 15 years.
1. The retiring and elderly in developed economies
2. China’s working-age population
3. North America’s working-age population
Tracking consumer attitudes and behavior is not sufficient if companies are going to capture key consumer markets. They need to understand the core drivers of consumption such as income and age, characteristics such as ethnic mix and education, and the timing of key decisions such as getting married, having children, and buying a house.
Conventional wisdom says that globalization has stalled. But although the global goods trade has flattened and cross-border capital flows have declined sharply since 2008, globalization is not heading into reverse. Rather, it is entering a new phase defined by soaring flows of data and information. ... Remarkably, digital flows—which were practically nonexistent just 15 years ago—now exert a larger impact on GDP growth than the centuries-old trade in goods ... although this shift makes it possible for companies to reach international markets with less capital-intensive business models, it poses new risks and policy challenges as well. ... The world is more connected than ever, but the nature of its connections has changed in a fundamental way. The amount of cross-border bandwidth that is used has grown 45 times larger since 2005. It is projected to increase by an additional nine times over the next five years as flows of information, searches, communication, video, transactions, and intracompany traffic continue to surge. In addition to transmitting valuable streams of information and ideas in their own right, data flows enable the movement of goods, services, finance, and people. Virtually every type of cross-border transaction now has a digital component.
While the United States may be outperforming other advanced economies, it is underperforming relative to its own potential. Slower growth has been feeding on itself in a vicious cycle of weak demand, low investment, and slowing productivity growth. In real terms, the median US household income is back at its level of two decades ago. Meanwhile, the vast majority of income gains have gone to households in the top quintile, which do not have the same propensity to spend. This in turn hobbles aggregate demand in the short term—and when businesses do not see the need to invest, it reinforces the cycle. US productivity growth recently turned negative for the first time in 30 years. ... A new briefing paper from the McKinsey Global Institute, The US economy: An agenda for inclusive growth, suggests that the United States can regain its dynamism and restore the sense that everyone is advancing together. This effort can take many forms: reengaging more workers in the labor force, enabling them to move to more productive jobs and locations, creating an environment that fosters new business formation and healthy competition, and helping declining cities reinvent themselves. When the economy is firing on all cylinders, income gains tend to be more broad-based and less easily concentrated.
- Globalization and trade
- America’s cities
- A resource revolution
During the 2003–15 commodity supercycle, spending on resources including oil, natural gas, thermal coal, iron ore, and copper rose above 6 percent of global GDP for only the second time in a century before abruptly reversing course. Less noticed than these price gyrations have been fundamental changes in supply and demand for resources brought about by expected macroeconomic trends and less predictable technological innovation. Our analysis shows that these developments will have major effects on resource production and consumption over the next two decades, potentially delivering significant benefits to the global economy and bringing change to the resource sector.
-Rapid advances in automation technologies such as artificial intelligence, robotics, analytics, and the Internet of Things are beginning to transform the way resources are produced and consumed.
-Scenarios we modeled show that adoption of these technologies could unlock cost savings of between $900 billion and $1.6 trillion in 2035, equivalent to the GDP of Indonesia or, at the upper end, Canada. Total primary energy demand growth will slow or peak by 2035, despite growing GDP, according to our analysis.
-The price correlation that was evident during the supercycle is unraveling, and a divergence in prospects between growth commodities and declining ones may become more significant.
-Policy makers could capture the productivity benefits of this resource revolution by embracing technological change and allowing a nation’s energy mix to shift freely, even as they address the disruptive effects of the transition on employment and demand.
-For resource companies, particularly incumbents, navigating a future with more uncertainty and fewer sources of growth will require a focus on agility.