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Canada in the Asian Century

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  • 1. McKinsey & Company |Canada in the Asian CenturyMay 30, 20134Front AtlanticDominic BartonGlobal Managing Director, McKinsey & Company
  • 2. McKinsey & Company | 1Topics for discussionA new Asian Century is beginning1Opportunities from Asia2Implications for all of us3
  • 3. McKinsey & Company | 2Five mega-trends reshaping the global economyPricing the planetThe productivity imperativeThe market stateThe great rebalancingThe global grid
  • 4. McKinsey & Company | 3Old Shanghai …
  • 5. McKinsey & Company | 4… new Shanghai
  • 6. McKinsey & Company | 5What will these cities look like in 10 years?Bogor, West Java, IndonesiaAnshun, Guizhou, ChinaPuducherry, India (Pondicherry)
  • 7. McKinsey & Company | 63 billion new middle class consumers by 20303 billionAsiaEuropeNorth AmericaCentral and South AmericaMiddle East and North AfricaSub-Saharan Africa20303.2320201.7420090.531.853.254.88SOURCE: McKinsey Global Institute1 Consuming class = $10 or more daily disposable income or $3,600 annual income (constant 2005 USD at purchasing power parity)Global consuming class1Billions of people
  • 8. McKinsey & Company | 7Incomes are rising in developing economies faster, and at a greater scale,than at any previous point in historySOURCE: Angus Maddison; University of Groningen; Resource Revolution: Meeting the world’s energy, materials, food,and water needs, McKinsey Global Institute, 201198401,02327482810Country1545365331700 1800 1900 2000India1216ChinaSouth Korea 10JapanGermanyUnited StatesUnited KingdomYearPopulation at startof growth periodYears to double GDP per capitaMillion
  • 9. McKinsey & Company | 8Million people135195180145Consuming classBelowconsuming class203028020202658520102404540 90Additional people inthe consuming classsince 2010In Indonesia alone, 90 million people – 2.5x Canada’s current population –will join the consuming class
  • 10. McKinsey & Company | 9SOURCE: McKinsey Global Institute Cityscope 2.0Percent contribution to global GDP growth, 2010–2025100% = $50.2 trillion6272610028GlobalgrowthEasternEurope &Central AsiaDevelopedcountriesOtheremergingregions23Middle East& Africa4LatinAmericaSoutheastAsiaSouth Asia3ChinaregionAsian citiesEmerging 440 (440 largestcities in emerging markets)440 cities in emerging markets will fuel nearly halfof the growth in global GDP through 202547%of globalgrowth440 largestemergingmarket cities=In China, 15-20 MM people move to a city each year –equal to adding New York City twice313 citiesin Asia
  • 11. McKinsey & Company | 10Middleweight cities in emerging markets will contribute4.5x more to global GDP growth than emerging market megacitiesSOURCE: McKinsey Global Institute CityScope 1.1Developed economiesEmerging market smallcities and ruralEmerging marketmegacities(10 M+ people)Emerging market middle-weight cities(150 k-10 M people)100% = $54.9 T2630836Share of global GDP growth, 2007-25Percent ExamplesSurat, GujaratWest coast of India4 million inhabitants40% of India’s textile productionFoshan, GuangdongSoutheast China4 million inhabitantsChina’s 7th largest city by GDPPekanbaru, RiauIsland of Sumatra, western Indonesia1 million inhabitants7.3% GDP CAGR expected through2030
  • 12. McKinsey & Company | 11Chengdu2010 GDP for urban clusters$ Billions`ChongqingNanningHefeiChangzhutanHangzhouNanchangShenzhenYangzi mid-lowerCoast WestShandong BylandNanjingShanghaiGuanzhongTaiyuanCentralChangchun-HarbinGuangzhou(includes Foshan)KunmingLiao central-southJingjinjiHuhehaoteCities can be grouped into clusters around a hub city – some clusters arealready economically larger than entire countries357378418469475527527GuangzhouAustriaShandongBelgiumJingjinjiSwitzerlandShanghaiSOURCE: McKinsey Global InstituteUrban clusters in China and their hub cities
  • 13. McKinsey & Company | 12Disruptive technologies will have enormous economic impact by 2025SOURCE: McKinsey Global Institute analysis0.2–0.30.1–0.50.2–0.50.2–0.60.1–0.60.7–1.60.2–1.91.7–4.51.7–6.22.7–6.25.2–6.73.7–10.8$ trillion, annualMobile InternetAutomation of knowledge workInternet of ThingsCloud technologyAdvanced roboticsAutonomous and near-autonomousvehiclesNext-generation genomicsEnergy storage3D printingAdvanced materialsAdvanced oil and gas explorationand recoveryRenewable energy
  • 14. McKinsey & Company | 13Amount of data is exploding in all sectors globally220 B photosstored1 M transactionsevery hour2 M searchesevery minute4 B page viewsevery dayMobile data traffic doubledin 2012More data transmitted onlinein 2010, than all previous yearsMore information createdthan from 0 AD-200315 out of 17U.S. sectorshave more dataper company than theU.S. Library of Congress
  • 15. McKinsey & Company | 1433%8%6%200610%201033%9%200936%201116%6%20077%25%200820%201134%10%Purchase decisions and sales are increasingly being made online –in both Western markets and in AsiaOnlineOfflineinfluencedby onlineUnited States ShanghaiOnline-related retail salesPercent of total retail sales
  • 16. McKinsey & Company | 15People will need to work longer, retire later, and engage in lifelong learning10 working adults support1 retiree20007 working adults support1 retiree20203 working adults support1 retiree2050Emerging markets
  • 17. McKinsey & Company | 16We will also face a global shortage of skilled workersand a surplus of low-skilled workers94-45-41Low-skillMedium-skillHigh-skillGlobal balance of workers, 2020EMillion workers
  • 18. McKinsey & Company | 17The continuing rise of emerging markets will further strain globalresources to an unprecedented levelWater FoodEnergyIncreasing gap betweendemand and supply offossil fuels; e.g., by 2030▪ 25% gap for oil▪ 30% gap for gas10,000 years ofhistorical foodproduction thatmust be matchedin the next 50 years~40% gap betweensupply and demand by2030
  • 19. McKinsey & Company | 18After declining over the 20th century, commodity prices have more thandoubled in the last decade4060801001201401601802002202402601990 2000 20101900 19801970196019501940193019201910World War IPostwardepressionGreatDepressionWorld War II 1970s oil shockMcKinsey Commodity Price Index (years 1999 - 2001 = 100)Turning pointin price trend
  • 20. McKinsey & Company | 19Volatility – growth will not be a straight line(there will be asset bubbles)Rising income inequality plus technologyResource scarcityInterregional conflictHealthcare challenges – pandemicsEducation does not keep pace with urbanizationRisks associated with pursuit of growth opportunities
  • 21. McKinsey & Company | 20The lifespan for companies is decreasingEstimated lifespan of S&P 500 companies, years182230459020111995197519551935
  • 22. McKinsey & Company | 21Topics for discussionA new Asian Century is beginning1Opportunities from Asia2Implications for all of us3
  • 23. McKinsey & Company | 22Seven significant opportunities from Asia▪ Consumers – $22 T consumption in emerging markets in 2025 and 2.7 Bnew middle class consumers by 2030▪ Education – 1 B Asian youth to educate in any given year and a 36 Mshortage of skilled workers in China and India by 2020▪ Infrastructure – $57 T global demand over next 18 years, with $27 Texpected spend in emerging Asia▪ Tourism – approximately 80 million outbound Chinese travelers in 2012,growing to over 110 million in 2015▪ Natural resources – 30% increase in global energy needs and 80% in steelneeds by 2030▪ Agriculture & food – 2x global increase in meat demand by 2050 due to riseof emerging markets, anticipated 60+% rise in meat consumption in China▪ Health care – a $7 trillion global industry; costs expected to triple acrossAsia by 2020
  • 24. McKinsey & Company | 23Emerging market consumption will be $30 trillion by 2025,nearly half of global total$ Trillions26341230DevelopedEmerging202564201038 Brazil 3India10China 8Total 301OtherPoland 1Turkey 1Indonesia 1MexicoRussia 23SOURCE: McKinsey Global InstituteWorld consumption Emerging market consumption in 2025
  • 25. McKinsey & Company | 24SOURCE: McKinsey analysis; Global Insight; Economist Intelligence Unit2,82320001,85819908172010+245%Asian consumers’ disposable incomes have been rapidly increasingover the last two decades+165%1990N/A201020003811,0101990+133%44620004651,0402010Indonesia+204%201020002,4647,4802,989199080247522201020001990+553%IndiaTurkey VietnamUrban ChinaPer capita disposable incomeUSD (2010 real terms)
  • 26. McKinsey & Company | 25The Chinese market already rivals Western marketsin regards to consumption2nd largest digital camera marketafter the US – more units than Japan, South Korea, andSingapore combinedFlat-screen TV sales of 50 million– 42 M sold in the US and CanadaLargest retail market for laptop computers(27 M units vs. 22 M units in the US in 2012)Laundry softener sales have grown20% annually for the past 5 years– surpassing sales in Germany and France
  • 27. McKinsey & Company | 26SOURCE: FAO World Food and Agriculture to 2030/2050; FAO Expert Meeting on How to Feed the World in 2050;McKinsey analysisGlobal growth by 2050As incomes grow, caloric intake, especially from meat, will rise892~2x4752050E2010Million tons of dairy1.44~1.5x1.002050E2010Billion tons of cereals464227~2x2050E2010Million tons of meat
  • 28. McKinsey & Company | 27China – the world’s largest market for meat at $300 B –has substantial room to grow further4550576676109130+61%JapanChinaSouth KoreaTaiwanEU-27USHong KongPer capita meat consumption 2010kilo/year5085 90 945015 10 6100% =ROWChinaDairy383Beef260Poultry173Pork400SOURCE: USDA, NBSChina’s share of consumption%, 100% = $B Total
  • 29. McKinsey & Company | 28221207922119742311977221169321109113IndonesiaIndiaChina20-2415-1910-145-90-4School-age population, 2013MillionsAgesAsia has over 1 billion people to educate at any one time436 M 583 M 110 MIndia needs to put 50million people throughvocational trainingeach year—and yethas capacity for only4 millionSOURCE: Economist Intelligence Unit
  • 30. McKinsey & Company | 29Despite growing domestic education systems, China and India will not beable to meet demand for talentSOURCE: McKinsey Global InstituteIn 202041M23M45M13Mglobal shortage of tertiary educated workersin China aloneglobal shortage of high school graduatesin India alone
  • 31. McKinsey & Company | 30050,000100,000150,000200,0002011-122010-112009-102008-092007-08International students in the United StatesChina is sending more students abroad – while other countries stagnateSOURCE: Institute of International EducationTurkeyMexicoVietnamJapanCanadaTaiwanSaudi ArabiaSouth KoreaIndiaChina
  • 32. McKinsey & Company | 3111278705731+15% p.a.+26% p.a.2012201120102005 2015EOverseas tourism has soared in China and is expected to grow furtherSOURCE: CEIC, China tourism yearbook, EuromonitorChina outbound travelersMillions
  • 33. McKinsey & Company | 32% of total respondentsSOURCE: Insights China; 2010 China Consumer Survey, focus groups; team analysisRelieving pressure and escaping to nature are Chinese travelers’top motivators631119Increase foreignexposureLearn knowledgeand cultureRelieve workpressure & relax 1044814Other (e.g., visit family)ShoppingEntertainment(e.g., karaoke)Folk cultureHistoric sitesNaturallandscape(e.g., sea,mountains)59% of respondentsThe first thing that we seek is naturallandscape, especially things that wecan’t see here such as the seaWuhan participantPrimary purpose for travelTop 3 motivations for travel
  • 34. McKinsey & Company | 33SOURCE: McKinsey Insights China; McKinsey Global Economic Growth Database; McKinsey Global Institute1 Stock of net fixed assets at the end of the year, assuming 5% depreciation rate for all the assetsDemand for infrastructure rises as income increases0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000Capital stock per capita1140120100806040200GDP per capitaUrbanChinaChinaIndiaGermanySouth KoreaJapanItalyUKUSCapital stock vs. GDP per capita by country and year, 1980–2008$ Thousands, sample of selected countries, constant 2005 prices and exchange rates
  • 35. McKinsey & Company | 34Length of expresswaysThousand kmLength of railwaysThousand kmAirportsNumber of airportsCapacity of container terminalsM TEU (20-foot equivalent units)1209078+33%202020102007China plans to rapidly expand infrastructure1006554+54%202020102007244192152+27%20202010200724013695+76%202020102007SOURCE: CIA factbook; S&P; World Bank; IWG; Difu; Yearbook of China Transportation and Communications; teamanalysis
  • 36. McKinsey & Company | 35Pudong District, Shanghai$27 trillionAsia infrastructureinvestment need2013-2030SOURCE: Lujiazui Road, Pudong District, Shanghai$57 trillionglobal infrastructureinvestment need2013-2030
  • 37. McKinsey & Company | 36Emerging markets have significant infrastructure capacity to developSOURCE: CIA World Factbook 2012; Infrastructure Africa; Economic Research Institute for ASEAN and East Asia; WorldEconomic Forum, Global Competitiveness Report 2011–2012; McKinsey Global Institute analysis36234066KazakhstanRussiaIndonesiaChinaUnited StatesGermany 181Japan 3206539237211823359747529902378DevelopingDevelopedAirportsAirports per million sq kmRailRail km per 1,000 sq kmRoadsRoad km per 1,000 sq km
  • 38. McKinsey & Company | 37SOURCE: Global Insight; IEA; UN Environment Program (UNEP); FAO; World Steel Association; McKinsey analysis398654+33%2030492201020005682020+80%1,8472,2901,2717616,350+41%5,5004,5004,000234191137287+50%Rising middle class, urbanization, and infrastructure build-up will drivestrong global resource demandFertilizerMillion tonnesWaterCubic kilometersSteelMillion tonnesPrimary energyQuadrillion BTU11 British Thermal Units
  • 39. McKinsey & Company | 38SOURCE: McKinsey 2011 global copper, iron ore, steel, and metallurgical coal models3120 +55%2,5591,935 +32%1,178837 +41%Global demand for basic materials will also rise significantlyGlobal demandMillion metric tonnesCoalIron oreCopper2010 2020
  • 40. McKinsey & Company | 39China and India will account for over 60% of the growth inenergy demand through 2030Energy demandQuadrillion BTUs (British Thermal Unit), Percent4120531Share of growth%4SOURCE: McKinsey analysis42%36% 33%28% 27% 28%20306549%100%5%2020578IndiaChinaGlobal(e.g., planes)OECD & EU-277%25%5%20104925%20%5%Rest of world25%
  • 41. McKinsey & Company | 40Topics for discussionA new Asian Century is beginning1Opportunities from Asia2Implications for all of us3
  • 42. McKinsey & Company | 41SOURCE: Compete to Win, Canada Competition Policy Review Panel, 2008What will it take to deliver to ourgrandchildren the same measureof progress we have enjoyed?We believe that it will take amore competitive mindset.We must embrace competitionas savvy and determined playerswith a focus on Canada’sinterests.We must skate harder, shootharder and keep our elbows upin the corners.
  • 43. McKinsey & Company | 42YukonBritishColumbiaAlberta ManitobaNewfoundlandand LabradorNorthwestTerritoriesNew BrunswickOntarioQuébecSaskat-chewanNunavutNova ScotiaPrince Edward Island394619 1716 1216Most Canadians do not consider our country to be part of the Asia PacificSOURCE: Asia Pacific Foundation of Canada National Opinion Poll: Canadian Views of Asia, 2012I consider Canada to be part of the Asia Pacific regionPercent in agreement17
  • 44. McKinsey & Company | 43Exports from Atlantic Canada remain heavily US-focused21275USA5China5Rest of Asia1EuropeAfrica LatAmSOURCE: Industry Canada, 2012
  • 45. McKinsey & Company | 44Australia’s curriculum reflects the imperative for the next generationto succeed in Asia Asia is a cross-subject priority from kindergarten to grade10 – English, Asian languages, history, science, and math Every Australian child will have opportunity to study an Asianlanguage (Mandarin, Hindi, Indonesian, or Japanese) Goal is to enable Australians to live, work, and learn in Asia Australian business leaders visit secondary schools to buildawareness of the importance of Asia Australia-Asia BRIDGE connects schools in both regions –400 teacher exchange, 250+ virtual classrooms
  • 46. McKinsey & Company | 45Ideas for increasing Asian awareness in Atlantic CanadaEstablish an “Atlantic Canada EDB” to increase focus on Asian FDI andenable one stop access to investment opportunities in Atlantic CanadaEstablish Asian advisory group for Atlantic Canada (comprised of 10-20Asian CEOs, meet annually for two day summit) to develop engagementstrategy and provide direct linkageLaunch annual roadshow for Asian investors (e.g., Victor Chu, Far EasternFinance) to engage with opportunities in Atlantic Canada (led by ‘EDB’)Cluster SMEs with larger companies on Asian investment trips (e.g., similar toSiemens approach)Establish city pairings (top 10 Atlantic Canada cities with 10 rapidly developingcities in Asia) to increase awareness, enable student exchanges etc.Increase two-way awareness through targeted education initiatives▪ Boost foreign student intake (tertiary, vocational, language) by 50% (9,000)▪ Expand student exchange programs for both secondary and tertiary students(consider making mandatory in select tertiary disciplines)▪ Develop “Canadian boot camp” for Asian CEOsDevelop Asia-specific tourism initiatives for Chinese, Japanese andKorean markets (e.g., Atlantic Canada 2015 campaigns)11223377445566
  • 47. McKinsey & Company | 46SOURCE: Press searchCollaborationUniversities Local companiesSilicon ValleyBostonZhongguancunTel Aviv
  • 48. McKinsey & Company | 47A through-cycle, dedicated, tri-sector approach is neededto capture the opportunity in AsiaCoordinated relationship building▪ Identify key decision-makers(business, government,regulatory, etc.) in target markets▪ Recruit domestic leaders to buildrelationships in a coordinatedfashionSupport strategic objectives▪ Counsel policymakers on goalsand strategic initiatives related toforeign partnerships▪ Secure the right participants forevents and trade missions▪ Proactively cultivate FDI andsupport companies in findingsuitable business partners▪ Federal Minister for Asia– Cabinet rank– Responsible for wholeof Asia agenda– Cuts across ministries▪ Provincial leaders▪ Educational institutions– Universities– Schools▪ Cultural– Cirque du Soleil– Music– Sports▪ NGOsR&D – from1.8% to 2.5%of GDPBusinessGovernmentSocialsector
  • 49. McKinsey & Company | 48Foreign companies have benefited from long-term, dependable supportfrom their governments in making deals with ChinaSOURCE: Press searchHollande is returning to Paris with no less than 18business deals with Beijing, including contracts for60 Airbuses and a nuclear projectChina buys 50 Airbus jets worth up to $4 billionduring Merkel visitObama attends Boeing signing ceremony inIndonesia for deal worth up to $35 billion
  • 50. McKinsey & Company | 49SOURCE: “International Education: A Key Driver of Canada’s Future Prosperity,” Advisory Panel onCanada’s International Education Strategy, August 2012; Government of Quebec49UnitedKingdomUnitedStatesCanadaAustraliaInternational studentmarket share (est.)Percent1018513InternationalstudentsNumber428,000723,000240,000557,0003 out of 5university/collegeinternational studentsin Australia began theirstudies in an Australianlanguage, technical orother schoolThere is great opportunity to grow education as a major export to Asia
  • 51. McKinsey & Company | 50Canada has an opportunity to capture a much higher shareof Chinese travellersMongolia 0.3Canada0.30.3Germany0.40.4Indonesia 0.6United Kingdom1.1CambodiaThailandAustraliaSingapore1.51.21.0USARussia0.70.8Vietnam1.4FranceSouth Korea1.62.41.81.7TaiwanJapanMalaysiaSOURCE: CEIC, China tourism yearbook, Euromonitor (2011)China international travellers by destinationMillions, 2011
  • 52. McKinsey & Company | 511. Thailand2. Hong Kong (Macau)3. Europe4. South Korea5. Taiwan6. Malaysia7. Singapore8. Australia9. Bali10. JapanSOURCE: Ctrip survey 2/2013; China Tourism Academy “China outbound travel satisfaction survey”Singapore 79.5Germany 80.0South Africa 80.2Brazil 80.3Agentina 81.0France 82.3New Zealand 82.5Spain 82.6Italy 82.7Canada 84.5Canada is not a high priority destination for Chinese travelers –but those who do visit Canada enjoy itChinese tourist satisfaction rateTop 10 most requested destinationsfor Chinese outbound travelersAlthough an government-approveddestination for Chinese tour operators,Canada is not in the top 20 destinations
  • 53. McKinsey & Company | 52Years to break even Years to break even11784108Successful companies adopt a long-term investment mindsetto build a sizeable, profitable businessSOURCE: Press search; company reports779874
  • 54. McKinsey & Company | 53Leadership in a new eraReady for“trend breaks”Tri-sectorathleteReceptorand connectorStrongsense ofpurposeCalm in theeye of thehurricaneAlways onTelescope andmicroscopeMarathonand asprintRolePersonalattributes

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